Samson Oil and Gas: 10 Bagger

 |  Includes: CHK, HAL, SSN
by: Michael Filloon

We have seen plenty of info on Samson Oil and Gas (NYSEMKT:SSN) lately; it seems to be developing a cult-like following, which is to be expected as this stock is up %1046 over the past year. Samson has two locations it is focusing on: One small position in the Bakken, and a sizable piece in the Niobrara.

Its Bakken position is 1,200 net acres. This area has proven production within the immediate area that is adjacent to 2,000-3,000 BOPD wells. Samson states that it is looking to increase its McKenzie County holdings in the near term. It has completed the development stage of this holding. It has two wells waiting on frac, scheduled for February: One 5,000-foot well to complete on 640-acre spacing and four additional 10,000-foot wells to complete on 320-acre spacing.

SSN's Niobrara position has been what many are speculating on. Samson initially inked a deal with Chesapeake (NYSE:CHK), and a short time later announced a deal with Haliburton (NYSE:HAL), followed by yet another deal with with Cnooc (NYSE:CEO). All of this has been very bullish for Samson's stock in the short term.

Even with all the excitement with respect to Samson's stock moving upward, there has been a significant position of shorts building also. Even more recently, another more precise article on the value of Samson's stock was written with respect to valuation. Zman and Toby Shute have both done a very good job of giving investors an idea of what this company is truly worth, although from opposite viewpoints.

Other catalysts have been research reports from two separate companies. Enercom released an August 2010 catalyst report that was bullish on the stock, followed by a Hartley's report in November 2010. Enercom released another report in December 2010 that more fully described its position on Samson's valuation, while Hartley's reported again on Jan. 27. All of the reports listed can be found here.

Samson currently has its 3-D seismic done on the Niobrara play. It has completed the 24,000-acre sale for $74 million. HAL has been farmed in. Two appraisal wells are fully carried and now it just needs to develop the resource. As stated in earlier articles, it is looking to sell its Rockies gas assets. After the JV with HAL, it has 14,000 net acres. CHK has two rigs running. Samson has $10.3 million in debt and $68.6 million in cash.

SSN's Bakken and Niobrara holdings are similar in several ways. They both have been productive with respect to vertical wells. They are thermally mature, and bounded by shale seals. Both are naturally fractured and have modest clay content. For these and other reasons, Samson, Chesapeake, and Haliburton seem to believe the horizontal technology applied to the Bakken can also be used on the Niobrara. Samson states that the Bakken is capable of producing 30-40 million barrels of oil per square mile and the Niobrara will be able to produce 10-20 million over the same area.

In Hawk Springs there are several big players such as:

  • EOG Resources (NYSE:EOG): 400,000 acres
  • Noble Energy (NYSE:NBL): 750,000 acres
  • Chesapeake: 800,000 acres
  • SM Energy (NYSE:SM): 25,000 acres
  • CNOOC: $1.27 billion investment
  • Samson Oil and Gas: 14,000 acres and two new 5,000 foot laterals carried

In Samson's most recent presentation, it stated several positions with respect to the net barrels of oil translated to it by its position in the Niobrara:

  • Robert Coskey: 10.9-21.9 million net barrels
  • Samson's estimate: 36.1 million net barrels
  • Chesapeake's estimate: 109 million net barrels

On page 20 of this presentation, Samson states it is attributing 413,000 Bbls per well with 160-acre spacing, with recovery of 2,581 bbls per acre. Its net 14,000 acres would produce a NPV-10 $682 million, or $8.21 per ADS. Samson states that the value metrics may change, so this value may not be accurate and is only to be used as an estimate. But these numbers do correlate with the last Enercom report, with a final estimate with respect to Bakken production per well, ultimate recovery of 750,000 barrels and the Niobrara 413,000 barrels.

In summary, these numbers may or may not be a disappointment to share holders as many were very optimistic with respect to Samson's possible holdings. I do believe this stock is fairly valued here, and we have upside over the next few months. It must be said that if Samson has any disappointments with respect to its acreage, it will see a sharp move down with respect to stock price and market cap.

Disclosure: I am long SSN.