Yes...one gets a good feel for the scale of this game, and what AJQ are potentially sitting on (100% owned mind you), which would be seen as a big deal even for the likes of Santos.
It is strange the lack of interest from the market...which I blame on the obvious stale-IPO selling that appears to be still trickling out. Why chase the price up when patience will get your fill...I can only assume some pretty poorly informed types initially took stock in the IPO and/or have no idea of the track-record of those at the helm here...nor what they may be sitting on.
To be frank, I am pretty excited about the delay in market updates...if I am right, and this discovery will be seen by the Company as a major “game changing” development, they may well be putting together something fairly significant for the market.
We may not hear about all the details for some time though?
In this regard, sometimes the obvious needs a helping hand...take SIR for example...
Warning big-picture "back-of-envelope" type calculations follow...
Current market cap for SIR is about $280m on a fully diluted basis...with some $50m cash (assuming all options get converted and including recent placement)...so an EV of about $230m
All this based on circumstantial evidence from a few successful holes, drilled into a large-scale target...which, if we assume the high-end of potential success, will result in a reasonable resource.
Easily compared to AJQ’s recent success, both in scale and potential...yet AJQ's EV is just $36m or so.
Now, SIR’s hits are an excellent result by any measure...which after recoveries, etc...I expect to see a resource edging close to about 3.5mt @ 5.5% CuEq +/- (Ni & Cu)
That’s an in-ground value of about $1.4b, which, when you add the potential for similar finds, and regional significance of this new style of mineralisation with respect to their ground position...and add a good dash of corporate "incentive" in the mix...in my mind supports SIR's current share price at this current point in time.
But only just.
For measure...compare SIR's 3.5mt @ 5.5% CuEq “potential resource” with SFR's 11mt @ 5% Cu “confirmed resource” ($4.1b in-ground value)..SFR are on the verge of mining (they own the mine)...and this is currently supporting a market cap of about $1.2b.
SIR need to be 100% successful from now on if their new discovery is to continue to support a market cap about a third of SFR's (ie $1.4b versus $4.1bin-ground) when SIR eventually find themselves on the verge of mining...which is a market cap for SIR of about $400m.
SIR will also need to raise something like $300m for cap-ex between now and then...so expect another 150m shares on issue (assume they manage to raise at say $2).
A grand total of some 385m shares on issue for SIR, which at their current share price will give a market cap of $465m for SIR...seems about right compared to SFR.
Sorry about the long-winded sidetrack...there is a reason for the examples...back to AJQ...
With a similar $260m spend (ie existing $60m and raise $200m), AJQ could drill about 50 wells and put in place the infrastructure to get their gas to market...not unlike the drill-out and cap-ex approach for stocks like SFR and SIR...instead of shipping concentrates, AJQ will be shipping gas and liquids.
Assuming an average of 3mmscf/d production per well x50 wells...(I would expect higher flow-rates with fraccing)...we get a combined 150mmscf/d of accumulated field production.
I am using mid to high-side numbers as per the SIR example.
So...assuming they sell for about $4.5/mscf...AJQ are sitting on revenues (before costs) just from the gas, of some $675,000 per day.
Of course, with liquid condensates of about 3000bbls/d based on the above (ie 20-30bbls/mmcf - re Company notes)...we can add another $200k? per day of potential income.
So we have some $875k/d gross...or let’s assume $500k/d net revenue.
That’s about $175m net profit per year (using 350 days per year per well).
To compare to the other examples...AJQ will need to raise the $200m at say $2/share as per the SIR example...resulting in about 400m shares on issue...and remember, like the other examples, this is effectively after the cap-ex spend and at the point of first income.
The reality will be different for a gas/liquids producer who can bring on wells incrementally.
Anyway...based on the above numbers, we get a net profit per share for AJQ of about $0.44...year-after year...for as long as the fields can keep producing and/or AJQ can keep putting in new wells to keep ahead of the production decline curve, which is the usual approach.
By the way...50 wells is the tip of the iceburg...they will eventually need upwards of 500 wells, if not more...given the size of the Barney Creek Shale footprint.
This is just one target mind you.
Remember...unlike CSG production, conventional gas targets have immediate production potential (as per conventional wells)...and typically decline at slower rates than both conventional and CSG wells...providing greater longevity per well and importantly, greater ROI numbers per well.
Arguably, once dividends are being paid, appropriate PE's for a stock like AJQ may well be in the 10-15 range...and much higher in the ramp-up phase.
This equates to a share price in the $4.40 - $6.60 range...or higher...
More importantly, AJQ's wells on average will cost about half those in the Cooper Basin...so it will be much easier to obtain "commercial" flow rates.
Oh...and for the record...given we previously mentioned both SFR's and SIR's "in-groun"d resource values...AJQ's in-ground resource value is something like $180b.
Yes...that’s $180 billion!
lol...to be fair, accessing all of this "in-ground value" will require a bigger spend than $260m...and far more than just 50 wells.
But perhaps therein lies the clue to longevity and “scale” that may well be the subject of discussion at AJQ’s board-level...in response to a “game changing” development?
AJQ would surely look interesting right now to the likes of Santos, or Beach...who I would expect at the very least will be watching near-term activities and/or developments at AJQ.
Think years though...not months...however, as we can see from SIR, sometimes value can be bought forward and the stage set much earlier than expected...sometimes even for self-protection.
Cheers!
AJQ Price at posting:
33.0¢ Sentiment: Buy Disclosure: Held
(20min delay)