Samson Goshen Update – Value Walking Up as CHK Emerges As Niobrara Acreage Buyer

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  • The 2nd Niobrara acreage sale closing results in another $6.3 mm in the bank ($0.08 per share) ... as guided by the company. 
  • That brings the total cash from the Goshen County Niobrara acreage sales to date to $70mm ($0.85 /share) vs the original range of $63 to $72 mm. At this point, management has lived up to their promises for this deal. 
  • Cash in the bank now totals $76 mm, net cash totals about $65 mm (or $0.78 / share)
  • Final Closing Monday. The 3rd and final closing is now expected on Monday, September 27th for $2.2 to $4.1 mm ($0.03 to $0.05 / share).
  • For the first time, they disclose the buyer of the acreage to be Chesapeake and I care because CHK is in a push for oil and will likely be drilling the acreage sooner rather than later. Samson maintained a 3.8% over riding royalty interest in the acreage sold so the news that one of the deeper pocket large cap E&Ps is the buyer is more than a little welcome. The present value of this ORRI is probably north of $30 mm (Enercom came up with a $53 mm figure based on CHK using 1 rig to develop it and a slightly higher ORRI).
  • Regarding the Intrepid Well. Management confirmed to me that they permitted the well but that CHK spud it as it occurred during the transitioning of the property from SSN to CHK. This also goes to the credibility of my comment above regarding CHK hitting the ground running in the play. 
  • SSN Is Sticking To Its Game Plan For The Retained Niobrara Acreage. The plan was to shoot seismic in the remainder of the year over the 17,300 remaining acres.  Total cost to shoot and process is $2.3 mm and they still plan to drill two test wells in 1Q11. The 3D will also help identify other targets here aside from helping to pick the faults out in the Niobrara (think Codell, J-sand)
  • Nutshell: Chalk up a little more credibility for these guys. Refreshing in the sea of exaggeration and "over-promise and under-deliver" so common to the single digit midget E&P crowd. New near term back of the envelope target climbs just above $2.20 as I decided to add in some value for the ORRI. I don't expect it to get there in the near term but to graduate above that level should CHK wells on their newly acquired acreage prove successful and further should SSN's test wells next year begin to prove up the retained acreage early next year. In the near term we should get the 3rd closing next week and more Bakken play news in the form of another set of well results. A little further down the road, look for them to expand their smallish Williston position. I continue to own the common here in the ZLT. 

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