I agree with kiwigeo – you can’t value a gas discovery by converting to oil equiv. Even though the price of LNG is closely linked with the oil price.
It would be more accurate to value a gas discovery either on recent take-over/acquisition prices for LNG, or revenue from the potential development.
Santos sold a 40% stake in their Gladstone LNG project to Petronas back in May 08 for A$4.91 per GJ (when the oil price was north of $100/bbl). And BG paid A$2.30 per 2P GJ in their A$5.6bil takeover of QGC last month (with oil below $50/bbl)...granted - that's CSG, but it will most likely be used for LNG.
It might be more realistic to use a takeover value of say A$2 per GJ for MEO in the event of success in Zues.
Even if you only consider the primary target at Zues which is 15tcf in-place – with a conservative 40% recoverable and 35% stake, this is 2.1tcf net to MEO. 2.1tcf is equivalent to 2.1bil GJ @ A$2 per GJ is a takeover value of A$4.2bil for MEO ($10 per share with 417m fpo’s on issue).
Alternatively, if MEO survive a takeover and we value a Zues discovery on the potential revenue from development then I still think you’re probably looking at $10 per share based on the following…
If we take the worst case scenario and say that the oil price remains in the US$40 to US$50 range, then the base price for LNG will be in the order of US$7 per mmBTU or A$10 per mmBTU.
1mtpa = 51.7m mmBTU/yr, which is revenue of A$517m per year for 1mtpa of LNG sales.
If we assume that we will target one LNG train with a 4mtpa capacity. This would provide A$2bil annual revenue, with 35% net to MEO is A$724m per year. Ignoring CAPEX for now and using OPEX of 30% gives a profit of A$506m per year. Using a conservative PE of 8 this would be a market cap of $4.1bil for MEO or $10 per share.
I think the in-ground value of a Zues gas discovery will be around one fifth of those valuations (from past experience of following oil/gas exploration companies as they transform from pure exploration to production as well).
So I think $2 per share on a discovery.
And around the 40c-50c high pre-spud. But if they announce gas shows in the shallower secondary target then I say 80c before we hit the primary target and closer to $3 if we hit gas in both.
Cheers,
Butcherano.
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