SGL – the best case scenario 12 months from nowIncome calculations presented are based on Q1 2014 production of Gas and Oil [presented separately and then added]. Assumed INCREASES in commodity prices: $1.00 for Nat Gas and $5.00 for Oil. Take note, current hedged values for significant part of their production [for SGL] until the end of 2014 are $3.76 for Gas and around $92.00 for Oil]. [[Conversely, netback improvements can be translated into similar, albeit somewhat diverging {re NG}, numbers]].
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Production, Q1, 2014:
Gas – 44,312 Mcf / day
Oil + NG Liquids – 6784 + 391 = 7,175 bbls / day
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1 ]] For each dollar rise in the price for Gas in New York [from the base of $3.76 SGL is getting now], we can extrapolate the following increase in net income:
44,312 Mcf / day x $1.00 x 365 days = $15,952,320 [more in annual income than earned now]
The above sum, translated to per share income:
$15,952,320 : 128,076,720 shares outstanding = $0.12455 / share annually.
2 ]] For each $5.00 dollars rise in the price for Oil [WTI] [from the base of $92.00 SGL is getting now], we can extrapolate the following increase in net income:
7,175 bbl / d x $5.00 x 365 days = $13,094,375 [more in annual income than earned now]
The above sum, translated to per share income:
$13,094,375 : 128,076,720 shares outstanding = $0.10225 / share annually.
Total improved income [compared to negative returns now]:
$0.12455 / share annually [from NG] + $0.10225 / share annually [from Oil] = $0.22853 / share
@ 10x earning SGL value [[normally]] would be about $2.30. But, think, which oil company stock now or in the past was valued @ 10x ?? For instance BNP is trading @ 319x with earnings of $0.05 / share. I leave it to you to look at other stocks, big or small. Nothing [any O&G company I know of on TSX now] is valued as low as SGL. So, what’s missing in logic presented? Frankly, I have no idea........!! If you do, please share your thoughts.
Of course, although the back end of the curve on 12 moths futures chart is around $93.50 [WTI], political instability around the world, which is likely to last as long as a decade into the future, will likely make the talk about lower Oil prices nothing but wishful thinking. Also, considering shale Oil & NG production is nothing like traditional production methods, as costs are much higher with steep drops in volumes, lower WTI & NG prices will likely be a quick cure for the levels of production to drop. If production from shale is expected to rise to make U.S. energy independent, prices will be higher not lower, no matter what anyone says. Only another deep world recession could negatively effect energy prices, in my view.
The above is but my humble opinion. Do your own DD before investing.
PC2