Saratoga Resources Inc. (ticker: SARA) concentrates on abundant, low-risk drilling opportunities located in the transition zone off the coast of Louisiana. In some places, including the company’s Grand Bay field, approximately 64 stacked pay sands exist with wells that have been producing for over 50 years. The company owns all zones and all depths on approximately 32,119 net acres, 93% of which is held by production (HBP). Below, OAG360 wanted to highlight Saratoga’s five key operational highlights.
- Low Finding and Development Cost (F&D). Saratoga’s 3-year Finding and Development Cost is $5.46 per barrel – the third lowest F&D cost out of EnerCom’s database of 95 E&P companies. The first is Evolution Petroleum (ticker: EPM) with $1.44 per barrel and second is Range Resources (ticker: RRC) with $5.04 per barrel. Why is SARA’s 3-year F&D so low? SARA’s proved undeveloped reserves percentage (PUD%) is 78%, higher than the the 95 company average of 44%, which carries a large impact when calculating F&D cost. Nonetheless, in the oil and gas business, a low F&D cost makes a lot of things “easier” including making profits. OAG360 notes that SARA’s 2011 future development cost is $11.94 per barrel.
- Asset Intensity. SARA’s asset intensity is 24% compared to the E&P database average of 90%. A quick recap: asset intensity is the amount of free cash flow that a company must reinvest to hold production flat and is calculated as trailing twelve month production multiplied by 3-Year F&D cost all divided by trailing twelve month cash flow from operations. What does this mean? SARA can invest 86% of its remaining cash flow into its growth projects on the Gulf Coast.
- Oil weighting. Approximately 60% of SARA’s reserves and production are crude oil. Since SARA’s core operations are on the Gulf Coast, the company’s crude is priced at Louisiana Light Sweet (LLS) which trades at a discount to Brent crude oil pricing. At the time of posting, LLS was trading at $111.54 per barrel and Brent was trading at $107.98 per barrel.
- Trailing Twelve Months (TTM) Capital Efficiency. SARA’s TTM Capital Efficiency is 649% meaning for every $1.00 that SARA puts into the ground, SARA is generating $6.49 of EBITDA. The average for our database of 95 E&P companies is 280%.
- TTM Cash Margin per Barrel. Is the company making any money? SARA’s TTM Cash Margin per Barrel is $21.54 compared to the industry average of $26.16 per barrel. This is slightly lower than the industry average primarily attributable to SARA’s debt level. As of December 14, 2012, SARA has a debt to market capitalization of 114%. In short, although SARA has a higher than average debt to market capitalization, the company is still able to generate industry average cash margins.
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SARA will remain focused on adding new oil production from its development projects and other projects in SARA’s development pipeline during 2013. Even though the company has a large inventory of natural gas development opportunities that are economic at today’s pricing, the significant premium SARA is enjoying from its LLS pricing outpaces its natural gas focus.
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