Hi Par15,Re: Reserves. Please have a look at NDO's presentation...

Hi Par15,

Re: Reserves. Please have a look at NDO's presentation dated 12 March 2009 titled 2008 Full Year Results. On page seven the Galoc reserves are stated as 4.2 MMbbl, about 10% of your assumption.

Tindalo and Yakal are not certified or proven. Currently NDO are reporting a resource of 11 and 5.1 MMbbl in place respectively. Assuming a recovery factor of 40% and NDO's 60% an unrisked 2.6 and 1.2 MMbbl for a total of 3.8 MMbbl. Considerably less than your assumption of ~20 MMbbl.

I'd guess that reducing your reserves by a factor of ten would reduce your share value accordingly.


I'd also be cautious about increasing production by 15% annually and projecting your government share figures into the future. Oil depletes in an exponential fashion. Galoc was granted a 100% cost recovery for a period of time. That will expire and the government will be taking a larger share.

DCF is an excellent tool when testing a range of assumptions however can yield skewed results if used for high risk businesses like oil and gas. I find a more robust analysis is using reserve numbers and a $/bbl figure for reserves in the ground. This is a quick check to see if you're in the ballpark and is used in the business for petroleum M&A work. Its particulary usefull for companies like NDO who have a substantial exploration portfolio. You can check the value add of a given prospect by estimating its net resource and figuring in a risk. This sort of analysis shows that the value of the company will leap on exploration success. With that caveat I would recommend you have a look at the potential of Gindarra in your model.

I agree that the key risk is oil price but second to that is reserves and government take .


Regards,
OPT