devonian carbonate play, page-13

They have not said they have 5bn bbls of oil...

From the seismic data they have (both old & new), they have interpreted a potential reservoir which could hold 5bn bbls of oil in place (& this is an upper estimate). This is just a volume calculation based on the interpreted bounds of a possible reservoir. IF there is oil actually there at all, typically only a small % of the 5bn bbls is actually recoverable (i.e. you can get it out of the ground) - depends on many factors.
So, let's suppose the 5bnbbl potential reservoir is actually 1bnbbls & say the potential recoverables are 10% = 100mmbbls. Multiply this by 0.65 (CTP have 65% stake in the block), and say it is worth $30 per bbl net = $1.95bn. There’s roughly 400m shares out there fully diluted (i.e. including options, funding arrangements etc), so that’s about $5.00 per share. Now we’re some time from actually getting it out if it is there at all so let’s halve that to take into account some ‘time’. Then we need to think about the chances of the potential reservoir actually having oil in it, or the chance of success. Let’s call it 10% CoS. Now we’re at 25c per share.
What we have now is our risked valuation – what the share might be worth to us now on the basis of all the guesstimations & assumptions above (which are exactly that).

So:

Reservoir size (UOIIP) x Recovery rate x % stake in the block x net worth per bbl x time value x CoS divided by number of shares fully diluted = risked valuation.

That 25c is just for the Erec prospect of course, doesn’t include the other potential 5bn bbls oil/gas or so they’ve identified in other prospects, or He or CBM.

The numbers/factors I’ve used are pretty conservative (please do your own sums), but still put the SP well above the current price, so I regard CTP as a buy (particularly since they are not a one horse race – they have a large number of prospects - a major risk IMHO is if they drill a number of dry holes & run out of cash/funding).

If they do strike oil, then a lot of the factors change. Let’s say they drill in Nov & find oil. Lots of it. They’ll start getting it out of the ground pretty quickly, so cashflow is not a problem. Other prospects with the same or similar geology may be derisked somewhat.
If the 5bn reservoir turns out to be 3bn say, the recovery rate is 25%, the net per bbl is $40 then we now have $49 per share, less a little for time. Nice…& that’s still just Erec.

The potential is huge, & as a gamble the SP is pretty attractive right now.

Dream on… ;-)