Ahead of the coming half yearly on 23 September, the market will...

Ahead of the coming half yearly on 23 September, the market will be looking at its first full set of KAR results with a full period of Bauna production. What we know about profitability so far from the 1H21 quarterly’s is:-

1. Q1 production = 1.14m bbls (12,641 av/day) @ $55.38 /bbl for US$74.3m lifted revenue
2. Q2 production = 1.19m bbls (13,068 av/day) @ $65.31/ bbl for US$96.5m lifted revenue.
3. Guidance on unit operating costs have been narrowed to US$24-26/bbl so at the margin with current oil prices at/around US$70/bbl (Karoon gets a premium to Brent) we can expect pre royalty margins of $45/bbl.
4. New management is targeting unit operating costs to be at or below US$20/bbl after the upcoming mid-2022 workovers and expanded production to 30,000 bbls/day by Q4 2022. So we can expect pre royalty margins of $50/bbl at current $70bbl Brent.

If these above assumptions are correct, by end 2022 Karoon should be producing US$135m of operating cash flow per quarter or US$540m per annum = A$750m pa, less A$10-12m other operating costs, less royalties and less tax (the company should have substantial tax losses in Brazil).

The current market cap of A$650m values the company at 0.86x one year forward operating cash flow is ridiculously cheap. What multiple should we put on this pre-royalty, pre tax operating cash flow?

3x = $4.10/sh,
4x = $5.45/sh,
5x = $6.80/sh