thoughts anyone, page-3

Bots are out today.

Came accross this article from Petroleum News, which I hadn't read. Don't know if this was ever posted as couldn't check back and look, as I can't see past the 100 posts on INP forum! Well worth considering, given the share price now, as it makes INP a bargain, according to this commentator.

From Petroleum News:

Accounting for missing value

Monday, October 08, 2007

SHARE tipping is not a game played by Slugcatcher. So what you're about to read about Innamincka Petroleum and its central Australian oil discovery is not a tip, just a casual observation about how the stock market works – or perhaps doesn't work.


Last week, for those not following events in the oil patch, Innamincka announced what appears to be a company-making discovery at its Flax field in South Australia's far north.

In theory, it has proved Flax is connected to another structure called Juniper and the result might be a field containing up to 120 million barrels of oil.

Investors reacted immediately, running Innamincka up from around 35c to a peak of $1.97, before allowing the stock to slip back to a close last week at $1.39.

The price movement was impressive, but the real trick when looking at the stock market is to convert the share price into what value it actually places on a company.

In the case of Innamincka at the close of last week you could, in theory, have bought the entire business for $223 million.

That might sound a lot, but it sounds a lot less when put alongside the potential value of the Flax-Juniper oilfield link-up.

But before we do that a comment on Flax-Juniper potentially being Australia's "biggest onshore" oilfield, a point several other observers made. In time, that might be proved correct, but it's got an awful long way to go to catch up to Barrow Island which is somewhere in the billion barrel category, with decades of life left, and the last time Slugcatcher looked was still a land-based field, albeit on an island – a bit like Australia, actually.

Sticking to Flax-Juniper and what it's really worth, it is reasonable to take that 120 million barrel potential and apply a recoverability test which, given the tight sands of the region, could be as low as 15%, but is likely to be considerably more given modern extraction techniques.

However, even at 15% Flax-Juniper represents 18 million barrels in the bank, while 25% equals 30 million barrels.

At the low point, and assuming an oil price of $US75 a barrel (which Slugcatcher reckons is conservative if you believe the peak oil argument) then the oil in the ground is worth $US1.35 billion – or $A1.53 billion in Australian dollars.

Lift the recovery level to 30 million and you get a value of $US2.25 billion, or A$2.55 billion using an exchange rate of US88c.

So far, so good.

Now consider the $223 million total value last week of Innamincka which, if the upper assumptions are a guide, means the company today is worth about 10% of its discovery.

Lots of "best guesses" and "extrapolations" are required to arrive at an accurate value on Innamincka today. Not only is the oil price a factor, so too is the value of the Australian dollar, as is the geological challenge of proving Flax really is linked to Juniper, and that oil recovery can be better than the postulated 15%.

It is investors who look at the downside of those factors who are today valuing Innamincka at $223 million.

Optimists, that is people who believe the oil price has only one way to go, and who believe that after three years of exploring Innamincka might actually have a good handle on its discovery, are expecting a lot more from the company.

The best Slugcatcher can do is refer readers to the detail in the company's reports on Flax-Juniper to appreciate there might indeed be something very substantial likely to be developed by Innamincka.