Oil should be leading to much higher prices. Oil was boosted by...

Oil should be leading to much higher prices. Oil was boosted by expectations for rising demand as the northern hemisphere winter deepens and the holiday season encourages long-distance travel. Crude futures were recently up 60 cents or 0.7% at $89.20 a barrel.

Australian-listed oil companies compare with their peers in minerals are disappointed. I see it as an opportunity, especially for little-known oil producer Nido Petroleum Limited (NDO).
On 10/09/10 NDO HALF YEAR NET PROFIT A$ 20.6M compares (2009 LOSS OF $18.5M), This stock has a lot further to go. With oil price up almost 50% from US$60/barrel last year to almost US$90/barrel today , I value NDO is currently 19 cents per share based on a basic discount cash flow (DCF) valuation. NDO is also cheap on other fundamental measures. Based on a relative price to cash flow per share (P/CFPS) approach, NDO is worth 40 cents per share, and based on simple P/CFPS, it is worth a whopping 70 cents per share.
NDO operating cash flow to tangible assets ratio is double the industry average and its ratio of profits to total liabilities is a very strong 0.82, whereas the industry average is negative: -0.07.

The strength of NDO is its geological assets in particular. I predicts oil price at $US100 per barrel in the near future, 1- 2 years.
NDO is well positioned for this phenomenon with the majority of its assets offshore,the Philippines operates Asia's most generous royalty tax regime, allowing contractors double the share of more prominent oil-producing nations. The Philippines also has a new pro-investment government.
NDO's assets lie in the North West Palawan Basin, east of Palawan Island and across the highly prospective fault line between the Sabah and Palawan geological provinces. This part of the South China Sea is better known for the hotly-contested Spratly Islands, which are due west of NDO's acreage. While a lack of exploratory drilling means there are no proven reserves on the Spratly Islands, a 1993/1994 US Geological Survey estimate put the reserves at a potential 28 billion barrels. That's multiples higher than Australia's 1.5 billion barrels of proven reserves.
Within the North West Palawan Basin NDO is focused on five targets across 30,000 square kilometres of acreage. It holds a minority working interest in the Galoc, Nido, Matinloc and West Linapacan fields, which provide cash flows, and development interests in the Tindalo field, which commenced extended well testing in May. NDO also has significant interest in several exploration assets, namely Service Contracts (SC) 54, 58 and 63, all to the west of Palawan Island. Gindarra offers the largest upside, is the most advanced and de-risked and will be company-making for Nido.

Of these various assets Tindalo is key, with estimates of 5.1 million barrels of recoverable oil. And while the company's recent interim test on Tindalo well 1ST1 seems to have disappointed the market with lower than expected flow rates, this situation could improve with further acid soaks.
It is NDO's management of Tindalo thus far that has been perhaps the greatest dampener on the share price. Tindalo's potential is very strong, but the project has suffered a number of delays and wells have, until recently, been spewing more water than oil.
Nevertheless, what the latest 1ST1 flow result shows is that the well's water cut is now below 1% and indeed it is quite promising that 5,000 barrels of oil was chocked after only two of four planned acid soaks. Regular flow from 1ST1 could not only provide regular cash for other exploration activities, but could send the company's share price beyond the 20c resistance level it bounced against in June and attract the type of institutional interest that any $184 million market cap stock finds difficult to gain. It is also promising that NDO recently made its first 194,336 barrel shipment of Tindalo crude to South Korea, which will provide $US14 million in gross revenue to the joint venture.
Furthermore, NDO has reported new oil indications adjacent to Shell's Malampaya gas field. This find, known as the West Calamian block, within Service Contract 58, is exactly the kind of target NDO would be positioned to throw money at once Tindalo is producing. This is another reason to like the stock. On 25/10/10 Shell farms in to Nido-operated SC54B, Shell's presence in the Philippines dates back to over 96 years, to when it opened its first trading office in 1914, a company of Shell?s global stature who bring world-class development experience and access to cutting edge technology. Nido looks forward to working closely with Shell on this exciting project.

At current levels NDO's potential is relatively low risk, but have great potential.