KKR And The (Dismal) State Of Samson Resource's Oil And Gas Production

Dec. 17, 2015 8:36 AM ETKKR & Co. Inc. (KKR)11 Comments
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Summary

  • The poor state of Samson Resource's oil and gas production will continue to complicate bankruptcy proceedings for KKR and debtholders.
  • The value of its assets are declining with time as oil and gas production continues to drop and oil and gas prices remain low.
  • The company has no active drilling rigs and has not added a well since May of this year.

KKRPrivate equity firm KKR (NYSE:NYSE:KKR) announced the purchase of the bulk of oil and gas producer Samson Investment Company's onshore US assets in a 2011 deal for $7.2 billion. The acquisition occurred during a shale asset frenzy of sorts, when oil prices were near $100 per barrel, and small independent shale oil producers were being acquired despite PE ratios that were often above 50 and little to no positive cash flow. Fast forward four years and Samson, now called Samson Resources Corporation under KKR's ownership, has filed for bankruptcy and is currently undergoing restructuring. The August 2015 announcement that Samson would be entering Chapter 11 in the following month precipitated a drop in KKR's stock price of nearly 40%.

KKR Stock Price - $ per share

KKR Stock Price

Source: Google Finance

The restructuring process, which began in September, was supposed to see $1 billion of the company's debt burden forgiven by secured lenders in return for nearly all of Samson's equity. There was also a plan for lenders to recapitalize the company with almost $500 million. However, oil prices have fallen by about $10 per barrel since September, over 20%, complicating an equity for debt exchange, and legal disputes between the company and debtors mean Samson is unlikely to emerge from bankruptcy before the end of the year as planned. Meanwhile, Samson's oil and gas production is languishing.

Production Overview

As of August 2015, Samson resources produced a bit over 11,500 barrels per day (bbls/d) of liquids (crude oil and condensate) along with approximately 205,000 mcf per day of natural gas. The company produces close to 5,000 bbls/d of liquids each in the Powder River Basin and Williston Basin, with the remaining production of about 2,000 bbls/d in and around the Anadarko Basin. The company's liquids production topped out at 18,000 bbls/d in 2013 and reached that level again briefly

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PetroNerds, LLC profile picture
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PetroNerds, LLC is a boutique energy analytics and advising firm. It provides a variety of products and services to help its clients better evaluate the performance and assets of US tight oil producers, better understand midstream and downstream markets, and provide domestic and global policy context. PetroNerds was founded in 2015 by Ben Montalbano, former Director of Research and Operations of the Energy Policy Research Foundation, Inc. (EPRINC), and Trisha Curtis, EPRINC’s current Director of Research – Upstream and Midstream. The PetroNerds staff has a published track record of analyzing both global energy markets and policy, enabling it to make sense of today’s US-centric developments for its clients around the globe and provide the context they need to make decisions. In addition to publishing reports in respected industry publications such as Oil & Gas Journal and World Oil, the staff has led research projects with the Department of Defense and the Department of Energy. PetroNerds has also worked closely with upstream and midstream companies to provide market guidance and analysis in support of their operations and investment activities.About Ben Montalbano: Before founding PetroNerds, Ben was Director of Research and Operations at the Energy Policy Research Foundation (EPRINC). His research at the foundation covered world energy markets and policy developments with a focus on oil, natural gas and biofuels. His work has been published in industry journals such as World Oil and the Oil & Gas Journal and has appeared in Platts, Bloomberg, Politico, the Washington Post and the Financial Times. He led EPRINC’s contract research projects with the United States’ Department of Defense and Department of Energy and also contributed to the National Petroleum Council’s Future Transportation Fuels study.Ben developed and published ‘RINs Around the Rosy’, an interactive model of the renewable fuels standard and gasoline market, for iPhones and iPad on iOS. He has presented before several international energy venues, including CSIS, the Clingendael Institute and CWC Kurdistan-Iraq Oil and Gas in Erbil, Kurdistan, Iraq. Ben previously worked for Raymond James and software company Liquid Scenarios. He is a Russian speaker and graduate of the University of Colorado Boulder where he studied economics and Russian.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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