I have read through all the posts. Thank you all for the time and effort you have put into the post. Hopefully ultimately we can end up with a model that takes into account everyone's feedback and assumptions and can give us an idea of what the underlying value is in this company.
Valuation: 54 cents/share based only on existing 2P reserves.
Please find attached model:
Changes:
Oil Reserves:
1. Included 2P reserves for Galoc, Tindalo & Yakal as total field reserves. 2. Field decline has been done on the basis of total consumption or 14,400 barrels per day (I have made the consumption rate 15,200 to show a worst scenario for field decline). This means the field is declining at a rate of 3.9 million barrels in the first year. 3. In 2014 24 million barrels has been added. This has been done for three reasons: - Firstly under Capex - Additions to PP&E 10 million AUD has been included every year as an expense to prove up oil fields (either new field or existing field). - Secondly 3P reserves for above mentioned fields total 91.2 million barrels. This means they would only need to convert 50% of their 3P to 2P to meet the reserve increase for 2014. - Finally I have added no increase in volume for any other fields they have in their locations nor potential for farm in agreements opening up new fields.
Weighted Average Cost of Capital (WACC):
Ultimately everyone will have a different view on the riskiness of a project or a company. Originally I used a WACC based on their last debt raising (convertible bond)that used a risk free rate of 3% and a risk premium of 5%.
To be conservative for the currently model I have used a risk free rate of 3% and doubled the risk premium to 10% creating a WACC of 12.26%.
Oil Production per Day (NDO Share):
The reason for the escalation in production is that I believed they would become more efficient with time with oil extraction. The comments made about declining oil fields are reduced rates of production are all valid. However I am aware and have seen the different methods (water injection, changes in pumps etc) employed to keep well flow rates constant (making oil extraction slightly more expensive) but resulting in no decline in oil production until the well runs dry.
Breakeven Oil Price ('USD):
The point was made in a post that the cash cost of production could include one-off costs last quarter due to repairs. In light of this I have changed the cost of production to $35.00 to be consistent with Nido's last company presentation material. ___________________________________________________________
Ultimately there is a lot of blue sky for this company. However for valuation I want to know what it is worth today. There is a huge amount of liquidity flowing into the oil markets recently. I think this will translate into consolidation and M&A activity particularly for small companies like NDO that have decent oil reserves but from my work are undervalued.
Please note the sheer volume of money flowing into the sector represented in the following deals:
Gazprom Neft eyes $500m-$1bn Eurobond 10 June 2009
- Russia's Gazprom Neft , the oil arm of gas export monopoly Gazprom , plans to issue a Eurobond with a volume of $500 million to $1 billion in the coming months, the company said today.
Lukoil sells $160m rouble bond 10 June 2009
- Russian oil major Lukoil started the placement of a 5 billion rouble ($159.9 million) bond, a spokesman for Troika Dialog, the mandated bookrunner for the deal said today.
Karoon lines its pockets 10 June 2009
- Australia’s Karoon Gas has raised A$149.6 million (US$120.3 million) via a share placement that will help fuel its exploration programmes.
InterOil wraps up $70m share sale 9 June 2009
- Houston junior InterOil has completed a registered stock offering of just over two million shares that raised $70.4 million.
Anadarko prices $900m offering 9 June 2009
- US independent Anadarko Petroleum priced its $900 million senior notes offering in three tranches.
SandRidge to get $75m investment 9 June 2009
- SandRidge Energy and US Drilling Capital Management signed a well-bore participation agreement to invest up to $75 million in SandRidge's development drilling activities in the Pinon field, in the West Texas Overthrust
What I did not like about the company is that they do not appear to be doing a road show and talking to investors when finally they have something positive to say.
I also do not like seeing company executives selling shares. I think this shows a lack of confidence in the company regardless of the reason.
What I do like is that they have achieved what they said. They are producing and do have the cash flows to fund their operations. Although it would not be hard for them to raise money if they needed.
Appreciate all feedback. Thank you everyone for taking the time to read.
I will do another company this weekend and post it up on Monday.
Kind Regards, Par15
NDO Price at posting:
20.0¢ Sentiment: Buy Disclosure: Held
(20min delay)