Figure 2 - Future CashFlow Projection OEL

The Letter to Shareholders (LTS) has (for me) a very important piece of information - i.e. Figure 2 - Future Cashflow Projection OEL.

It's a start. I have some questions which, being a new year, Ill try and get answers to for the sake of transparency because like any map, if you don't know where you are the map isn't much help.

The frame of reference ... so there so be no doubt about "distortion of data" ... you have to estimate the actual numbers from the graph and hopefully I've done that without transcription error. I've added 2 columns for the periods that end June 30, 2019 and then Dec, 2019. These periods have been reported. For June 30, 2019 that numbers come directly off the Annual Report. For Dec 31, 2019 I was only interested in the Cash & Debt at end of period.

This should be pretty straight forward. The Revenue is from Figure - 2 (so assuming its NRI). Cost of Goods Sold is the LOE+G&G, the SG&A is the G&A and the Interest paid is that portion of Debt Payments approximated as the Interest Portion




Again should be straight forward. Sales is Revenue. Payments to Suppliers & Employees is LOE+G&G+G&A .... my assumption is there are no other payments. That take care of Cash from Operations.

Next up is Cash from Investing. This is our development capital spend. Since this all development there is no dry hole expense (see $0 in Cash from Operations).

And lastly Cash from Financing. Assumption is no transactions with Equity holders (i.e. no dividends or buyback or issuance). But we are paying back the Debt which is the $8M, $7.5M and $6.5M ($22M) payments to Debt

That ends with then Cash of $28.45M and Debt $0 ... hang you might say are we supposed to have $40M based on cumulative cash flow chart?? Well we paid $22M in Debt back ... so technically I'd say we would end up with $50M in cumulative cash but there is nothing in Figure - 2 that says how much of the debt is repaid (although tranche A1 is to be repaid in 36 months). Bit of an anomaly to be clarified ... assuming no errors.



So far just an accounting exercise. But now we get to something I am more interested in



For the moment ignore FCFF ... it is unreliable given the information available.

The Free Cash Flow I'm interested in is FCFE (you might also hear it referred to as Levered Cash Flow) ... Why??? - because we are EQUITY OWNERS and FCFE includes interest expense and net debt issued or repaid ... ergo it is cash flow available to equity investors and makes it useful for valuation purposes (THIS IS ASSUMING I've made the debt repayments estimates roughly correct). FCFE then measures what a company could pay out as dividends. Obviously 2020 is not a year for paying a dividend. I am looking past that to 2021

Therefore using the widely used simple dividend stable growth model.
OEL Cost of Equity (r) is calculated Beta of 2.13, Market premium 6% and Risk Free Rate of 2% = 2% + (2.13)( 6%) = r = 14.78%

Picture where we are at the end of this year. GC-21 is in production. FCFE is now forecast as $10,500,000. I've said it a million times so one more wont hurt. The stock market rewards growing (profitably) companies. You see what happens if further investment is not made (FCFE drops in 2022). So we need to be confident the firm keeps growing. I will run 3 growth scenarios for which g=7%, then 8%, then 9%

P₀ = FCFE₁ / (r-g) where P is "todays" Price per share (remember end this year) FCFE is $10,250,00 (so divide by #shares 2.460B) and r = 14.78%

Scenario where Growth g = 7%
P = (US$10,250,000 / 2,460,000,000) / (14.78% - 7%) = US$0.0536 or about ~ 7.5cps

Scenario where Growth g = 8%
P = (US$10,250,000 / 2,460,000,000) / (14.78% - 8%) = US$0.0615

Scenario where Growth g = 9%
P = (US$10,250,000 / 2,460,000,000) / (14.78% - 9%) = US$0.0721

This is a show me the results business ... harder to argue with real cash flows than say EBITDA or some form of in ground valuation. You can take this measure and calculate the FCFE yield ... so convert our present market cap to US$ ... ~US$50M

FCFE yield is then $10.25M/US$50M ~ 20% ... I know I'm happy to earn a 20% yield on my investment ...but lots of assumptions.

Hope it helps