Assume that oil at $25/bbl is break even (NPV=0) Capital cost, operating cost and marketing for the next 10 years = $25/bbl.
Assume that oil will remain over $80/bbl for the next 10 years. DCF factor at 10%pa is 0.9*(1-0.9**10)/(1-0.9)= 5.86 over 10 years starting next year. 1bn bbl at $55/bbl (100,000bblpa) = $5.5bn*5.86 = $32.23bn NPV
Divide by 710 million shares to get $US45/share Roughly 22.5 GBP/share.
Using a DCF at 15% it is 17.6 GBP/share
The assumptions are very conservative. The only problem is the political system in Uganda. Higher risk suggests a higher % DCF.
If Uganda is 2bn bbl, double the Net Present Value. For 1bn bbl from other sources eg Ghana or Guyane multiply by 0.9 (10% DCF)or 0.85 (15% DCF) for every year after 2009 that these come on line to get additional NPV.
Complex
HDR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held