I’ve spent the morning reviewing the production performance of this baby on my watchlist. Many won’t like my conclusion, but here it is.
It’s quietly forgotten, but production did reached 1,000 bpd back in Dec 2007, from 5 wells (3 horizontal).
This included 1 horizontal well that flowed at 560 bpd stabilised free-flow, the best well in Monterey County for 40 years. At the AGM, a 2,000 bpd production rate was predicted for the first half 2008. I note this has now quietly flowed away to the end calendar 2008. We’ll see. So the wells have been drilled at full cost, but production is less than 50% of that targeted for this time.
The trouble is, those same wells only produced at about 350 bpd in April this year, despite the installation of bigger pumps. The 4 new wells have bought total production up to 1,000 bpd again in June, and looks as though this was maintained in July. But going from past experience, I’d suggest these might well drop-off in a similar fashion.
The problem is with heavy oil. Production rates tend to decline rapidly and then dribble on at lowish rates for years. Steam injection can be used, but the gas to make it ain’t cheap.
I see comments that costs are only $10/ barrel. If you look at the June ¼, prod’n and admin costs total $2.7m on 66,300 barrels of oil. Thats about $A40 per barrel. Also noted that it doesn’t help admin costs that John appears to be the most highly paid CEO’s of any junior oiler (or even mid-tier oiler) I can find. For the total costs you then have to add an allowance for expensed development/exploration costs, which is going to be big for 2007/08.
On the revenue side, they seem to average about 85% of the Texas intermediate price. Currently say $114 = $US96 or $A100/barrel.
McCool hasn't managed to produce any volume and the Paris Valley Oil is exceptionally heavy at about 10 API. If these projects come off the company might be value – but IMO there is significant extraction risk. Previous attempts have all failed.
IMO the current share price is only fair value at best (on fundamentals). I can’t predict price movements as it’s all run on sentiment atm, but will predict they’ll soon announce a roughly break-even result for the year to 30 June 08, despite the oil prices prevailing then.
Talking NPAT here. Anyone care to disagree?
PE
SAE Price at posting:
0.0¢ Sentiment: Hold Disclosure: Not Held
