Having reached the bottom by slipping to a 52-week low of $2.100 last Wednesday, the shares of Second Wave Petroleum Inc. (TSE:SCS), (PINK:SCSZF) began their rebound on the Toronto Stock Exchange (TSE). Since Thursday, the stock  has started to advance on the Canadian market, recovering some of the ground it had previously lost. This happens shortly after the company released its 2010 financial results on SEDAR.

During the last two sessions, SCS managed to gain 15%, pulling up to $2.42 at trade-closing on Friday. Before the rebound, the stock had been regressing for about two weeks on the TSE, falling from $2.65 to $2.10. Now that SCS has managed to bounce off the bottom, one important question remains – will the revival of the shares continue and for how long? Will the stock be able to come nearer the $3 mark, where it was, though only for a day, in late February? Not to mention the good old days in April 2010, when SCS was traded at $3.50.

Second_Wave_-_Logo.pngThe above-mentioned financial reports contain somewhat positive data, which speak in favor of possible appreciation in the future. The highlights:

  • The average production for 2010 increased by 41% to 1,397 boe/d, compared to the figure in 2009. As claimed in the latest company presentation, production is expected to continue rising in 2011;
  • In 2010 the revenues from petroleum and gas sales have jumped to $25.5M, or by 63% compared to 2009;
  • The company had over 5M in cash in the end of 2010.

Second_Wave_-_Chart_-_4_Apr_2011.pngIn addition, we must remind that in late February Second Wave disposed of its Provost property in Alberta by selling it for $16M. The funds will be used for debt payment and to aid the financing of the company’s 2011 capital program in its main Judy Creek property.

There are also several negative facts about Second Wave, which are also related to the Second Wave’s financials. Somewhat discouraging financial data are present in the financial statements. There was a loss of $2.11M for the fourth quarter of 2010; for the whole 2010, the recorded loss is more than $6.8M. Besides, the company’s current liabilities are well above its current assets and, accordingly, there is a shortage of working capital.

As the company states in its annual information form filed last Thursday, it anticipates “making substantial capital expenditures for the acquisition, exploration, development and production of oil and natural gas reserves in the future”. Furthermore, Second Wave admits there is no guarantee that “debt or equity financing, or cash generated by operations will be available or sufficient to meet these requirements”.