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Thanks for your sage views, JR. I agree with most of what you say.
You and me both on the 'JOG becoming a producer' route, which would spell potential disaster as far as I'm concerned. Ditto the big pay rises and their effect on confidence in the team.
Let's hope we're clear and running by this time next year at the latest. As you say, game-changing news could come at any time. Those who are gaily trading their shares better be careful the bus doesn't leave whilst they're counting their pennies...................
In today's environment, I'd be very satisfied with $3/barrel, still vastly higher than te mkt cap stands today. BUT why the middle of the autumn, it may well be that things have calmed down, the oil environment is less frightening, and the $4-5/barrel range would be realistic. The current value is simply ridiculous, but people see a share price of triple digits and think it's fully valued - they don't have the basic understand to look at the trivial number of shares in issue, and the consequence very low mkt cap. PI psychology is beyond me, it seems, since I just don't understand the superficial and unresearched attitude of many gambling in the AIM markets. Ultimately, we can but anticipate that the true value will be realized by a sale - I am passionately AGAINST becoming a producer! I had great confidence in the management here until they awarded themselves huge pay rises and easy options, if it hadn't been for that I'd have bought more in Jersey. As it is, I'm going to hold for now and hope to sell out on a decent spike when the JV announcement comes in (and perhaps try to trade it a bit to buy back my holding between the JV, the dip which will inevitably follow with the general AIM gnat-level attention span, and hopefully an eventual takeover.) Of course, someone savvy might skip the JV process and just take us out, that would be great to wake up one morning at see the share price open at 1,000p with a big buyout on the table.
JR934 - in the event there was an agreed bid instead of interested parties farming in to JOG's licences, what sort of price per barrel do you envisage might apply to the 2C resources up for grabs?
I've been doing a bit of lateral thinking, which ignores what, to me, is an entirely false SP. People don't seem to give any logical thought to the overall situation in relation to oil and future demand, or to JOG's unique situation, given it owns 142mstb of discovered 2C oil (33° API) in one of the NS's best postcodes, together with a further 230mstb of prospects in the same general area.
It should also not be forgotten that JOG also has a practically zero carbon method for extracting the oil. And the ongoing progress with the hub development shouldn't be forgotten either, including the Integrated Studies Agreement which, if successfully concluded, could lead to shared costs of developing the hub.
With an assumed long term oil price of $62.5pb built into the model, the NPV of JOG's assets was most recently independently assessed at $1.15m. As those who have read some of my previous posts on the subject of DCF and NPV will already know, the best measure of any company's worth is derived from this method, although it does rely fundamentally on the assumptions used in constructing the model. The price of oil, particularly in the earlier years of the project is probably the most important assumption in JOG's case. It is only my take on the situation, but it seems probable to me that most oil pros taking a view over the life of JOG's GBA fields (20-30 years?) would regard an oil price of $62.5pb as being realistic, if not conservative.
Anyway, I'd be interested to learn your views, JR - and anyone else who cares to comment. My own thoughts are that given JOG's assets rate a DCF/NPV of $1.15bn, it wouldn't be greedy to expect someone to pay somewhere between one third and a half of this to take on the whole project now. Risk is endemic, but the industry knows all about this and the risks here would be a lot less than in many other scenarios, for cash rich oilcos looking to bolster their reserves whilst at the same time providing significant upside potential.
Taking the "we're prepared to pay you a third of NPV now" scenario, I get to a number of $383m, or roughly £300m - c.1300p ps fully diluted. Half NPV would yield 1950p ps. A median 1625p ps would imply a price for the discovered 2C resources of between $3 and $4pb, with the prospects thrown in for nothing.
My personal view is that farming out on terms that would allow financing of the project to be determined, then selling post agreed FDP, might be the preferred way to go about a sale. Although JOGs share of what would by then be categorised as 'reserves' would be much reduced, the ppb expectations on a sale would be much increased.
Risk can never be avoided. All the above are just thoughts and opinions.
I will personally be amazed if JOG exists after the middle of 2021 - I'm sincerely hoping that they will ove up a viable extraction plan and a good data room, and then sell up. I've no wish to be a producer, HUR is a perfect example of why not!
Carj squared - or just carj carj - I could not agree more with what you say - there are all sorts of metrics that need to be applied to the final destinational (is theresuch a word?) value of JOG...for eg, oil could well be below $30, I'm just using Woodmac's latest report as $60-80 is their 'core' view...who knows what will happen, we certainly didnt see Covid or the spat between Russia and Saudi coming, did we! Equally, Morgan Stanley had a $190 target! Now that would be a game changer...
Equally, we know from JOG's latest report they 'may' have an extra 200mm barrels lying around...they might not need to do a further dilution...there are all sorts of questions, which us mere mortals certainly don't have the answer to...the reason why I talk about an asset value of £3bn is really just to suggest that the current market cap of £36mm might not be in touch with the future potential...and as you say, OIL might retreat to $20 as we go all green and that will be that....which is kinda why I said recently - on here - downside is zero eg 100% and upside if all ducks align themselves are many multiples of here...you pays your money...
But I completely 'get' the need to discount future cashflows, so fair point...
Not that JOG will exist in my humblest of opinions by 2025 anyway!
PC01, just a friendly warning about your 'back of the envelope' valuation. You absolutely have to discount the value of any potential future cash flows - and bear in mind that at a 10% discount rate, £1 in 10 years time is worth 38p today.
You also state an oil cost of $60 per barrel, though it could be feasibly also be under $30 - this uncertainty will also affect the value.
Simply multiplying profit per barrel (based on conjecture) and reserves (also uncertain) is a sure way to end up very disappointed. The idea that the "fair value" of the asset is £3bn is absurd. I don't say this to pick a fight, I know you've posted some good stuff in the past, it's just a reality check.
Having said that, I am long here and have been for some time, so I do believe in the overall narrative!
Munchbox - you are right in all that you say. No oil til 2025. Now I have a question for you because you have very kindly come on here out of the kindness of your heart and given us foolish holders reason to worry - anyway back to that question - and I agree this is all heresay and nonsense on how we derive some future valuation on the share :
If JOG gets to 2025 in one piece and if JOG has a minimum of 130mm barrels of oil in its portfolio and if the price of one barrel of oil is c $60, what value would you, o wordly wise one, ascribe to the value of JOG at that stage? And for ****s n giggles lets say there is a further dilution and we have 40mm shares outstanding at that stage. Would you agree that a fair valuation of the asset might be :
($60-$30) ( = profit / barrel) x amount of oil (130mm) = $4.2bn. I think we can all agree both the US and UK are equally fooooked so lets say $/£ at 1.3 might be about right. So £3bn fair value of the asset. or £75/share 'value'.
The current market cap of JOG is £30mm and it has an asset that might in 5 years time be worth 100x that.
here's my question : When should the market start to ascribe some value to this potential windfall? I'm thinking it won't be the day before oil is poured. But it might be fair to assume that - as we approach various milestones on this - agreed - lengthy journey that the market might start to work out that £30mm for an asset with this potential is a tad low.
To those that want to day trade using MRSIs excellent charting technique - good luck. But please, if the day you don't have your shares on the day the company announces a surprising farm out agreement whereby it has subsequently the financial muscle to get to closure without any further dilution then please don't say bu55er, why did i try and nip 30p out of the bid/offer only to lose not £1-2 but £10-20 in the SP.
Just a thought....
PS the other day I also said 'I do hope the current newbies have patience...' the fall from £1.65 to £1.25 suggests my concerns were warranted!
Apologies. Forgot to add this bit.
The GBA licences, which can now be regarded as including the Verbier licence area, should generate substantial cash flows on first oil, which is currently slated to be in 2025.”
2025 ??? Are you serious ? Good luck with waiting.
Equinor decided to exit Verbier earlier this year after an appraisal well came and went without delivering previously estimated ‘blue-sky’.
READ: Jersey completes deal to take back Verbier stake
The Verbier disappointment is now very much in the rear view for JOG as it takes up full ownership on favourable terms.
Just found the above whilst doing some research.
Just be careful here. Too much hype.
Why would equinox give up such an asset for some royalty based payments ?
All I’m saying is wait for oil / gas to get Extracted before you guys put a £100 a share value on here.
They need to raise funds to drill the wells again so expect dilution, I’m guessing around the £1 Mark seems about right.
I have nothing against people posting on bb but to say exactly how many shares you have or money invested is all theory unless prices correct so although I wish you the best Jim ... if you did hold 5% of the company then I wouldn’t expect you to post it on a bb rather than confirm you have a large holding.
Keep it real here guys ....... it’s not just the mice that follow the pied piper these days ..... it’s clowns also.