miilionaires row...cheap tickets, page-81

richardbranson...

Current Brent crude has settled at US$88.45...North Matanda oil commands a US$ premium, giving us spot $91.45

Long term, lets assume $US75, this takes into account easing of tensions in the Middle east, but also likely ongoing gains as the world passes peak oil.

In my view, I think this is far too conservative, although some analysts will think it is far to generous...they are the same ones who insisted 5 years ago on using a US$25 as for their 5-10 year pricing models...lol...not even close.

OPEC with the inclusion of Angola's 1.6m production (and growing), in Feb this year, has clearly moved from price taker to price maker, as such, forward projected price targets are very much a big unknown.

Oil is not being found in abundance however...so one would assume pressures will continue to be upwards and not down! Projected growth to 60 million barrels per day demand, further underlines this assumption.

Interestingly, the effect on this demand on current prices is far from terminal, suggesting the world is handling them without too much difficulty. Oil at US$25 was cheap, so a rise of even 4 times to say US$100, as we have seen, still cannot be compared to the oil shock of the 70's which saw an effective 8 times increase prior to a widespread dampening of demand!

Anyway, a conservative US$75 it is!

We also have gas which appears to be selling for about US$5/mmcf in this part of the world at present. In theory however, 6mcf gas = 1 barrel oil, so with oil set at an assumed forward projected US$75 per barrel, it might be more appropriate to use US$12.50/mcf (75/6)??

But...a conservative US$5/mcf it is.

Cost are not high...it is shallow and close to shore which will likely see piped production.

Gas expectations are 20mmcf/day minimum with costs less than US$0.25 per mcf = US$95,000 per day net pre tax/production sharing costs.

Oil production will be around 10,000-12,000 barrels per day initially, with potential for expansion down the track...so at 11,000 barrels per day = $US825,000 per day pre tax/production sharing costs.

Total gas/oil receipts from North Matanda = US$920,000 per day.

CVI get 40% of this = US$368,000 per day pre expenses.

Angola have confusing fiscal terms (confusing to me anway) due mainly to cost recovery arrangements relating to "cost oil" and "profit oil" and price cap fees.

In any event, it appears taxes kick in at 50% for all "profit oil"...one assumes after pure production costs and perhaps "entity presence" costs and various exploration sunk cost are accounted for, along with ongoing development/exploration costs being recovered from the "cost oil" production?

I assume a similar regime will impact the gas?

Confusing to say the least.

Assuming production costs of US$20 per barrel, (arbitrary based on regional comparisons), which again is conservative given pipeline delivery and likely longevity of production, and we see the project net US$55 per barrel profits (based on our conservative US$75 crude assumption), and some $4.75 per mcf for the gas (based on a conservative US$5.mcf).

After government fees/taxes are paid assuming a straight 50% on profits we see a net profit of some US$27.5 per barrel of oil and US$2.38/mcf gas.

Again, this gets confusing, as it appears "cost oil" is included in some profitable production, meaning the resulting tax will be much less than 50%...so I will have to let that one go through to the keeper.

Perhaps we can use this 50% tax on profit ratio as a worst case scanerio?

In short...

Assuming 11,000 bbls/d oil (11,000 x 27.5) and 20mmcf gas (20,000 x 2.38), we are looking at a net profit after costs for the project of some US$350,100 per day.

CVI's 40% = $140,040 per day.

That’s an annual profit after all recovery of costs/taxes, etc, of some $51.1m per year.

We then have aussie taxes to contend with, one assumes with an overlap of various unaccounted expenses from the net oil income, and of course various admin/compliance costs to the entity, including various depreciation expenses, recovery of exploration sunk costs, etc,(which recent reports suggests effective taxes become closer to 20% in real terms)...but, assuming an effective 25% flat rate, we end up with free cash-flow from North Matanda in the $38.6m range.

Remember, due to “cost oil” distributions, this profit is after ongoing exploration/development/expansion costs at the Cameroon leases.

This will be close to 10c per share based on an expanded register by the time we get to production.

With infrastructure in place and income rolling in, a doubling or even tripling of the production model for Cameroon can be implemented relatively easily given field size, with considerably lower timelines...eventually resulting in between 20-30c net profits to the entity per share…again, after ongoing exploration/production costs, which I assume are accounted in the “cost oil” equation?

I am certainly no tax expert...and am not aware of any reciprocal arrangements the ATO may have with income derived from Cameroon...but in assuming CVI effectively get taxed again by the ATO, any adjustments here can only result in a better return for CVI than I have suggested.

So...the bottom line I guess is that within as little as 12 - 18 months, CVI could well be looking at a minimum of 10c per share net profit at Cameroon, with targets of say 20-30c per share in as little as 24-36 months!

Longevity and exploration upside here, along with rising oil prices, suggests a PE of 10 is not expensive, giving us $1, $2 and $3 respectively on the above production models!

This is just Cameroon...which really is just the money tree to fund the other projects they get.

So when can we expect these sorts of prices to be built in?

In NDO's production model, the figures were bought forward some 12 -18 months prior, equating at that time close to a market cap close to $270m…effectively at a similar stage that CVI are at now.

This is just Cameroon!

But, what about Catabola, and god forbid, any one of the numerous Oil Concessions they are looking at, each of which will overshadow Cameroon significantly!

One can only imagine?

But…risk will always accompany such stocks...in concert with the significant rewards for those prepared to take it on.

One might argue however there was very little risk entering at 6c...especially with the shares now trading at 30c…in retrospect of course, lol...but, I suggest current prices will eventually be viewed in a similar light.

I am in already…the value appears clear to me, even of still a somewhat unknown equation…it really is a personal choice however as to when one decides to buy into such a play.

Good luck all who do, regardless of what price that might be.

Cheers!