ThoughtsGood morning all,
I haven’t had the time to write up a post lately, but thought with all the change I should put together my thoughts on SGY. I will say this, I have still yet to sell a single share, although I have still added to my holdings in SGY during 2021. To be fair it was in January, so since all this news I haven’t added any, no because of the announcements, just simply because I have a significant overweight position in SGY already in my portfolio.
Astra deal – I was a shocked as everyone else when this news came out, there was certainly nothing said by the company to make anyone think they would be out trying to acquire to grow. I do like Astra’s assets though and I don’t think this can really be compared to SGY last take over of Mount Bastion Oil and Gas. That deal almost made SGY go bankrupt, but hindsight is always 20/20. The Astra deal brings on additional barrels of oil already in production as well a plenty of future drill sites.
Share Consolidation – No one likes to see a “reverse split” happen in a company they own, 95% of the time it doesn’t work out for the share holders. I have lived through a few of them and I’m sure many of you have as well. I however do feel that SGY had no real other option once they used shares to buy Astra, no one wants to own a penny stock with 600,000,000+ shares. Way to diluted and too easy for the day traders to continue to make a penny back and forth which is currently happening even at 300,000,000+ shares.
Current Oil Price – Without hedges Sgy is currently getting approximately $78.00/barrel Canadian. (if you want the calculation, look at my pervious posts) No hedges absolutely killed us in Q1 and Q2 this year, but it was no different then most Canadian oil and gas companies. We had a higher percentage of hedges as the banks made us so that they would extend our debt. No one is happy about this, however it is simply the current reality and companies across the market a feeling the same pain.
All that to say, what the company has done right now is hard on share holders, but we are paying now and going though some painful times so that we are set up for this currently multi year bull run. Every quarter from this point forward is going to get significantly better. Once SGY updates their company presentation, we will get a better look and more details on the outlook.
What we know right now, is that at current prices SGY Marketcap is 204 million. With the addition of the new shares from the Astra deal at todays prices SGY Marketcap would be $328 million. (This number will be the same following consolidation). Yet in 2022 if oil stays above $70/barrel, which I believe it will then SGY will generate between $110 Million and $140 Million in Free Cash Flow. This works out to be 33%-43% Free Cash Flow to EV. Those kind of numbers are unheard of. When I hear 25% it blows my mind, 33% or even 43% incredible. I believe this is why you did not see the market sell hard on the Q2 news, investors are looking to 2022 saying the worst is now behind us.
There are a lot of “ifs” as always, I believe oil will stay around $70 but no one really knows. If it does stay at $70 you will see a large Dividend and share buy-back from SGY.
I’m staying long and will watch as we “pay now to play later”, and we are almost done paying…..the future is bright.
Good luck to all the longs!
Kid