Management and Value Creation. More to come?
Asset Valuation
Whilst the share price is a very concrete measure of absolute value - past and present, it is not necessarily an accurate measure of the underlying value of assets. Markets are notorious for mispricing assets.
Management's Achievements
Brent Emmett and the boys have managed to acquire, develop and grow a stable of significant and valuable assets over the period that they have been running the company. I don't think that is in dispute: Beibu Gulf is a cracker, with Phase II on the horizon; Maari is a bit of a disappointment, but looks like it will perform better going forward; PNG offers very significant Blue Sky potential.
They haven't had a dream run. It is not down to luck, that is, drill one well, and eureka. It is the result of hard yakka, and I believe quality negotiating.
I dragged out the 2003 Annual Report - the first that I have, and made a couple of comparisons to the 2015 Report - the most recent.
Revenue from ongoing operations went from $0.18m in 2003 to $104m in 2015 with developments in NZ and China.
Exploration Permits!
Typically the small energy sector starts with a large chunk of a permit, and they farm it down to get a free carry for exploration (seismic and/or a well), or they may farm into a permit. Permit % reduces (significantly) over time.
Tunisia (BLO legacy permit) and Bayou Choctaw, USA have disappeared.
New Zealand They farmed into Maari for $1.5m. A good entry price. Maari developed and now producing.
Beibu Gulf China They had 30% of Beibu Gulf in 2003, and they now have 55% (pre- CNOOC 51% farm-in right). They purchased PSA share. Can't remember the price paid, but with hindsight it was very, very cheap. On the other hand, the Bonds were used to fund this purchase and PNG drilling from memory - so there is some grief attached.
PNG - now this is just spectacular. In 2003 we had 7.5% of PRL 4 (Stanley) and 7.5% of PRL 5 (Elevala/Ketu). In 2015 we have 30% of PRL4 (Stanley) and 28% of PRL 5 (Eleval/Ketu). So our interest have quadrupled!
But wait, it gets better. We went to 100% for minimal or zero cost (from memory), and farmed down, first to Tailisman/TLM (taken over by REPSOL), and to OSAKA (Japanese congolmerate). We receive something in the order of $140m cash as part of these farm out deals. There is another $130m if PNG gas gets the green light (FID or 3rd party gas sales, e.g., OSH/XOM). There are a swag of additional permits in the condensate rich gas sweet spot.
PNG Summary Quadrupled ownership percentage of PRL4 and PRL5; acquired additional permits; received $140m cash to do it; and another $130m if PNG gas is developed.
In my opinion, only a select few can achieve this sort of deal.
Mistakes. Have there been errors along the way. Of course! Most notably, and perhaps hindsight is wonderful, insufficient hedging. I would lay much of the blame for this with the board rather than exclusively with the CEO. It is worth noting that we have recruited a new Independent Director with Risk Management expertise. She has directorships NAB Wealth, OzWide Bank, etc. She is also a member (maybe Chair?) of the Independent Audit Committee of the Reserve Bank of Australia. Very impressive. Clearly a High Flyer, and she has chosen to fly with us.
Disclaimer. Some of the number may not be 100% accurate as I am relying of my recollection of deals that have occurred over several years. However, they are in the right ballpark, and are unlikely to be out by more than 10% - touch wood!
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