Perth, Australia-based Samson Oil & Gas (AMEX: SSN ) is one of many companies to recently target shale reserves in the United States. The company has big plans this year, including developing its properties in the Bakken formation and Wyoming. However, things might not turn out as smoothly as management wants. There are some clear problems on the horizon.
Get the basics right
Production for the first quarter of this year fell substantially compared to the previous quarter. Natural gas production plunged almost 63%, while oil production fell by 32% after the company decided to put its Greater Green River Basin properties in Wyoming on the block for some much-needed cash. The consequential drop in revenues will definitely affect this year's development plans.
Samson had $73 million in cash at the end of March. While this is enough to pay off debts (around $9.5 million paid off by May), I doubt if that kind of cash is sufficient to see the development program all the way through.
Promising on paper
The drilling plan for this year includes three more developmental wells in the Bakken's North Stockyard Project in Williams County. In addition, Samson is looking to drill an appraisal well to evaluate production in the Three Forks formation.
The major development program will be with the Hawk Spring project in the Niobrara formation. Under a joint venture with Halliburton (NYSE: HAL ) , Samson has more than 15,000 net acres in the region under its command. Unfortunately, not a single well has been spud in this region.
As of now, I would not want to compare Samson with seasoned small-cap players in the Bakken like Kodiak Oil & Gas (AMEX: KOG ) and Brigham Exploration (Nasdaq: BEXP ) . Investors will want to see results, and Samson has none. In other words, a production rise and a subsequent climb in revenues will prove this company's real worth.
Foolish bottom line
The next 12 months will not be easy for Samson. Investors should carefully look out for further developments before considering making this stock a part of their portfolio. Resources in the showcase do not really prove much.