"What do u honestly think prl will be by Xmas? Surely it will get bought out before it gets too big ??"
I prepared an analysis on that basis and since he's had time to act on it I thought worth sharing with you all. Please see my response to him as follows:
Based on my analysis below, I think conservatively (low case) we should be at least 43 cents by mid 4Q14 but I believe even that’s v v conservative given my A$0.43 valuation puts a highly conservative US$50/acre val for Uruguay. This was based on the cheapest p/acre I have seen which was in the early land grab stage in UK a few years ago but a tremendous amount of derisking has taken place in Uruguay and I'd say we're probably at the US$100-200 p/acre stage now or will be immediately after a prospective resource. By comparison, the first post prospective resource (not reserve!) valuation/transaction in neighboring Argentina/Vaca Muerta was for ~A$600/acre in 2011 and ~A$2500 a year later in 2012.
In short. Given Petrel holds a massive 3,500,000 (2,100,000 net @ 60% SEI) Ac + a 30 year exploration & exploitation license, the upside is potentially enormous. e.g. $2.84 p/share at A$600 p/ac net PRL. or A$11.85 p/share at A$2,500 p/ac net PRL. I don't think the market understand this potential yet but should post seismic, so buying is ridiculously cheap at $29.50 p/ac based on current SP/EV without even attributing a single cent to Spain or ~ $14.76 p/ac attributing A$30m to Spain, which is an ultra conservative RENAV.
On takeover prospects, I am not sure, but one comment I would make is that I would think majors are more likely to pay up post seismic and pre first well which could be another argument to retain 100% of Spain as a buyer would presumably want to be the operator of Tesorilla. The next 12-18 weeks will be v interesting.
As I elude to above and in the analysis below this is really a conservative current val which I would increase in line with further progress which you would expect to happen between now and Christmas. Feels as though the market has it mispriced the two major assets at these levels. I think in part this is due to some delays but i am of the view this is not uncommon with o&g coys.
For example, here are some major upcoming catalysts which can could increase an FA val well above A$0.43;
1. Farm outs complete and embarking on a drill campaign in Spain;
2. Seismic complete and we volumetrically assess the potential of an potential resource and delineate a contingent unconventional resource.
3. Additionally, if the seismic program highlights nice big structure (conventional), which the perosity and permeability plus the fact that many analogous shales were discovered in "stale" conventional plays, this would add even further blue sky value from here.
Please find attached some commentary and metrics I experimented with for different valuations and just to highlight the potential.
VALUATION METRICS
A Risked Exploration and aspirational unrisked Net Asset Valuation ((RE)NAV) is comprised of the following components:
A$0.01 per share for net cash;
A$0.01 per share for Lochend, Cardium;
A$0.14 per share for value Spain risked or A$1.18 (P10)-A$9.48 (P10 blue sky) unrisked;
A$0.23 per share for Uruguay unconventional exploration prospects risked or A$6.98-24.40 unrisked;
A$0.05 per share nominal for Uruguay conventional exploration prospects but if Seismic identifies some big structures (which is likely given the massive porosity and permeability numbers and the fact that many analogous shales were discovered in "stale" conventional plays), then would add further "blue sky" value accordingly;
A$0.43 per share TOTAL CURRENT RENAV, risked, or up to A$34 p/share UNRISKED (212 x current SP though in reality would be snapped up long before this point). Even this is based on understated/stale USGS Uruguay estimates unconventional estimates and ignoring Uruguay conventional potential. If these numbers prove to be understated then further upside would be possible.
Current shares on issue (excluding options) are 443.2m. I have used a USD-AUD exchange rate of 0.95. All currencies listed are A$ unless I note to the contrary.
— Value of net cash
Based on March 31 cash (8.6 m) less admin burn rate per quarter (0.65 m) I estimate the company has at least $7.95m in cash (prior to exercising final option over SEI), therefore once this has been exercised cash will be $7.95m less $6.31, or $1.64m cash to the valuation. Given that Petrel intends to dispose of Cardium Assets a further $5m or AU$0.011/share is expected to be forthcoming.
— Value of Lochend, Cardium
Low case: Based on production assets methodology (based on a steady state production of 30bpd going forward) plus small a nominal $500/acre for Petrel's 2,889 undeveloped acres, I would attribute Cardium’s NPV is $5m or $0.011/share.
Mid case: Based on the land transactional data of US$3,000 per acre used in Fosters valuations ($3,157 by 3,019 net acres) or $9.5 million or $0.021/share.
Optimistic case: Based on the recent TriOil takeover by Orlen which was for total cash consideration of US$183.7 million for 44,800 net acres, so US$4,100 per acre, would be $13.15m or $0.03/share, net to Petrel.
— Value of Spain
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
1
Tesorilla Resource
WI%
CoS %
Net BCF
NPVA$/MCF
Value $m
Risked/share
Unrisked/share
2
524 BCF (P50)
51
30
267.2
0.79
211.1
0.14
0.47
3
1,304 BCF (P10)
51
10
665.0
0.79
525.4
0.11
1.18
4
4,192 BCF (P50 Blue Sky)
51
2.5
2,137.9
0.79
1,688.9
0.10
3.81
5
10,432 BCF (P10 Blue Sky)
51
1
5,320.3
0.79
4,202.8
0.09
9.48
I have based NPV$/mcf at the mid point between Clarkson Capital Markets US$1/mcf and Edison US$0.50/mcf and converted to A$. My personal view is US$1/mcf is reasonable given proximity to Maghreb pipeline, geopolitical tensions in Europe and already high US$10/mcf gas price.
— Value of Uruguay
Given the lack of land transactional data and that it is a new province a sound valuation approach is always tricky, I suspect analysts will increase the value in line with (a) the companies interest i.e. once PRL will exercise their option for 60% of SEI (also is a sign that the play is de-risked) and (b) once a prospective resource comes through valuation will be increased accordingly.
Current valuations range between 0.27 (Fosters), 0.29 (Edison) and 0.44 (Clarkson Capital Markets) all based on something like 3% chance of success. Though, admittedly valuing greenfield shale is still more of an art than science, especially in a new region but the following is probably the current “best practice” imo.
Based on Phase 1 of a shale play, the most common metric is the value of the land; lowest I have seen is in the early early land grab phase is $50 p/ac. in UK shale space, in late 2013. Given the first frack in the extended region in neighbouring Argentina we could raise that to US$100 per acre or arguably US200 per acre. For the A$0.43 valuation above I will keep it v conservative at US$50/acre.
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
1
Norte Basin, Uruguay
WI%
Net Acres
NPV of land $/acre
Value $m
Value $/share
2
3,450,000
60
2,070,000
52.6
103.5
0.23
3
3,450,000
60
2,070,000
105
207
0.47
4
3,450,000
60
2,070,000
210
414
0.93
Arguably we should already be at the $100 p/acre mark but the market is mispricing it (towards the downside, obviously) because of the early stage being pre seismic but more so because the massive potential and extent of PRL and SEI’s very large 3.5m acre concession in the Norte Basin is hard to comprehend.
Evidence of the increase in $/acre could be drawn from the events that have followed the expiration of YPF’s two year exploration permit (compared to PRL’s 30 year exploration AND exploitation permit) which lapsed Feb this year. I understand they didn’t get the first right to extend it due to not completing exploration during the 2 year programme. This was mostly due to domestic issues i.e. Argentina is close to default and my sense it they didn’t want to spend money accelerating the discovery of another major shale resource that would compete with the Vaca Muerta, instead they wanted to focus on domestic production.
Anyway, the point is this: YPF’s original 2,471,053 will now be broken down into ~six < 400,000 acre blocks. Therefore, PRL’s huge tract of acreage, some 3,450,000 acres, is something that will be impossible to obtain ever again without buying out either Total (smaller acreage than Petrel and as a US$164 billion(!) $ o&g coy this is not going to happen) or Petrel (best acreage in Norte Basin, and small cap with EV = US$60m, so possible!).
Additionally, based on recent ASX announcements you will note ANCAP have been taken the land that becomes available adjacent to Petrel’s permit since earlier this year — hinting that they agree with Petrel management that we/they have the most prospective permit in Uruguay.
The next major value uplift event could take it to US$2-3,000 an acre after the first pilot well and upwards of $7,000, which is the case in neighbouring Argentina (Vaca Muerta). In the following table you may notice the Acres has been reduced by 1,000,000 acres, this is intentional to reflect the reality that some acres will be less valuable/prospective than others by this stage.
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
1
Norte Basin, Uruguay
WI%
Net Acres
NPV of land $/acre
Value $m
Value $/share
2
2,450,000
60
1,470,000
2105
3,094
6.98
3
2,450,000
60
1,470,000
5263
7,736
17.46
4
2,450,000
60
1,470,000
7368
10,830
24.40
— Alternative Methodologies Uruguay
Based on volume assessment derived from USGS volume assessments and assuming 50% of these sit on PRL’s acreage, the unrisked valuation for Uruguay alone is $6,638m or $15.01 p/share @ 100% CoS or $331.9m or $0.75 p/share @ just 5% CoS!
Keep in mind, these are very likely understated, given since the USGS study Petrel has identified new rift basin that was not even known before, a source rock in the oil window, an active petroleum system, excellent porosity and permeability both above and below the shale and since USGS estimates ignore devonian shale targets, which are now known to exist within the tenement.
In conclusion. The upside is hard to comprehend but as highlighted above, potentially enormous. imo it is especially good buying from these levels.
