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toughiv, I get mc of £135m for 3500 bopd but just put in your own assumptions. I think the poo will soar but have not factored that into my current valuation and a DCF may show I am undervaluing the shares today.
Look at the likely profit per year the company will make.
Apply the P/E mark up that you think applies.
That gives you their likely market cap for this level of profit at this point in time.
If it's £300m which it would be for a yearly profit of £30m (at least given the rest of the acreage/exploration upside etc) then that's 5x the current market cap. So 5-6p a share without further dilution.
Once UKOG are generating £30m plus per year they'll hopefully drill further wells out of profit and have no further need to dilute. That's when many will choose to invest including the larger institutions and UKOG may choose to re-list off AIM.
It'll need decent sustained flows from the Horse Hill Portland to do it however but so far the indications are good?
Thanks for all that information Seadoc. I'll definitely bear that in mind. Under those figures though, at 3500bopd UKOG should only be valued at 110m. That doesnt seem right to me as they'd be pulling 30 million a year out the ground for 25 years. Definitely food for thought though thanks
... the confirmation statement of HHDL showing the shares now owned by UKOG and....
Resource stocks are difficult to value. Oil is a resource stock. At one extreme you have pure exploration and often a company will have a portfolio of interests with a part share in each, and there is a huge element of luck, you can 100 bag but are 100 times more likely to lose the lot. At the other extreme you have integrated companies like BP or Shell with up stream, down stream, refineries and fingers in many pies, sorry, joint ventures. For these a simple p/e calculation is valid but, having been in and out of BP for 25 yrs, from 222 to over 600 I can assure you they are still very volatile.
In the middle are production companies and UKOG relisted on AIM as a production company. But with one well flowing and a second drilled UKOG are nearer the exploration end of the spectrum, and all the other assets of UKOG are at the exploration end. A simple metric, used by oil analysts is to value a company at 3-5 times free cash flow. The knack is to spot one a three times and sell when it gets to five times. I have used x4 free cash flow, that is value of oil produced with no allowance for office expenses, but including cost of lifting and transporting the oil (which is cheap at HH). On the downside it is a naturally fractured field, the oil lying in the cracks, and these do deplete faster than a conventional field so you would be justified to go on x3.
I have used the difference between price oil and cost extraction as $40 ($63-$23) and $/£ as 0.77 but chose your own numbers. I have assumed that once all the financing is complete there will be 8bn shares between which to divide the spoils and those are the numbers I got.
I have said that I believe the output from HH1 and HH2z will be between 900 and 1500 bopd. That is why I am short.
There will be lots of news in next few weeks, more interesting than the election! As soon as next week we could have the confirmation statement of UKOG and nominally within 3 months of 28th Sept will have the accounts of HHDL to look over.
So in fairness a multiple of 2.5 might even be appropriate but I have stuck with x4.
Wonder how the Swampy brigade will twist this one.
Their ultimate valuation will depend on how much oil there's estimated to be in the CPR and how fast they can get it out of the ground. Even if they look like they'll ultimately be able to pump it faster than 3500 barrels/day I'd expect that to be priced in in anticipation of that daily figure being revised upwards at a later date? If it wasn't what would they gain by drilling more Portland horizontals. Their 5% (?) contribution to the council coffers is possibly money well spent?
Toughiv, best to discount the ridiculous 0.43p valuation. The same person displayed his woeful accounting and calculating skills in overestimating Ukog cash spend in the six months account period released earlier this year by near!y £11 million. Also claimed at the time that an emergency placing would have to be announced to coincide with the release of the accounts as there was absolutely no cash left, "just to keep the lights on". There was £10.7 million in cash held by Ukog. Says it all.
1000 barrels/day from the Portland horizontal and 200 per day from the Kimmeridge vertical gives:
$40 profit per barrel x 1200 barrels x 365 days per year = $17.5m.
And a market cap of £60m currently! Outstanding YA loan balance £3.75m. Puts it into perspective doesn't it?
It's a no brainer. By year end 2020 UKOG will be comfortably in profit on an ongoing basis with income comfortably able to justify a significantly higher market cap than today's without doing anything else. All they've go to do is drill the further planned horizontal Portland wells to blow todays market cap valuation out of the water.
Then add in all the other licences Portland/conventional and Kimmeridge too and you start to hyperventilate a little at what might happen over the next 2-3 years.
How does 900 bopd give you 0.43p?
Portland, @ 10million barrels recoverable...is worth about 400 Mill... We would have 86% of that. (320 Mill approx)
If the horizontal flows nicely, the recovery risk goes down...
100 bopd = 15m mcap roughly as a quick multiplier.
9 * 15 = 135m without the 200 bopd and without factoring in the 400m value of portland.
So how do you get an mcap of 30 odd million? (0. 43p)
While this post may seem tit for tat, it is actually a genuine question because I'm not 100% on the fag packet maths. Maybe you know more (I am relatively ignorant)
Hey monkeys uncle, 900 bopd gives me sp of 0.43p and 1500 I get 0.72p. So while I believe we will get that production I am still short. And to drill any more wells, vertical or horizontal, is going to mean more shares as even 1500 would not allow conventional debt finance.
Just quickly Phil I`m glad you got it quickly that is great to hear and noticed the SP is up today which bolds well for all in the future !!!
I doubt even SS is 'sure' of a figure, and UKOG have been vague recently about the anticipated flow rate having gone from 720 to 1080bopd, to 2 to 3 times or more, to 2 to 3 times an unspecified vertical well flow rate, to significantly more than 362bopd, to the current significantly greater than the vertical well in the last operational RNS, again without specifying which vertical well rate.
Is SS playing a blinder, for some reason hiding what UKOG really think to fool the (apparently stupid) minority shareholders in HHDL, or keeping the SP down for mates rates? or is he trying to signal a lowering in expectation whilst performing the AIM dance of the seven veils releasing possible positives (muid weight indicating better than expected pressure depletion, possible increased reservoir quality) which require 'A comprehensive electric logging and extended well test ("EWT") programme [that] will further clarify these potentially positive outcomes'.
What really matters is what the final veil reveals.
Soon (imminently) we will see what the flow rates are so what further veils does SS have - initial rates can be very high - especially half hour maximums or any short term rate so maybe a few of those - and not forgetting the Kimmeridge has been shut in for a while so another possible initial maximum there.
But the final veil will be the long term stable flow from which there will be no hiding (though if it isn't as good as expected I expect 'heavily choked' and 'prudence' to be wheeled out in posts.
As you are guessing 6 tankers a day I suppose that means you expect nearly 1300bopd for the long term stable rate (though that would need a doubling of the OGA permitted production during the HH-2z ewt), and for a rerate based on a CPR of the Portland - just keeping to SS NPV and just for the Portland at HH to underpin the current SP anything over about 4.5mmbbls, so to double it 9mmbbls, but that might not be until Q2 2020 if it's after the 90 day ewt.
To be clear I have no idea what any of the rates will be - I just apply a healthy dose of cynicism to anything in RNS but at least patience is something that investors in UKOG have had to have, but belief is no substitute for hard figures.
And blimey! Seadoc a believer! Well I'll be a monkeys uncle!
I'm with you Tony.
I have every expectation that the Portland and conventional Isle of Wight plays will make me significantly better off.
If Kimmeridge horizontals can be made to work I expect to be made genuinely rich over time. I have modest tastes and it doesn't take much to keep me happy. But as you say this current Kimmeridge vertical well will pay for itself many times over before it gives up the ghost and more wells like this would only help to add to the bottom line.
Hopefully a safe sensible investment at this point in time with very good prospects for generous up-side and the possibility for multi-bagging and excellent income generation over the next 5-10 years. Perhaps a bone fide mid-cap Wytch Farm type level of success? Or better?
I am sure the Portland will flow, I’m sure it will exceed 6 tankers per day.
I am sure the Portland CPR will produce a recoverable reserves figure that will revalue the company.
Total believer in Portland
The kimmeridge , I know it flows vertically , HH3 will prove whether it can flow horizontally . It’s a weaker rock structure and SS needs to prove the completion method. Then a CPR. Failing that revert to vertical drills. One tanker per day per drill is still not to be scoffed at.
So a Believer in Kimmeridge oil , but work still required on the big CPR.
Thanks Dinero! and again to all for the messages of support.
Sorry about the question marks. Not meant to be there. Still early.
Just wanted to wish you well Phil. ????
Thank you Frank for your update.
And thank you as always John for your fantastic updates.
OYes Yes a believer
JayKay.....So You must be non believer then?????
If yes..... please leave the church and let true believers pray in quietness!!!!.lol.
You have been very quiet tonight, why?
Jasper and Ghost, plus me are believers!!
FJones, thanks for sharing your experience today. As I have often said, keep the faith, on here. I am a believer. Your comments of today has given me a boost as the waiting is getting hard to bear. Must remember SS and crew are working flat out, so we must be patient. But we are NEARLY THERE, UKOGers.