Post by
nikehercules on Mar 17, 2014 12:39pm
Green on St. Patricks Day
It's good to see green on St. Patrick's day.
Breakeven is around 5500 bbls/day (Senlac + McKay) if CAD remains @ 0.90. Shat has an excellent post outlining pre vs. post ICD installation production rates.
https://www.stockhouse.com/companies/bullboard/t.stp/southern-pacific-resource-corp?postid=22302304
If we're around 7,000 bbls/day for McKay per the Dec 11th release, McKay will generate $14 million/quarter. Given the success of the ICD's I think that number may be revised upwards to a maximum of 10,000 bbls/day by year's end.
What kind of profit margin are we looking at? We can work out the numbers based on the Dec 11th release. From there we can calculate the plant operating costs per quarter:
7,000 bbls/day * 90 days * $95 = plant cost + $14,000,000
plant cost = $45,850,000 per squarter
By this logic, the plant will be generating approximately $40,000,000 of free cash flow per quarter by the end of the year.
With this cash flow, there is no need to sell any land, there is no need to partner or sell at a punitive price or issue any private placements. STP's sale price returns to the $1.50 range before the ramp up. STP only requires the bank to keep the existing LOC open and we're in business. Don't forget breakeven is right around the corner and the LOC will begin to be paid down. Other than the ICD expense, there are no other opex expenses.
There will also be no need to seek outside funds for additional wells on Pad 2. To bring McKay up to it's nameplate capacity of 12,000 bbls/day, STP can fund this with 1-2 quarters cash flow. Only 2-3 additional wells will be required at a cost of less than $20 million.
There is also no rush for additional capital. Phase 1 expansion won't get approval until late into 2015.
I expect the strategic process to end with an announcement that breakeven is imminent and that no transactions will occur. At worst, they will sell off a combination of Hangingstone, Red Earth or Anzac. Even given the recent SP surge, a PP at these levels would be severely dilutive and unnecessary - so I don't think that's in the cards.
Disclosure: I am long 500,000 shares but I'm still underwater...but not by much. I bought back in after the ICD success on the Feb. 10th release. It was also Shat's analysis which confirmed my own calculations and helped with my decision.
Also, why the surprise news release? As others have said, it's probably a big middle finger to the lowballers out there. Remember the big "FU" chant from Wolf of Wall Street?
I hope the SP will drop back down to 0.22 so I can load up some more.
NikeHercules
Comment by
ShatnersRug on Mar 17, 2014 12:49pm
Nike, If you do end up purchasing more shares, I have one request. Make sure to record the expression on your wife's face when you sit her down and tell her, "Dear, we now own 0.25% of STP". The shares might cost you some money, but the expression on her face would be priceless. :) Shat P.S. - Congrats. We'll be racing our boats before you know it.