financial model - ndo - investment bank analyz, page-5

Hello All,

Apologies for doing this as a group email:

1. juggernauts: how do you justify a terminal value of 1603 mil on limited life assets?

Terminal value is a very good question. For Oil reserves I have their initial at 40.50 million barrels in 2008. In 2010 I add in Tindalo & Yakal.

I have NDO spending 10 million AUD on proving up reserves / drilling each year based on 2009 forecast expenditure.

- I have assumed 0 additional oil discoveries.
- I have assumed 0 value for the 10 billion barrels oil in place NDO discussed in their last annual report.

As I have not added in any additional oil reserves, I have assumed that the 10 million spent over the next 10 years generates a incremental oil reserve of 6.83million barrels/year after year 10.

2. bwana: allowing for some exhuberance in my estimate , can see 97c as quite feasible in a yr or so . (all imh...seat of the pants ...o ) !

Glad I could take the information publicaly available and give you some comfort for that call. This is how a takeover entity / investment bank working for another oil company would start their valuation of NDO. Wanted to take some of the "black magic" out of the equation. Valuations are very straight forward but take a lot of time as you sift through all of the company information and place a structure around it.

3. opt: I'm not sure about your reserve assumptions though. Nido's published certified reserves for Galoc are:
1P 15.9 MMbbl or 3.5 MMbbl NDO's share
2P 24.6 MMbbl or 5.5 MMbbl NDO's share
From this you will need to subtract 1.8 MMbbl production to date.
I'm also curious about your assumptions on the governments share of production.

- Hello Opt great question. NDO in their last presentation stated that their cost of production was $32/barrel with a $3/barrel charge to the Philippine Govt. Hence giving them a marginal cost of production of $35/barrel.

However I reviewed their last quarterly report - Cash Flow Statment, it appears that the actual number is $43/barrel. I got this by taking their cash flow cost of production divided by the total number of barrels they produced for the quarter. You can see this in line - Break even Oil Price ('USD). I am assuming this number in their cash flow statement takes into account the government's share of production.

In terms of their oil reserves. I rang NDO to confirm that their share of the oil is:

1P 15.9 MMbbl Galoc
2P 24.6 MMbbl Galoc

I have used this number in Residual Reserves Million Barrels (start) for 2008 and added in Tindalo & Yakal for 2010. The Govt take is included in the cost of production.

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I have tried to be as conservative as possible. But please use numbers that you believe is reflective of your beliefs. My company does no work for NDO. I have been accumulating NDO since 0.12 for my own personal account and that of other investors in both Hong Kong and Australia. I consider this stock part of my core portfolio.

The key risk is the Oil Price, the model is most sensitive to this number.

Wish you all the best with your analysis. If you wish for me to write up any other stocks more than happy to do so.

Kind Regards,
Par15