Fat Prophets have a serious hard-on for SAE, it seems. I don't...

Fat Prophets have a serious hard-on for SAE, it seems. I don't subscribe, but here is a cut and paste from the free weekly e-mail they send around:


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There’s $380 Million Worth Of Value In This Oil Company

Let’s use a simple example to illustrate the point.

You assume the long-term oil price averages between say US$80 and US$140 a barrel.

You discover a company which is budgeted to produce around 300,000 barrels of oil in 2008, with profit margins after all expenses over US$50 a barrel. That translates into budgeted profits of around $16.5 million. You estimate the value of this existing field at around $120 million.

As well as the potential to further develop its existing oilfields, the company has further growth potential from two identified opportunities. One has the potential for one million recoverable barrels of oil, the other is estimated by the company to be worth between $135 million and $200 million. There are significant other growth opportunities too.

The company is profitable, has no debt, has $11 million in cash, and is planning on drilling 15 more wells in 2008. It has a respected management team with hundreds of years of collective oil industry experience.

In a recent broker presentation, the company itself estimated its total risked potential value to be around $380 million.

What price might you expect to pay for this company with an estimated value of $380 million?

Remember, price is what you pay, value is what you get.

In a “greedy” market, you might expect to pay around $340 million, a modest 10% discount to its estimated value.

In a “normal” market, you might expect to pay around $265 million, a 30% discount to its estimated value.

In a “fearful” market, you might expect to pay around $115 million, a 75% discount to its estimated value.

Would you be prepared to pay $115 million for this company? We’d suggest you’d seriously consider it.

Wake Up Market And Smell The Coffee

By this stage, you’ve probably twigged that this is a real company, a company we recommended our Fat Prophets Mining & Resources Members BUY back in July last year.

In our most recent update to Members, we said…

“When we last covered it we thought the company was a bargain-priced entry then, but over the past few months the story has advance significantly and become more attractive. In the meantime the company’s share price has halved, making the company extraordinary value in our opinion. When will the market wake up and smell the coffee, we ask?”

How much would you pay for this company?

We suggested above you’d seriously consider paying $115 million.

How about if we told you today, you can pay around $80 million for this company?

The price is $80 million. The value is $380 million. To us, that is investing with a large margin of safety.

Warren Buffett once explained how he looks at margin of safety…“You build a bridge that 30,000-pound trucks can go across and then you drive 10,000-pound trucks across it. That is the way I like to go across bridges."