Originally Posted by
mistaTea
Yes. the recent NZOG reports have been scant on detail around Ironbark. Considering how effusive Andrew Jeffries was as recently as June about Ironbark (when announcing the farm-in agreement), I was hoping for a lot more colour around our largest exploration asset.
Not sure what else we are missing from NZOG....but I can tell you what we are missing from OGOG - a decent offer.
Here is a summary of how I would value the business for the purpose of a takeover (for what it is worth to anyone who might be vaguely interested in my thoughts on business value). My reasoning assumes the majority shareholder is acting in good faith, and understands that some premium must be paid to take 100% control.
NZOG cash balance at last Annual Report= approx $78 million (NZ$106M consolodated - NZ$28M Cue Energy share). Approx 47 cents per share.
Kupe = $24 million (low figure from Northington for this part is not unreasonable based on current reserves). Approx 15 cents per share.
Cue Energy: Current Market Cap = NZ$72 million. Price has increased somewhat after Ironbark farm in announcements, so this is probably a decent enough figure for what the market feels Cue is worth, given Ironbark is now fully funded and in play. NZOG share = NZ$36 million (22 cents per share).
So before we have even worked out what the exploration assets are worth we have 47c (cash) + 15c (Kupe) + 22c (Cue) = 84 cents per share. That is what I would consider a reasonable offer just for the existing assets that NZOG control.
Now let's talk about exploration.
Ironbark. It can be shown that a very conservative estimate of potential earnings attributable to NZOG for a 15Tcf find is NZ$1B. It would most likely be closer to double that. In 2017 Cue estimated the chance of success at 25%. We have strong reason to believe this probability of success has significantly increased due to BP, beach and NZOG farming in with large pieces of the equity each (especially BP).
But for our purposes, we can still use the 25% probability. 25% * conservative NZ1B = $250 million. But OGOG would be taking on all of the risk, so we can't expect them to pay all of that. Not even half actually.
A reasonable offer for Ironbark, given how advanced the exploration permit is and the encouraging signs so far, would then be about NZ$100M (61 cents per share).
Clipper. The Barque prospect is estimated to be about 75% of the size of Ironbark. However, there is more uncertainty given the current government policy. Also, the existing infrastructure near Ironbark does not exist near Clipper. So there would be additional costs to extraxct, store and ship the gas onshore.
For this reason we can't just say 75% of Ironbark. 50% would be more reasonable = $50M (30 cents per share).
Ok, so we have 84 cents (existing assets) + 61 cents (Ironbark) + 30 cents (Clipper) = $1.75 per share.
This is what I think a reasonable starting point would be for a majority shareholder to offer minority holders to take full control of this business.
Oh and, to whoever is reading this representing OGOG...now that you have learnt how to view the value of the assets through the eyes of a business owner - it's not too late to increase your offer appropriately :t_up: