Last week, Samson Oil & Gas (SSN) made a presentation at Enercom. Since then, the name has been running pretty strongly. Since I've been asked a number of times about the reason for this run, I thought I'd put a few points on paper. The reasons for this run-up range from offset operators drilling wells near Samson's position to other large cap E&P companies taking new positions adjacent to Samon's acreage.
Offset Operator Success. Chesapeake (CHK) has drilled six wells and fracced two of them on the Niobrara acreage acquired from SSN late last year. CHK is building six 400 barrel tanks at each well site (SSN says they have the photos) which is a pretty good sign of success. We have heard that CHK has been trucking oil north to a terminal for several weeks now. While we have heard of multiple successess of late in the Wattenberg Field to the south, this is the latest and best piece of local color available so far. Note that SSN has said they can argue that they kept the best part of the position for themselves.
Other Operators Coming Into the Immediate Area. Devon (DVN) is acquiring 3D seismic directly adjacent to and southwest of the SSN Goshen county position. This is likely the rumored big cap E&P buyer of acreage to the south of SSN and points yet again to the demand for real estate by the big boys in this area.
Samson Plans to Fill in the Holes in Their Acreage. SSN is looking to add another 4,000 net acres in the Niobrara that is covered by their recently shot 3D, so they are filling in the doughnut holes in their position.
Getting Back to Business in the Bakken. In the Williston Basin, Samson has been stalled over the winter due to frac crew availabilty for its two drilled but not yet completed Bakken wells. SSN has firmed up frac dates and said they will frac those two long delayed wells in March. Also, 2011 will see them add more acreage to the play (probably another six sections) as well as test some thoughts on mid length laterals on tighter sapcing (320 acres vs the current 1 well per 640 acres), so we may seem them double the well count on their current 6 sections.
Balance Sheet Remains Solid. SSN mentioned they will be selling some gas assets in the near term (they had previously said 1H11) and I have those in the model for a fairly negligible amount. Also, they will repay the last of their debt ($10 mm) from their cash balance ($68 mm) in May.
Lastly, the stock may be running because of a market that is hot for oily names and understands that the following thoughts would prove positive to SSN:
- The first is that EOG has started talking about the Niobrara play as a matrix flow play, which would imply more homogenous results than that of a play dominated by areas of more or less fracture intensity (hot spots). So if you crack the completion code, your acreage, as a whole, would be more valuable.
- Their last presentation put three sets of possible EURs on future Niobrara wells, including the 413 MBO per well they have been using for quite some time. The NPV of that gets you to about $8 per share before you consider cash, Bakken, and other assets. If you haircut, that's $4 and still a bit higher than here, but the math is probably getting simple enough, along with the rally itself, to inspire some people to add to or initiate positions.
- And lastly, we have heard that the company will be traveling with a sell-side firm in March that presently does not have official coverage of the name. I'd ask you this: If you were a salesman slogging around the U.S. with a management team, putting clients in the name, would you consider doing so if you thought your analyst was going to come with anything less than a report which offered upside to current levels? Yeah, me either.