GREY:STPJF - Post by User
Comment by
nikeherculeson Mar 25, 2014 12:39am
242 Views
Post# 22362483
RE:Rumour has it
RE:Rumour has it
I would agree with Eyeinvestor on the Senlac divestiture and its preference over a Red Earth sale. It would send a loud and clear message to the capital markets.
A sale of Senlac has always been planned by STP management. The old corporate presentation contained a graph of production out to 2020, with McKay Phase 1, Phase 1 Expansion and Phase two along with Senlac. This has been removed from the latest November 2013 presentation.
I recall that chart indicating Senlac was forecast to produce nothing around 2016. One would assume they were planning a sale at that point.
STP has been running down the Senlac asset since the acquisition. Drilling 1 pad a year was never sufficient to maintain production anywhere near Senlac's capacity. From the STP.DB prospectus, Senlac was producing over 4,000 bbls/day back in 2010. Now we are at 2,000 bbls/day and dropping. New 3 pair well pads cost $20 million each. Is the company better served spending $20 million on McKay instead of Senlac?
The longer STP runs Senlac without additional drilling, the less contribution Senlac has on positive cash flow. There will come a time when Senlac won't contribute anything and start to be a burden. Better to sell it now while it is cash flow positive. Without additional drilling, Senlac is more valuable as big desposit in the bank rather than a declining cash flow stream.
Senlac may be the lesser of all evils.
Here are a few other tidbits:
1) Additional 1st or 2nd lien credit may be expensive without McKay at breakeven. See TD report. STP is already paying 8%+ on their 2nd lien junk bonds. I believe they currently trade at a significant discount if STP.DB's 18% yield is any clue.
2) An equity raise either through a private placement or partnership would be punitive to existing shareholders without McKay at full strength with ICD's
3) A sale of only one lease (ie Red Earth/Hangingstone) would not generate enough cash. STP sold Leismer without a "strategic review". All the other leases would need to be sold to raise $50-$100 million. Sell the undeveloped leases and STP loses future upside. Not seeing Senlac in the old production forecast means that STP management has always views Senlac as a sunset project.
4) If STP keeps Senlac, McKay has no choice but to work. If STP sells Senlac, McKay has no choice but to work. STP's future has always been McKay.
Selling Senlac would solve alot of problems.
one final note...be careful with material non-public information, especially on a bullboard.