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Assuming good flow from the Charlie -1 well, I looked back at the Oil Search/Armstrong transaction as it's relatively recent and we can draw some assumptions from that for a valuation on success.
Need to refer to this: https://www.oilsearch.com/__data/assets/pdf_file/0005/13676/171101-Strategic-acquisition-of-interests-in-the-Alaska-North-Slope.pdf
OSH paid $400m for, initially, smaller stakes in various parts of the Armstrong properties. They retained options to purchase more, which I believe they did, for a total consideration of $850m.
The all-in price paid was $3.1 per barrel. WTI was trading around $55 in Nov 2017 when the transaction was struck. I'm aware that Alaska North Slope trades at a premium to WTI but I can't find any historical market data for this, so I'm using WTI.
At $3.1 per barrel vs spot at around $55 at the time this represents 5.5% on the transaction vs spot.
Using the same metric today, assuming a WTI price of $25, we get around $1.36 per barrel. With circa 7bn shares in issue and a GBP/USD rate at around 1.25 we get: ((1.36*480000000)/7110000000)/1.25 = around 7.35p per share, giving a market cap of around £522m.
Difference between what we're doing here at 88e and what Armstrong did: they drilled 19 wells to prove up the resources, we are doing one. They did 3d, so have we. Maybe that's all that's needed to command a 5.5% transaction-to-spot valuation, I dont know. I'd assume further proving up with more wells firms up that ratio. To give you an idea, if we succeed and manage a 2% transaction to spot ratio, so in other words 50 cents per barrel (.50/$25) = 2% gives a market cap of £192 and a share price of around 2.7p.
Keep in mind historical market caps when this share rallied on FOMO and drilling success anticipation. I think we had around 3bn shares in in Jan/Feb of 2016 when this thing motored to around 4.1p which gave a market cap (albeit briefly) of around £123m, when spot prices were about as low as they are today.
Obviously none of this includes any premiums or interest for say HRZ inferred data we get from the drill.
I think those more in the know than me here have said that DW's intention would be to try for an immediate sale should we pull this off. In that scenario we'd ideally have a low gbp/usd rate to favour the dollar price of our stuff in the ground and obviously, a high Alaska North Slope price.
I imagine any talk of a transaction or ongoing talks with a buyer will keep whatever spike is made on this on success lofty I think.
Take what you will from this. The big question for me is what kind of price per barrel we could achieve in a sale if this is a goer.
All the best to everyone here
CBS
The point is, will WTI remain at current for long period? I don’t think so. It may bounce back to $50+ ... and 88E need to drill 3-4 wells to prove up the resources and then can sell the assets. At the moment, I think $1-1.5 per barrel would be appropriate valuations = 2.25-3.25p per share from torok formation.
maybe getting ahead of myself here, but if you've got some time to kill, this is the transcript of a meeting between Oil Search and and various oil analysts just after the transaction was done with Armstrong. Gives you an idea of what an acqurier looks at. Looking into these notes they value the oil at a premum to brent:
https://www.oilsearch.com/__data/assets/pdf_file/0003/13737/171101-Oil-Search-acquisition-in-Alaska-briefing-Transcripts.pdf
$1.5 per barrel would be great boom.boom.
Let's just cross our everything for flow success...
Cow, don’t forget 88E was trading at 1.40p (£100m market cap) few months back just before spud. So, I’m looking for 2.50p+ on commercial flow rates
In the OSH deal Bill Armstrong’s estimate was closer to 3 billion barrels in the ground.
I think a deal between OSH & Armstrong was done at $3.1 per barrel when WTI was $40 per barrel. That's what DW mentioned on many occasion even in the last presentations.
During 2016/17; WTI was trading on average $40/b, in fact it was trading below $40 most of the time in these two years.
I think you're probably right. When you read the transcript they struck the price for the basis of the deal months earlier prior to the transaction closing; WTI was in the 40s at that point. No idea which benchmark they referenced (Alaska North Slope/Brent/WTI).
If you have time ;-) answers probably somewhere below.
http://www.oilsearch.com/__data/assets/pdf_file/0004/16564/180215-Completion-of-Alaskan-Acquisition.pdf
http://www.oilsearch.com/__data/assets/pdf_file/0004/15088/TRANSCRIPT-Oil_Search_Sem_138mins_24hr.pdf
http://www.oilsearch.com/__data/assets/pdf_file/0014/15053/Oil-Search-Alaska-Investor-Seminar.pdf
http://88ewiki.wikidot.com/north-slope
nice one Brom :)
11:49 busy with fishing society business at the moment, may have a squint myself later on but for me most of this stuff is academic, let's have a successful flow test.
A couple of other points in that deal are that although the deal was done at $3.1, three was potential resource upside which could have reduced the price to $1.3.
The Pikka projects recovery rates also seem to be less aggressive than 88e numbers .If the numbers in the Premier presentation are correct Pikka's are ~20% whilst 88e's are in excess of 50%. I don't believe these recovery rates will hold up when assigning a contingent resource which is the classification used in the Oil Search deal.
The NPVs of the project also need to be considered with Oil Search now claiming $6 and Premier $4. Premier did note though these were conservative and could improve, particularly if one of the shallower zone comes good.
I like others think the oil price will look after itself, certainly in the next few years, its the other parameters in the deal that need to be considered to draw a true like for like comparison.
I have had a few attempts of these types of valuations and I realise now that most of my original assumptions were wrong.
Brom,
"let's have a successful flow test", exactly.
Until then the only valuation worth looking at is the one at the top of this page, 0.975p. So many hypotheticals in play.
Just a quick note, I would never encourage anybody to buy or sell.
However, some come on here saying we will only get a 100% circa rise from here on results, well oil stocks have been hammered last few weeks. For example, our partner PMO, down from 120p to under 18p, surly if you believe that 88E will rise minimal then the other stocks have got to be a better bet as they should eventually climb back to those previous levels once all this oil war and virus are over.
My opinion is still that when good results come, which to me the signs are good and good sentiment returns combined with the herd arriving, then I see many, many multiples of the current SP.
Just my opinion.