88E Cenkos Note - PDF download link, page-3

In this note Cenkos cover the entire valuation of 88es multiple projects, as the value Charlie 1 brings is of immediate interest. Some thoughts focusing on the upcoming Charlie 1 alone, parking the HRZ, Yukon, Western and Central valuations for now.

Summing the 4 targets valued within the Charlie 1 drilling campaign(Charlie, Indigo, Lima and Stellar), Cenkos give a risked NAV of 2p and unrisked at 14.4p.

Looking at the assumptions on COS, they have marked pretty hard with a range from 10-15% across the targets and still came up with a pretty heady value.

It looks like each target has been assessed on a stand alone basis, which is fair if only one proves commercial. In that case the one winner has to carry all the expense of infrastructure development, processing, pipeline etc. But not fair if you take the 7 target case, where one success helps another pass the commercial threshold, because infrastructure is shared, or scaled more efficiently. A sub commercial becomes commercial, as its lower flow rates are supplementary to the others.

Cenkos have used COS of 10% for the Charlie prospect and applied it to the unrisked US $3 per BOE to give a current risked value in ground of US $0.3/boe. The calculation behind the 10% is unknown, but I suspect goes something like this. Seismic data gets us to 30% geological COS and there is a 33% chance that geological success will become Commercial COS.

Which makes the COS of 13-15% for Indigo,Lima and Stellar interesting as these already have discovery by their names, and Lima and Stellar have multi discrete zones. Contrary to first instinct when reading a connected party brokers report, they appear conservative.

Finding and proving commercial oil makes all the COS discussion largely academic as we slide across the chart to the unrisked values. Then the assumption of US $3/boe comes under the spotlight, as I note Premier oil have used US $4+ in their presentation.