-Gas sold – Industrial 301 mmscf (18% of total = 7.70/mscf)
-Gas sold – Power 1,356 mmscf (82% of total = $2.19/mscf)
Quick cals shows the average price obtained was US$3.19
Now, these numbers are from some 12 months ago, when oil was about half the current price!
Further, From the following article... (http://www.nationmedia.com/eastafrican/current/Business/biz1703200810.htm)
"Tanzania’s impressive growth that has averaged 5.8 per cent over the past seven years.
Tanzania has experienced a container throughput growth of 280 per cent over the past eight years since the economic reform, and this trend is expected to continue with a projection of 380,000 teu for 2008 and one million teu to be reached by 2016."
One does not need to be Einstein to suggest that not only would gas prices have risen in Tanzania since then...lol, they have everywhere else...but that industry draw on available gas would have equally increased, obviously impacting the supply demand equation.
On this basis, I feel a net average return for the 2008 year of some $4/mmcf based on the following gross numbers is not such a stretch...
Industrial = 25% of production x $9.50/mscf
Power = 75% of production x $3.00/mscf
Quick cals gives us US$4.63/mscf
Cost per mcf for high flow rates are low...so a net return after costs (and toll for pipeline usage) close to US$4 per mcf is not out of the question.
So...now we come to potential production rates...
Assuming similar porosities to Songo Songo (they have reported good porosities), given we are some 20% of the net pay we can assume up to 12mmcf/d as a likely result...all going well...which gives us $48,000 per day net returns for the well.
This equates to some $9,600 per day to KEY...or about $3.5m per year in a perfect world.
We can probably assume this for each well, which with drilling, completion and tie-in costs would result in payback for each well drilled in a little under 12 months.
Now to related it to share price...
Share structure:
Listed: Ordinary shares = 69,981,672 Options (ex 35c) = 44,000,002
Unlisted: Ordinary shares = 16,018,333 Options (ex 35c) = 225,000
Total:
Undiluted = 86,000,005 Diluted = 130,225,007
Cash (undiluted) = $7.9m (assume $12.4m less 4.5m costs since quarterly) Cash Diluted = $23.4m ($7.9 + $15.5m from options convesion)
O.K...back to the income.
At $9,600 per day ($3.5m per year) net to KEY...
Undiluted gives us 4c per share annual profit for this single well (PEx8 = 32c).
Diluted gives us 2.6c per share annual profit for this single well (PEx8 = 21c).
Remember this is a single well!
Now...at tonight’s close of 22c...
Undiluted market cap (86m shares) = $18.9m market cap, less cash ($7.9m), results in $11m attributed to the value of this find...and all other assets...and the entity value.
Diluted market cap (130.2m shares) = $28.6m market cap, less cash ($23.4m), results in just $5.2m attributed to the value of this find...and all other assets...and the entity value.
Interestingly, the higher the price in the immediate future, to the extent the options become in the money, the less actually gets attributed to the value of their assets...for the simple fact the options exercise price is higher than current prices. Once we pass this level however, then this changes.
Remember, the above is based on a relatively good outcome for this well...about 12mmcf/d and a field size at least 15bcf.
But that might not be all...
"KN-1 also encountered minor oil shows in the Neocomian reservoir section, as well as confirming the presence of potential reservoirs in the Tertiary section at an earlier stage in the well."
Pre-drill prognosis suggested a mean expectation of 10mmmbls oil...if present...so whilst the gas column appears to be larger than expected, it is possible we may still see an ol result here, although potentially less then hoped for?
Perhaps best left for upside?
Anyway, which ever way you look at it, with a current market cap (undiluted) of just $18.9m tonight ($7.9m of which is cash)...and the potential for a significant discovery here...it would appear upside is not a stretch of the imagination.
Of interest perhaps...
EastCoast (owner of Songo Songo) previously indicated it may be interested in participation in the Nyuni drilling...one might argue KEY would be a rather cheap buy in for them at current levels?
Anyway...could rise or fall from current levels...it will all depend on what the result of this well reveal.
Does not seem to be much downside however at current prices.
Cheers!
KEY Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
(20min delay)