Gents, while I agree with you in general terms, the same evaluation method you are using is like saying that the Australian grocery market is very mature (correct) and therefore Woolworths can't keep growing (wrong). It's how you play the game that counts. Here are some facts mostly assembled from Arc's latest corporate presentation available off their website:
27 exploration wells by the end of 2008.
Revenue from $60m to just under $120 in last 3 years
Free cash flow after operating costs $72m - largely used for exploration and growth
Operating margins 61% - even small finds highly profitable.
Perth Basin, current reserves =10m barrels, appraisal potential of current finds =10M barrels, further exploration potential 60M barrels
Bass Strait, total potential 2TCF + good oil potential 15 - 50% ownership
2007 drilling program - Valentine currently underway
Prospect/Potential/ARC%
Valentine 380-1000bcf +19mmbbls 33%
Yulleroo 332-900bcf +17mmbbls 100%
Ungani260-700bcf +13mmbbls 100%
Valhalla 14-33mmbbls 100%
Utopia 9-21mmbbls 100%
Drilling (excluding Yemen) between now and Xmas for ~70 million barrels of oil (= Arcs share) plus substantial gas, finding just 20% of this would be worth around their current market capitalisation, in ground.
Overall 180 million barrels of oil potential from all prospects, realising just 10% of this would double the current share price.
Worldwide, oil companies are struggling just to replace reserves and unlike Arc, need very large finds just to achieve this. Arc's exploration portfolio is huge in relation to it's size and small fish that others would have to spit out are extremely sweet for them because of the way they have positioned themselves. Their strategy is extremely clever and leads to basin leadership which leverages hidden value.
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