1. The PSC terms get reviewed fairly regularly. The devil is in...

1. The PSC terms get reviewed fairly regularly. The devil is in the detail. For example how "cost gas" is allocated etc, or if capex is recovered. I have no idea where the PSC sits. But expect the PSC will have been updated when it was renewed. Use the 60/40 split with full recovery, assuming the capex has been fully recovered and a 80% profit margin. This will give the operator 32% of the revenue.

2. PV = Present Value, FCF = Free Cash Flow.

3. You have used 8x P/E. This is of course very subjective. However I would be using a much lower multiple for the following reasons:
a. The contract is only 6 years. It may be renewed, but I don't want to pay for that. I dont think the market will either.
b. Even if the contract is renewed indefinitely, an 8x P/E implies a 12.5% cost of capital which I think is far too low. This is not the kind of stock to which CAPM applies. No one is going to add it to a portfolio for diversification - unless that portfolio is a "big bet, big returns" portfolio.
c. The "quality" of each cent of earning is very low quality - There is no chance it will surprise on the upside. It is almost guaranteed to surprise on the low side.
d. EWC has no control of the cash generated. Bakrie will control this project. Earnings from the PSC will finance exploration and development. The terms of any exit by EWC will be dictated by Bakrie. EWC will not see a cent of the cashflow, and even if it did it will go straight to Slipform/EWI.
e. There will be more dilution to EWC. Shares on issue will go from 3b to some other silly meaningless number.

4. I therefore took the approach that the contract will allow value to accrue to the operator and that the value of the exploration will be at least equal to the money spent on it. On that basis the operator (EEEC?) is worth about $100m and EWC share is worth $50m (if the operator gets to keep 32%). This is about 1/10 of the debt to slipform/EWI and so are largely immaterial.

5. These are very low quality back of the fag packet numbers. But show this contract is neither here or there.The valuation of EWC is still predicated on the never never in the Philippines and at Wajo.