I thought I'd share my thoughts on the potential upside at play with NGE. I think they are one of if not the hottest prospect about to climb out of the spec category.
From the announcements it would appear that a JV deal is imminent which will give us up to 6 wells at the cost of a % share in the permits. Given that this will provide exploration funding at no share dilution cost to NGE holders we can then look to the potential of our assets and make our own estimations on what they are likely to prove up. From the good oil conference we know that our neighbouring permits have 1 billion bbls oil and 15 TCF of gas (and we have oil seeping from the ground in one permits!). I'm not sure my asset valuation potential estimations consider big enough findings.
Asset Value to NGE (A$m) 30% farm out $5,111 $15,334 $25,557 $35,779 $51,114 40% farm out $4,381 $13,143 $21,906 $30,668 $43,812 50% farm out $3,651 $10,953 $18,255 $25,557 $36,510 60% farm out $2,921 $8,762 $14,604 $20,445 $29,208 70% farm out $2,191 $6,572 $10,953 $15,334 $21,906
*Assumes long term average US$75 bbls oil and $0.75 exRate **Assumes 40% net profit per bbls oil Now you'll have to discount these asset valuations back so use your own assumptions based on how quickly you think they'll bring the findings into production (see example below). Given that the permits are on land and the JV partner is likely to be Inter, Exxon or Tailsman with existing/proposed infrastructure in place, their ability to hook up a finding on NGE's turf to their existing network and turn it into a producing well should be significantly faster then if NGE was to on it's own. You could also assume that with this existing network there is likely to be significantly lower capital cost required to bring assets to production. This should prevent long term share dilution to NGE.
To give you an example of discounting one of the above scenarios , take the 50% farm out with a 5TCF finding;
Asset value to NGE: A$18,255m Producing at start of 3rd year Total resource produces on average for 10 years Cap rate 10% NPV: A$9.27 billion - based on current no. of shares thats approx $16 per share.
This doesn't take into account cap cost to NGE but even doing so you can see how much potential their is here.
Ridiculous I know but look at KAR. Much obviously needs to happen before we are sippling Cristal but this is a hot prospect.
The key takeaways are - JV partner will allow NGE to bring findings online significantly faster then other oil company findings (that's why most oilers with good asset findings still trade at significant discounts) - Huge asset potential - Lower cost to bring well online with JV partner
Please DYOR and do it quickly before you add it to your 'I was thinking about getting on that back when it was 20 cent list!'
NGE Price at posting:
25.0¢ Sentiment: LT Buy Disclosure: Held
