kasascity piece on Vox12 Sep 2018 15:42
Imagine, if you will, a street on which there are three identical plots of land.
I’m not talking about similar plots of land.
And definitely not plots of land that look the same.
I’m talking about identical plots of land.
Sporting the same soil and rock composition, with the same acreage, and having the same planning permission (for a 7 bedroomed detached house with an indoor pool…). Even the type of boundary fencing used is the same.
Now, if plot one sold for £850,000, and plot two also sold for £850,000, what is plot three worth?
The answer is obvious; £850,000.
That is how you value an asset.
There’s no better data-point for a valuation than a recent transaction involving a similar asset between two arms-length parties.
But what if you could purchase plot three for £200,000? Would you? The exact same plot for a quarter of the price?
That’s the opportunity today with what, in my view, is probably the most mispriced junior oiler on the AIM market – ECO (Atlantic) Oil & Gas (LON:ECO)
On the 30th of August, ExxonMobil, the largest publicly traded international energy company, advised the market that it had made its ninth discovery offshore Guyana at its Hammerhead-1 well. Specifically, the well encountered approximately 197 feet (60 meters) of high-quality, oil-bearing sandstone reservoir.
Now, for those who are still oblivious to the significance of the discovery, the Hammerhead-1 well is located 6,967m from Eco's Orinduik licence boundary. Thus, the discovery materially de-risked the channel systems in the Orinduik Block, positively mitigating both reservoir and migration principal risks.
More importantly, however, on the 11th of August, Eco advised the market that its jointly-owned (with Tullow Oil) Orinduik Block contained a resource of around 2.9 billion barrels of oil and gas equivalent in 10 large prospects, with Eco’s 40% stake coming to 1.16 billion barrels of oil and gas equivalent.
Now, how many junior oilers, do you know of, that boast a de-risked oil resource of 1.16 billion barrels of oil and gas equivalent with a projected 43.78% COS (post the Exxon discovery…) and that are capitalised at a paltry £75m?
The answer – NONE!
Thus, ECO (Atlantic) Oil & Gas isn’t just a good opportunity.
It is a truly unique set of circumstances.
Where I don’t just suspect a company may be ridiculously undervalued…I am certain of it.
Acreage right next to this junior company is flowing with close to 4 billion barrels of oil and gas equivalent.
Thus, I put it to you, it would not be possible to obtain a better data-point from which to value this junior oiler. But £75m just doesn’t cut it.
And when something is this clearly mispriced, the opportunity doesn’t last long; even when sections of retail investors are struggling to grasp the enormity of the value proposition at hand.
So, take cue from yesterday’s £142,460 stock purchase at 47p (at 17:08) and Monday’s £241,000 stock purchase at 47.1
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