Thanks. Good point. Prime FCFE is net of debt amortisation of ~$400M on 20mmbbl at 100% basis, or $20/bbl. Plus interest of $50M, or $2.50/bbl. Royalties were not applicable previously. So Opex 6 + Capex 7 + Amortisation 20 + Interest 2.5 =~35/bbl. $15/bbl is an estimate of pro-forma unlevered break-even, i.e., on FCFF basis, including minimum future royalties of 10%. There is still debt, but net debt is low now at <$500M at 100% basis as of September 2021. Also, the above analysis was unlevered: EV/FCFF and EV/GAV10. Unlevered valuation controls for financial risk and therefore is a fairer peer benchmark from a control perspective. It is more favourable to AOI than a P/NAV might be vs some of the more highly geared names.
I remember that slide too! I think they were sandbagging the actual numbers based on what I see for opex and cap-ex in 2021. I did not consider future cap-ex for development drilling which the company says will increase in 2022.
Excellent initiative. I will support this effort and also contact the BoD referencing your correspondence. We have a reasonable sized position. Cheers John.
Hi John. Sorry I had not seen your comment until just now as I reviewed my recent post with my open letter to the board. Thanks for commenting, and also for your support by contacting the board. The more voices the better.
Your valuation assumes 2 years at 80 USD/barrel then falling back to 55 USD/barrel until the wells dry up, correct?
You mention the lack of insider ownership, which, i agree, it is something to monitor and a potential risk. But what do you think of Keith Hill's trackrecord? Did he had such a poor ownership in his previous companies he managed were he achieved excellent returns?
Thanks Enaut, for commenting. Sorry that I missed it until I reviewed comments on my recent post. To answer your question, for simplicity, my model assumes a level $80 oil unescalated for inflation. Not as a forecast, but for illustrative purposes.
Thank you a lof for a great text, you are surely gifted in what you do. Lets elect you to the board :) (only one board, we dont want you to take the full 5 board approach with all the money that comes with that)
Thank you! At your service, Mr Twain: he who holds the ballots calls the tune. Incidentally, I greatly enjoy your work. If I am not mistaken, it was you who said, "An ideal form of government is democracy tempered with assassination."
great write-up!
Capital allocationis the big question/threat here
How do you explain the ~$35/bbl FCFE breakeven for Prime operations? (slide #5, Aug'21 corp presentation)
Thanks. Good point. Prime FCFE is net of debt amortisation of ~$400M on 20mmbbl at 100% basis, or $20/bbl. Plus interest of $50M, or $2.50/bbl. Royalties were not applicable previously. So Opex 6 + Capex 7 + Amortisation 20 + Interest 2.5 =~35/bbl. $15/bbl is an estimate of pro-forma unlevered break-even, i.e., on FCFF basis, including minimum future royalties of 10%. There is still debt, but net debt is low now at <$500M at 100% basis as of September 2021. Also, the above analysis was unlevered: EV/FCFF and EV/GAV10. Unlevered valuation controls for financial risk and therefore is a fairer peer benchmark from a control perspective. It is more favourable to AOI than a P/NAV might be vs some of the more highly geared names.
I remember that slide too! I think they were sandbagging the actual numbers based on what I see for opex and cap-ex in 2021. I did not consider future cap-ex for development drilling which the company says will increase in 2022.
Great post. Learned a lot, thanks. Did you see this? https://mfn.se/cis/a/africa-oil/africa-oil-corp-africa-oil-announces-positive-amendments-to-its-corporate-facility-36139725
As I understand it they’re opening up for selling their listed holdings.
Thank you! Yes, hopefully moving in the right direction.
Excellent initiative. I will support this effort and also contact the BoD referencing your correspondence. We have a reasonable sized position. Cheers John.
Hi John. Sorry I had not seen your comment until just now as I reviewed my recent post with my open letter to the board. Thanks for commenting, and also for your support by contacting the board. The more voices the better.
Great write up about a great company, thanks!
Your valuation assumes 2 years at 80 USD/barrel then falling back to 55 USD/barrel until the wells dry up, correct?
You mention the lack of insider ownership, which, i agree, it is something to monitor and a potential risk. But what do you think of Keith Hill's trackrecord? Did he had such a poor ownership in his previous companies he managed were he achieved excellent returns?
Thanks Enaut, for commenting. Sorry that I missed it until I reviewed comments on my recent post. To answer your question, for simplicity, my model assumes a level $80 oil unescalated for inflation. Not as a forecast, but for illustrative purposes.
Where did Keith Hill achieve the excellent returns? TAG Oil.
Thank you a lof for a great text, you are surely gifted in what you do. Lets elect you to the board :) (only one board, we dont want you to take the full 5 board approach with all the money that comes with that)
Thank you! At your service, Mr Twain: he who holds the ballots calls the tune. Incidentally, I greatly enjoy your work. If I am not mistaken, it was you who said, "An ideal form of government is democracy tempered with assassination."
Great, meaty write-up. We need more. Like maybe Canadian forest products, I'm thinking. (off the top of my head).
Contangoes always demand more in the future.
Great work, thanks a lot!
Thank you!
amazing tal ... your intelligence and drive to thrive are simply top notch ... nice pop in stock today too
Thank Mike!