hypothetical calculations on jeruk 2

Following yesterday's announcement from STO re Jeruk 2 oil flow, let's do some totally hypothetical numbers...

1. STO has suggested earlier that Jeruk could be 170 Million Barrells. Lets assume it is all recoverable. Obvioulsy it won't be, but let's assume it is.

2. CUE opted out of Jeruk, but can buy back in on "industry standard terms" . Lets say that those terms are 4 times the cost of drilling the two wells, so far. The cost of drilling is probably around $US40m. Cue has a right to buy back their 15% of the wells, so their buyback amount would be (say) $US40m x .15 x 4 which is around $US24m.

3. Cue's share of the oil in the ground would be 170m barrells x .15 which is around 25 million barrells. At $50 per barrell, the in-ground value of CUE's oil would be around $US 1.25 BILLION.

Sure, they won't get all the oil out. And the net profit is not going to be $50 per barrel, and yes it does cost money to build and run a production platform, and yes there will be royalties and taxes.

BUT! If we reduce that figure of $US 1.25 billion by 90%down to a net profit of (say) ONLY $US 125 million (or $170 million Australian dollars), and divide it by the 334 million shares in CUE, we still get 50 cents per share.

In the next few days, STO should release the results from the logs from Jeruk 2. If the results are favourable (that is to say, they suggest the likelihood of a producing structure containing 170 million barrels of oil in the ground), then we could ask the following questions:

1. Will CUE opt to pay $US 24 million to buy back $US1.25 billion worth of production oil in the ground? (No brainer)

2. What will happen to CUE's share price? (No brainer)

3. What will STO (or some other company) do to CUE? (no brainer)