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Why Samson Oil & Gas May Not Be That Attractive

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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.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2011, at 12:22 PM, gcmagone wrote:

    Of course SSN is a spec stock, so are KOG, OAS, SD, AXAS, and others. You couldn't buy it for $3 otherwise. Are you Fools competing with Seeking Alpha?

  • Report this Comment On July 26, 2011, at 2:16 PM, esteemxxxx wrote:

    You failed to mentioned;

    The sale of the Green River Basin was consistent with the business strategy Samson annouced in October 2010, allowing Samson to focus on developing its two oil plays, the Bakken Formation in North Dakota and the Niobrara Formation in Wyoming.

    Samson no longer has any debt on its balance sheet since it has repaid its debt facility in May which once stood at US$21 million.

    The sale of the Greater Green River Basin property netted Samson a tax benefit of approximately $8 million since the tax loss from the sale offsets income tax liability incurred by a sale of acreage in Goshen County last November.

  • Report this Comment On July 27, 2011, at 1:06 PM, PatientInvstr wrote:

    Did you do your homework on this? I understand it is not an in depth article but merely here to question the investment potential in this spec play. I just wish you would have been more respectful to the truth, and left the reader with the true in depth questions about ssn's investment potential, rather than ones which hold very little value and are obvious, if not already answered.

  • Report this Comment On August 07, 2011, at 12:33 AM, TruffelPig wrote:

    Michael in SA has written extensively on SSN and the author obviously has no clue on the geography of SSN's properties. I own stocks in this. This stock could easy double in a year or so. The Bakken wells produce pretty well.

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