Another day, another 52-week high for Samson Oil & Gas
A well-connected well servicer
Late last week, Samson announced a joint venture with Halliburton
The Halliburton transaction was structured at an implied valuation of $3,275 per acre and leaves Samson with 14,883 net acres in Goshen County, with a 3% royalty retained in the farm-in area. We'll plug these numbers into our valuation a little later.
Let's make a(nother) deal
Two more notable events are Samson's filing of its fourth-quarter financials, as well as Chesapeake Energy's
Following the CNOOC deal, investors are perhaps justifiably excited about the takeover potential of smaller Niobrara players such as Samson and Rex Energy
Adding it up
Samson's non-Niobrara oil and gas assets make up a pretty small piece of the pie. I figure they are worth $30 million to $40 million, pre-tax. Tacking on the royalties on Niobrara acreage sold to Chesapeake and Halliburton gets my running total to $55 million to $70 million. That leaves Samson's retained 14,883 net acres, plus its net cash. The transaction values outlined above would suggest this remaining Niobrara leasehold is worth roughly $50 million to $70 million. Investors are pricing in a multiple of this value, however.
By my math, the market is saying Samson's remaining land is worth about $180 million. That implies a per-acre valuation of around $12,000, which is a premium to what undeveloped Bakken acreage sells for. The Bakken is a well-developed oil play in North Dakota, where initial production rates are averaging more than 1,000 barrels of oil equivalent per day. EOG Resources'
CNOOC's per-acre valuation is arguably motivated by non-financial, strategic motivations (learn how to drill this stuff so we can go do it in China), but I'll adopt it for the sake of argument. Based on that valuation, Samson's fully diluted share count of 102 million American depositary shares, and net cash position of roughly $58 million (I would use working capital minus debt in place of net cash here, if I had a balance sheet to look at), I believe an appropriately conservative net asset value estimate for these shares is well under $2.
Could I be completely wrong?
Yes, it's entirely possible that Samson is sitting on a sweet spot up in Wyoming. If so, the shares have room to appreciate further. What bothers me is that very good drilling results appear priced in already. I've invested in my fair share of E&Ps with largely unproven acreage, but I always demand a comfortable margin of safety in case things don't pan out as well as I anticipate. I have and will continue to miss out on the occasional moon shot, but it's the only way I can invest in this speculative sector and sleep well at night.