Samson Oil & Gas (ASE: SSN) is a classic example of an up-and-coming oil exploration and production company. What we have here is a company whose cash outflow has been far outweighing inflows, but whose prospects look hugely exciting. The latest well update from Samson reassures investors as to why this company is on its way to the top.
Last December, I mentioned that the company had a lot of projects in hand which had yet to add to production. The latest update on them is pretty much in line with expectations, which is encouraging. The Australia II 12 KA 6 in Montana's Bakken formation, which had been drilled to 15,000 feet in December, has been coming along nicely. Fracture stimulation was held successfully in February, and the well has started flowing. However, due to a minor fracking incident in which excessive sand was coming out of the fractures, production was temporarily plugged. Yet I must say that the well's overall development -- from drilling to establishing a flow -- has been pretty fast.
Another Bakken well, the Gretel II 12KA 3, has been drilled to a depth of over 15,000 feet, and is awaiting hydraulic fracturing this month -- a quick development once again. If Samson is trying to speed up the development of its Bakken reserves, it doesn't come as a surprise. While initial flow rates of these wells have yet to be ascertained, these lucrative reserves definitely look promising.
The Hawk Springs project in Wyoming, however, might face unexpected delays following a pump failure on the Defender US33. While a replacement pump better suited for the production mix has been brought in, efficiency has taken a beating.
Still, the overall progress has been impressive. Samson has been sinking a lot of cash into its exploratory projects -- more than what it has been earning. The company ended up posting a loss in the quarter ending December 2011 thanks in part to exploration costs of $4.6 million. Out of these costs, $4.5 million was sunk on a well in the Hawk Springs project that unfortunately happened to be a dry hole. But that isn't something to be worried about. Samson looks well capitalized with $42 million in cash on its balance sheet. Again, one only needs to look back into the recent past to find struggling E&P companies striking it big.
A well-trodden path
The best example, without doubt, is Kodiak Oil & Gas (NYS: KOG) , which, like Samson, showed huge promise but reported minimal revenue until last year. However, since full-fledged production got under way, there has been no stopping this company, with revenue skyrocketing. And it still continues to hold out growth prospects.
Foolish bottom line
Looking at Samson, there's little doubt that it is following in the footsteps of its fellow Bakken operator. We at The Motley Fool will help you stay up to speed on the top news and analysis on Samson Oil & Gas. You can start now by adding the company to your free watchlist.
At the time thisarticle was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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