CURRENT SCENARIO
Ok, I’ll start this post with a brief analysis of where we are at, then run through the fundamentals of that valuation and then the options to show the upside potential.
1) NCR: $106m: 3.88p
2) ECV: $15.719m: 0.58p
3) TT: $76.32m: 2.79p
4) GEO: $166.522m: 6.1p
5) PNT: $100m: 3.66p
6) Cash (Est): $20m: 0.73p
7) Options: $8.5m: 0.31p
8.) Liabilities: -$2m: -0.07p
That totals 17.98p, not a million miles away from where we are currently trading (CoB 4th July’11 mid 16.25p).
Items 1 and 2, NCR and ECV, we have reserves reports covering the values here, the values used are the totals of P1 and P2 reserves at NPV10 discounted.
Item 3, Trinidad, is a mix of production and exploration. Taking 700bopd production, at $30/bbl profit, 8x earnings that gives a total of $62.32m. Adding in the Herrera potential, I’ve used 60mmbbls OIP, 30% recoverable, 1 in 12 chance of success, and a projected value of $10/bbl (given it’s stable economy), I have a valuation of $15m.
Total of the two $76.32m.
Item 4, Georgia, we are all exploration here so far, but a mix of prospects and leads. For the 6 identified prospects, 652mmbbls STOIIP confirmed, 40% share, 30% recoverable and 1 in 8 chance of success, a valuation at $10/bbl comes to $97.8m. In addition, we have leads totalling 1.375bn bbls. Success in the prospects converts these leads to prospects, but meantime I’m assigning a valuation based on 40% share, 30% recovery, 1 in 12 chance of success, and $5/bbl, totalling $68.722m.
Total Georgia is $166.522m.
Item 5 is Puntland, always difficult to value, it’s somewhere between $0 and $50bn….
I’ve based a valuation split into 2: Dharoor and Nugaal. For Dharoor I’m going with 1bn bbls OIP, 20% share, 30% recovery, 1 in 12 chance of success, and $5/bbl end valuation, that comes to $25m. For Nugaal it’s 2bn bbls OIP, and 1 in 8 chance of success (based on previous Conoco success there), that comes to $75m. Total $100m for the two.
The only problem with this is that Nugaal straddles the contested Somaliland/Puntland border, but for this purpose we are going with zero implied risk. I could easily go with 50% risk, and the effect on SP is just 1.83p.
Item 7 is fairly up to date, and combines the incoming cash with the net effect of subsequent dilution.
Items 6 and 8 are guesstimates at this stage, but the effect on SP is negligible in any case.
Considering the above, I’m fairly comfortable with the share price hovering around 16-17p. It is AIM after all.
After that, it’s consideration of the potential near term upside, and there’s no single calc to take into account all chances of success, and all being successful at the first attempt, so I’m going to tackle it item by item.
FUTURE VALUATION
1) North Chapman Ranch
Relatively simple this one, the main objective being to move P3 reserves into P1/P2, thereby ending up with a valuation around $250m, so we’ll stick with that.
2) East Cotton Valley
Similarly, moving P3 into P1/P2 will give a valuation of some $30m, we’ll take that too.
3) Trinidad
A bit more complex here. Initial stage is to double production from the shallow wells, but ultimately take it to 4000bopd. Doubling production in 12 months gives a valuation of $76.6m at 8x earnings. 4kbopd in 24 months takes the valuation to $219m.
Then, we have the Herrera formations, and valuing this is a bit tricky seeing as we don’t know exactly how big or how many formations we could target yet. A single well targeting a 20m reserve could theoretically prove up 30% recoverable, with a value of $60m based on $10/bbl. We could see 2 of these wells in 12 months, 4-6 in 24 months.
So, short term we could be looking at $200m in 12 months or up to $580m in 24-36 months.
In addition, we could be looking at a couple of highly lucrative upper cretaceous drills within 12-24 months, purely guesswork at this stage, but let’s say 15m recoverable per well would give a value of $150m each.
Add two of these to your $580m and you are pushing $900m.
4) Georgia
A simple calc to change CoS to 100% based on the figures above would change the prospects to $782.4m and the leads to $206m, total $988.65m.
Taking a step back and calculating success in 2 of 3 Georgia Wells, and a low success rate on the leads gives $521m and $82.5m, total $604m
5) Puntland
Now, there will be no drills in Nugaal at this stage, but success in Dharoor will further derisk by way of proving the link to the Yemeni basins, especially given Nugaal’s exploration history.
In Dharoor, we are targeting the Shabeel and Shabeel North prospects, with 300m and 375m bbls recoverable respectively, so assuming success here gives a valuation of $675m net to Range. Add in prospective resources for the entire valley and you could be looking at $800m-1bn. Add in the derisking of Nugaal, and we are up around $1.5-2bn.
Now, if I redraw that table with the topmost valuations (ignoring items 6/7/8 meantime, and assuming an increased dilution figure of 2.2bn shares) we get the following:
1) NCR: $250m: 7.1p
2) ECV: $30m: 0.85p
3) TT: $900m: 25.5p
4) GEO: $988m: 28p
5) PNT: $2bn: 57p
Total now is 118.45p, but remember these figures are ‘guesstimated’ net asset values. We can be realistically optimistic of obtaining these values on NCR, ECV and even T&T, but for a balanced view, let’s say T&T, Georgia and Puntland have a 50% success rate. You then end up with figures of 12.75p, 14p, and 18.5p, giving a total of 77.2p. Not bad for the cautious approach, not quite a ‘risked valuation’, but you get the picture I guess.
If all the success above in either approach combines with a potentially lucrative capital return scheme, and fantastic market sentiment as a result, we could be trading at a significant premium to NAV.
Also, I’m forecasting this based on 12-24 months. BUT, this could all happen within 6-12 months, and with significant upside still to come. I haven’t even considered a small West Africa offshore play, or a major Colombian onshore deal.
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