I thought this might be of interest for discussion.
Puntland Valuation Model
Caveats
I am not an expert, this is not an exact science and I cannot predict the future. I'm offering you my own way of doing things. Do your own research, build your own models and re-validate frequently as events unfold.
I am not going to state a share price and show you a fag packet. It's not that easy and I make no apologies for that. The post title is Puntland Valuation Model not what Twissso wants you to think Puntland is worth.
Intro
This is a recipe to 'bake your own' valuation. It?s a model or framework, whatever you want to call it. Everyone has their own risk appetites, perceptions and trading strategies. These factors move the market and it?s only when the price is very stable that there is an overwhelming consensus of current value. When the price is moving which is most of the time, the value consensus is unbalanced. We will never all agree. What I'm presenting is a straightforward formula for modelling your own valuation based on personal weightings of factors that influence the price.
The formula is laid out with an example at the end to show how it can be pulled together.
Many factors influence the price and these factors are in constant flux. Newsflow, sentiment, world events, funding, rig status, syncing Puntland operations with other licenses etc. These things all contribute so need to be given an initial weighting, which can be adjusted as events unfold.
The data available at the moment (to us) is extracts of the CPR report and tid-bits of historical data. CPR extracts are published on Africa Oils website but these figures are rarely referenced. Historical well data and the cores that 'fell of the back of a truck' are additional sources of data. These may or may not have been factored into the CPR (I don?t know the answer to that) but will definitely have been factored in the working basin models.
A baseline valuation can be factored by using these CPR NET best estimates, multiplied by the GCoS figures for each lead, multiplied by a price per barrel in ground. Take this baseline and model in each contributing factor with a weighting and you'll get a figure. I've done this in Excel and have attuned the weightings to my own personal viewpoint / risk appetite. As things change it?s early to recalculate. This approach flies out the window once the first well spuds.
Lengthy preamble aside...where are we now?
Using the CPR net best estimates published by Africa Oil (20% Range), multiplied by the GCoS, multiplied for a price per barrel to get a baseline figure. Here are some examples calculated using data from all leads across both blocks. Here are examples
@ $10 a barrel = 45p @ $5 a barrel = 23p @ $2.5 a barrel = 11.5p
These are the baseline figures using data supplied by a Competent Person. Influencing factors are then weighted against this baseline.
Here is an example list of contributing factors that can be weighted in. This list is not exhaustive. Add to it as you wish and include a weighting for each factor.
1. Is the program funded? > Yes it is (and the price has risen accordingly) Example weighting = 1.3
2. Has a rig contract been secured? > We've been informed by the III interview that a rig 'mobilisation fee' has been paid which infers that the contracts are secured. Without the details there is still uncertainly. To give you a scenario, the rig operator may have been paid a fee to enter the country and evaluate logistics without having committed to drill the wells. Weight up how you see it until more is confirmation. Example weighting = 0.9
3. Has the rig mobilised? > Not yet and there's a very high probability that such information would leak so would already be known in the public domain, without validation. Example weighting = 0.8
4. Is there institutional support? > Dutchess are confirmed as equity partners so in part, yes. > Other institutional buyers are rumoured but not confirmed. > Fund accumulation is likely but funds wouldn't heavily expose themselves to Range (IMVHO) > I don't give any weight to the suggestion that a single entity is aggressively accumulating stock and disguising their activities to avoid satisfying regulatory disclosure requirements. No credible regulated institution would jeopardize their FSA/ASX license to acquire this or any other company. Example weighting = 1.2 (will increase significantly with a holding report or other confirmation or accumulation)
5. Concurrent activities > Range are doing a fine job of managing their projects and the newsflow so that several activities 'POP' at the same time. This approach builds momentum, increases support if a single operation doesn't go to plan and will create a lot of positive froth if there are multiple concurrent successes. Example weighting = 1.4
6. Sentiment > Sentiment around the company is good ATM. This has been through a combination of the machine PR, a market re-rating gathering steam, take-over rumours, concurrent activities building momentum, large shareholders / informed shareholder initiating new investors and well managed newsflow to keep all and sundry engaged. Add to that concerted, almost militant responses to all negative comments and you have a very aggressive combination of factors. > The wider market sentiment creates headwind or tailwind that also influences. Example weighting = 1.4
7. Sector comparison > There are other opportunities out there. Range is constantly compared with their O&G junior peers as people seek to make money. Market cap is the crudest measure of this. At 24p the undilulted market cap (?312m) and fully diluted market cap (?397m) obviously makes Range less attractive than when the share price was in single figures. Comparing market caps vs prospects vs funding vs expected news flow across different companies is wildly subjective. This is an exploration company with reserves, production and prospects across multiple regions. Comparisons are complex. Example weighting = 0.85 (two months ago this figure might have been doubled)
8. Political risk > Puntland is relatively stable at the moment but can the situation can change quickly. Your own perceptions factor strongly here. The worst case scenario is Africa Oil can't get access to drill. If that occurred the weighting is effectively zero. Divide anything by zero and what do you get? Zero. > This factor will be largely factored in by your choice of the figure to assign to in ground oil during the baseline. My example weighting is neutral. Example eighting = 1
You can add to this list. It's not exhaustive but you get the idea - account for influencing factors and adjust as things change. Another good example would be the number of stocks out on loan to short sellers.
The formula is compile this data is very straightforward. Baseline price per barrel x (1.) x (2.) x (3.) x (4.) x (5.) x (6.) x (7.) give you a price share price.
NOTE: the baseline price per barrel is not $10 if you want to ascribe $10 a barrel in ground. You need to get into excel and work out the net best estimates published by Africa Oil (20% Range), multiplied by the GCoS, multiplied for a price per barrel. Some sample figures are include at the end of this post and are broken down into Nugaal totals, Dharoor totals and overall totals.
Here's an example valuation for all leads on both blocks. You can refine this by lead, by licence or by drill program.
Price per barrel = $2.5 (which is 11.5p a share) Funded = 1.3 Rig contract been secured = 0.9 Rig mobilised = 0.8 Institutional support = 1.2 Concurrent activities = 1.4 Sentiment = 1.3 Sector comparison = 0.8
Key that in and you get a share price of 18.8p (for Puntland only, of course) At $10 a barrel with those same risk weightings the figure is 73.5p. Valuations are subjective at this stage. It?s up to you to calculate your own valuation and the approach I?ve outlined is one of many ways of doing so. More accurate than a fag packed but by no means perfect. I like this model because it?s straightforward, you can refine it based on lead or license and it captures your individual risk appetite and perceptions of events. You can also apply to other O&G companies that have similar data available.
If all goes to plan, the value of Puntland will be released incrementally as the project progresses. If Range want to make this an attractive asset for a buyer, they need to build a convincing set of data that validates the value of the asset and this will change over time.
Appendix: pre calculated figures using net best estimates and a scale of $ per barrel. This probably won?t format nicely but the data is there is the to be farmed.
