How Will Samson Oil & Gas Do in 2012?

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Now is a good time to check on how the stocks in your portfolio might shape up next year. A good knowledge of the opportunities and the challenges ahead for the company should help you make better investing decisions regarding its stock. Let's take a look into what the next 12 months holds for Samson Oil & Gas (AMEX: SSN  ) .

A reversal already in motion
Despite net earnings being in the red, a substantial boost in revenues in the third quarter signals a return to production for this shale play operator. The major attraction has been increased output from its Bakken wells. Currently, Williams County accounts for 70% of Samson's total production. And I believe this will be its trump card for 2012 as well.

While there's no definitive method to ascertain future flow rates, there's a good chance that output will increase from each of the company's six producing wells here. Continental Resources (NYSE: CLR  ) has witnessed fantastic production rates in this region, clocking well more than 1,000 barrels per day (Bpd). Kodiak Oil & Gas (NYSE: KOG  ) acquired 13,400 net acres in Williams County in October. These signs look encouraging. With a seventh well yet to be fracked, the next 12 months might see a reversal in Samson's fortunes.

A lot of projects in hand
The company's Hawk Springs project in the Niobrara is also looking good. The first appraisal well has so far indicated oil-saturated brittle carbonate sections. Production could start in the second half of next year. But right now, it's too early to figure out the flow rates as fracking is yet to commence. Samson is already preparing to drill a second appraisal well in this region and its progress depends on the completion results of the first well.

It's also worth mentioning that Samson has already failed in an attempt to drill the Spirit of America US34 #1-29H well. I'm not expecting this project to contribute much to next year's production levels. However, if the Hawk Springs project turns out to be successful, then the D-J Basin could be holding much bigger reserves.

The company is also drilling a couple of wells in Roosevelt County, in the Middle Bakken Formation. While this may sound impressive, I believe initial production might have to wait till the second half of 2012.

In terms of liquidity, Samson looks fine. With no debt and $54 million cash in hand following the sale of some properties to Chesapeake Energy (NYSE: CHK  ) , the company looks comfortably placed to meet its expected capital expenditures of $25 million for fiscal 2012.

Foolish bottom line
Some businesses have a waiting period before they can really turn profitable. The exploration and production business in the oil industry is one of them. And this is especially true when it comes to smaller companies. The key to investing in such stocks is to hold them patiently. We at The Motley Fool will help you stay up to speed on the top news and analysis on Samson. You can start by adding it to your watchlist.

Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Chesapeake Energy. 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.

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