88e Long Term Investors Group - Q&A from Dave Wall, page-123

With all due respect Tim, the 'Magic Calculator' is flawed. On three fundamental levels:
1. You are using the break-even numbers incorrectly. The numbers presented by the company are not fully deployed costs of extraction as you have portrayed them, but rather they are the price at which NPV equals zero. Therefore they take into account royalties and state taxes that are a function of revenue rather than of cost. Hence in the P50-mid case scenario (for instance) the NPV zero number is $39 per bbl which working backwards implies a fully deployed cost of discovery, development and extraction of $31.00 per bbl.

2. You are basing valuations on calculations of profit, which makes little sense. Valuations are done on NPV. While the company will quite rightly not share its valuations (or methodologies) Dave has repeatedly hinted in answers to questions asked of him, that NPV is the key factor. We don't have enough info to do a full DCF based set of NPV calculations, but in the spirit of a simplistic "magic calculator" you can come up with a proxy discount factor. The one I have used in the model that has been frequently discussed on these boards previously is 44%.

3. I believe you are over complicating the possible impact of MOIC. While I don't argue with the illustrations of how this could grow, we have again heard from Dave that he would seek to sell the company, rather than the asset, hence kicking the MOIC can down the road. While this "liability" being kicked on would potentially be reflected in our valuation, don't forget our SP reflects the absolute net value to 88e and not the percentage. So while we get a smaller share of a bigger pie, the absolute dollars flowing to 88e will increase as MOIC increases, and hence our SP benefits.

Bottom line, IMO, if you find the need to have a valuation model circulated to a large subset of 88e's retail investor base, then it needs to be a bit more robust. I'm sorry I have not had an opportunity to look at your model in more detail until alerted to it by some of the recent discussions and concerns in this thread. I found the model on the wiki site. Apologies in advance if I am commenting on an outdated version.

I don't claim to be an expert on these matters, but am pretty confident about the points made. I am happy to be corrected where needed.

I urge anyone interested in valuations to DYOR. GLTA.

BTW Tim, good job on the wiki site. Coming on nicely.