Thanks HTT,The recent article below is written by Jonny...

Thanks HTT,

The recent article below is written by Jonny Hesthammer, co-founder of Rocksource and is worth a read.

http://208.88.129.54/March-2011-Value-creation-using-electromagnetic-imaging.aspx

I found the Expected Value - Coin Flip approach quite useful. Using 30 cents for success (StockAnalysis latest estimate Feb 16) and say 5 cents for failure (just my guesstimate) and 50% CoS then (30c x 50%) + (5c x 50%) = 15c + 2.5 = 17.5 cents. This is the point where the investment is neutral in terms of Kora alone. If you go with the 70% CoS then the neutral number is 22.5 cents (ie below this is a buy, above is a sell) based on the probabilities. If you want to be conservative (as SA has done with 25% Cos) then 11.25 cents (20% higher than the market is valuing us at the moment).

Of course this doesn't take into account all the other factors involved in an investment but you often come across these sorts of situations in the O&G sector and I like that this can give you a ball park figure.

The other thing to keep in mind is that this probability type approach is accurate if you run the experiment many times, but with one-off scenarios it is still easy to get burnt. A high Cos can lull you into a false sense of security to the degree that you can be a little shocked when it all turns to dust; something I have found out the expensive way,

Cheers, V