Euroz update: Price target $.94 maintained

The research report is available here.

"Whilst direct look-through for CVN is not immediately apparent, a number of circumstantial data points leads us to posit that substantial value has been ascribed to the Dorado and broader basin prospectivity within the total consideration. "

They highlight some points I raised previously regarding the value of Quadrant:

"- When Apache sold the Quadrant assets in 2015 for US$2.10Bn the assets boasted ~323.4mmbboe of 2P Reserves (83% gas);
- STO is purchasing these assets 3yrs later for US$2.15Bn this time with 220mmbboe 2P Reserves (85% gas);"

The 2P reserves had dropped by 32% since Apache offloaded Quadrant in 2015 to the end of 2017. We are now more than halfway through the year so that 220mmbboe 2P reserves would be even less.

If you assume all other factors back then are equal to now except the changes in the 2P reserves, then the $2.1bn price tag back then should be $1.428bn USD now. But, no STO paid $2.15bn USD. That's $722m USD ($989bn AUD) more, despite getting more than 32% less in 2P reserves.

Why? Well the factors that have changed in addition to the fall in Q's 2P reserves are:

- Oil prices are slightly hight now compared to when the Apache transaction occured
- Currency has fallen ~US4c;

Those two aspects alone are not sufficient to explain why STO paid more for less. So the last significant change is the Dorado, ROC and Phoenix discoveries. Even so, you cannot just ascribe $989m AUD + the ~$150m contingent payments, to get the Dorado valuation because... as stated by AC and many others, the contingent payments are a bonus. Some value of Dorado was already built into the upfront price.

If anything, given the depletion of reserves, and the $1bn in restoration costs of Q being much closer, that discount from the Apache purchase price should be much more than $989m AUD.

Will do a bit more work on this when I get home. For now, take a chill pill. From what I can see the long term holders here have got their stuff together and know how much this is worth. It's probably easier to keep your head when you've only gone down from six or seven bags down to four or five.

For the newbies that recently jumped on it might be harder to stomach, but hey, that's investing for ya. Good luck to all, don't act solely based on stuff from hotcopper and DYOR!