Here's the full text of the letter...
Dear Shareholders,
Having successfully steered Saratoga through a historically difficult operating environment that culminated in our emergence from bankruptcy just over a month ago, your management would like to take this opportunity to update you with respect to where we are as a company and management’s plans going forward, including questions we have received regarding our stock price.
We are just now starting to get back on our feet following the distractions of the last 12 months. Notwithstanding the difficulties of the past year, we have concluded full field studies of all of our producing properties and, based on the findings of those studies, we are more excited than ever about the quality and potential of our holdings. We do not, however, believe that the market has a full appreciation of the potential of our holdings and, accordingly, believe that our share price does not reflect the underlying value of our properties. We believe that our existing reserves and exploration potential are greatly undervalued based on our current stock price. While management is keeping all options open regarding the avenues we may pursue in developing our holdings, we have no intention of issuing equity at current prices to fund any such efforts.
In assessing the apparent disconnect between the value and potential of our holdings and our existing low share price, we believe that such disconnect is due, in no small part, to market uncertainty as to the future regulatory environment in the Gulf of Mexico (GOM) as a result of the BP disaster. The continuing, well publicized, GOM oil spill is not anticipated to have any material impact on our current or future operations, including our in-field development and drilling program. The target for additional regulatory action is currently focused on federal leases especially in water depths of greater than 500 feet. We do not presently operate in deep water or on federal leases. In fact, we do not operate in the open waters of the Gulf of Mexico but, instead, operate in Louisiana transitional coastline and protected in-bay environments on parish and state leases. To date we have seen nothing but encouragement from parish governments and the State of Louisiana, which is fighting against any suspension of operations even in the deep federal waters. Even so, we have initiated a safety review and a mid-term update of our spill prevention control contingency plans, we are constantly working on improving environmental and operational safety standards and we are working closely with our well design consultants to assure that our future wells employee state-of-the-art technologies and sound disaster response plans that either meet or exceed government regulatory standards.
Saratoga is opportunity rich and we have similar geological structures to successful deepwater discoveries and recent deep shelf discoveries, including well publicized discoveries made by McMoRan in only 6 feet of water or less. We are convinced that the potential of our exploratory prospects will allow us to attract investment from industry partners and others that was designated for deep water drilling, especially if the federal moratorium stays in place. We believe that increased scrutiny and regulation affecting future operations on offshore federal leases, and particularly drilling in deepwater, will make operations in shallow waters more attractive and that, as a result, we will be better positioned to attract industry partners to participate on our deep exploratory prospects, which we believe have multi-Tcfe potential. We expect that our attractiveness to drilling partners seeking alternatives to deepwater drilling will similarly be enhanced by our lower costs and immediate proximity to onshore infrastructure.
In contrast to the BP blowout where BP was operating in water depths of 5,000 feet, our near-term drilling plans are in less than twenty feet of water and most of the opportunities we have identified are technically onshore or in less than six feet of water. As a result of the shallow waters in which we operate, the BOP stack for any drilling on our prospects will be above the water unlike BP’s well where the BOP stack sat at the bottom of the GOM.
Further, it should be noted that, in contrast to BP’s operations 40+ miles offshore in the open waters of the GOM, the vast majority of our prospects are not in open waters of the GOM but are protected by the barrier islands as well as by the outflow of water from various distributaries of the Mississippi River such as Baptiste Collette, Dennis Pass and Lookout Pass. As a result, to date, there is no oil sheen in the vicinity of our prospects and our operations have not been impacted by the BP spill.
In summary, our holdings and operations can be distinguished from those conducted on BP’s ill-fated well as follows:
In addition to the factors described above which we believe have negatively impacted our stock price, we believe that our stock has experienced some downward pressure caused by a few sellers dumping their position post-bankruptcy, not to mention the overall market declines of the past month. Given the thin trading market in our stock after more than a year operating in bankruptcy, we, as many OTCBB companies, have experienced large spreads in our bid and asked prices and extreme price volatility based on limited volume. We intend to pursue a sound program to increase our exposure in the investment community confident that increased visibility and knowledge of our prospects will result in narrowed spreads, increased volume and a trading price that will support a planned listing of our stock on a national exchange.
We appreciate your support and confidence and look forward to delivering on the value that we believe exists in our company.
Andy Clifford, President
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