Saratoga Resources (SARA) is not a sexy shale player. They don’t drill two mile long horizontal laterals in the Bakken that produce 3,000 BOEPD, or pad drill the super liquids rich areas of the Marcellus. It seems conventional oil and natural gas stories like Saratoga have been lost in the flurry of unconventional resource plays of the onshore U.S. – but let’s not forget what drives this industry: returns. And, Saratoga is a low-cost producer coastal Louisiana player that is growing production in a proven region.
Saratoga 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. If you like long-life reserves and high probabilities of success, SARA is drilling them.
“Deep-water” for Saratoga equates to about 20 feet of water. Keep in mind, there are no federal leases in this area which means no permit delays from the BOEMRE. The company owns all zones and all depths on approximately 32,000 net acres, 93% of which is held by production (HBP).
A quick snapshot of the company:
- Shares Outstanding: ~30.6 million
- Market Cap: $180 million
- Q2’12 Net Production: 3,500 BOEPD (59% oil)
- Proved Reserves: 19 MMBOE (42% oil)
For now, the company is targeting shallow geologic zones, up to about 5,000 feet, where the company estimates over 50 Bcf of potential. Approximately 75% of the company’s reserves are proved undeveloped (PUDs) leading SARA to primarily focus on converting its PUD and proved developed not producing (PDNP) reserves. In addition to its exploration and production program, SARA has deployed a recompletion and workover program which takes little capital to enhance production.
Over the longer term, option value exists with the company’s deep and ultra-deep prospects with approximately 10 Tcfe of potential. Keep in mind, the majority of this acreage is HBP allowing the company not only the option to explore these zones at a later date, but it also allows them to control which commodities they want to drill and produce given the current commodity environment.
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Recent Financial Results
During Q2’12, SARA reported net income of $0.9 million, or $0.03 per share, compared to Q2’11 net income of $2.8 million, or $0.12 per share. Oil and gas revenues for Q2’12 totaled $23.8 million, an increase of 27% compared to Q2’11. The increase in revenue was primarily attributable to a 27% YOY increase of SARA’s average daily net production to 3,539 BOEPD during Q2’12.
A Few Numbers to Mention
- According to EnerCom’s E&P database of 88 companies, Saratoga’s 3-Year F&D cost is $5.46 per BOE compared to the database average of $25.86 per BOE.
- Capital Efficiency is the measurement of cash flow generated for every dollar of investment and is calculated as (trailing twelve month EBITDA / trailing twelve month production) / 3-Year F&D cost per BOE. For the period ended March 31, 2012, SARA’s Capital Efficiency ratio was 703%. Said another way, SARA generates $7.03 for every $1.00 of investment. The average for the group is 273%.
Conference Webcast Details
Saratoga Resources presented at EnerCom’s The Oil & Gas Conference® 17. Click here to listen to the webcast.
Final Thoughts on Saratoga
Over the last 18 months, the company strengthened its balance sheet adding nearly $182 million through three financings ($127.5 million senior notes and two private placements of common stock totaling $54.3 million). This allowed the company to pay down debt and substantially enhance its cash position to fund future growth. As the company continues to grow its oil-weighted production which will in turn drive cash flow, SARA is in a stable position to efficiently work through its low risk, abundant opportunities in the transition zone of the Gulf of Mexico.
