NZ Oil & Gas (NZO)

[Toddy]

The newspaper article yesterday in the Dominion suggested that the operational costs to extract the extra oil is around $15 pb.

Balance, you are probably right though, the NZ fundies would have spent alot of time on their models and gone x 30%.

[Unicorn]

Valuation as per :

Tui $131m
PRC 60m
Kupe 45m (more funding required yet - like PRC)
Total 236m

There's 256m shares on issue so NAV = 92 cents per share.

Now you know why the institutions are not buying.

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NZO has gone up 11 cents or $28m since the 30% Tui upgrade. I think the valuation above is wrong - Tui should be valued at $93m instead of the $131m above.

The maths are as follows :

Tui before upgrade - $93m.
30% upgrade - $28m
New valuation - $121m

Looks like the market has either already valued in a bigger field/reserve or was too optimistic before the upgrade.

There - you have it.

Now you know why the institutions are not buying NZO.

Such blatant ramping cannot go unchallenged. NZO fell by two cents on Friday, so the real gain from the increased Tui reserves once the euphoria had died away was nine cents. And as BK points out 30% increase in reserves means more than 30% increase in value to the company, given the major (FPSO) costs are fixed. So the 30% increase in reserves is more like 35% in value.

So to correct your mathematics ...
35% = 0.09 * 256M = $23M.
Tui before upgrade $66M
Tui now = $89M.

[fish]

Valuations by their very nature are subjective and particularly with oilers will have too many variables enabling debate ad infinitum.
Unicorn is the very best in doing valuations as I know from his input into TTP .
Balance is on a mission
Tui is producing close to 50,000 barrels a day at $130 nz a barrel =$6.5 million a day !-or $812500 a day for NZO .Gross earnings currently well over $200 million a year-around a dollar a share /year .Expenses are much less than I expected . Tax Credits make the whole scenario unresistable .
I just love buying NZO with a Current P/E ratio which must be around 2 to 1 .

[fish]

sorry-that should have said gross earnings are currently around a $1 a share per annum -or have I made a major error in my calculations ?.

[Unicorn]

sorry-that should have said gross earnings are currently around a $1 a share per annum -or have I made a major error in my calculations ?.

Some errors there Fish.

1. Forget the 50,000 barrels per day (2.3M barrels a year) - we missed a month (July 2007) and production should tail off during the year. We have an updated estimate of 1.4M barrels for NZO to 30 June 2008, anything over that should be seen as a bonus.

2. Don't forget the production costs, about $10M p.a. for the FPSO (which corresponds to the $15 odd per barrel costs over the project lifetime that were recently quoted).

3. Royalties are the significant cost - allow 20%.

4. Early production was at somewhat less that $130NZ, and the call options limit a month or so of production to about $113NZ.

My current estimate is 1.4M barrels at $85US at an exchange rate of 76c. So 1.4 * 85 / .76 = $156M - 10M = $146M * 0.8 = $116M (45 cps) less some Head Office overhead and tax (but there are plenty of tax losses to offset).

The 3 key parameters will inevitably change over time (production rate, price of oil, and exchange rate) so this valuation will almost inevitably be proved wrong. But the longer the price stays above $85, and production stays near 50,000 barrels a day the better it looks.

$116M profit this year alone is rather at odds with the "Balance" value calculation of a total project value of $89M. Choose which you feel is the more realistic.

Note that the NZO should only be expected to report about 90% of this as profit, because June 2008 production will not be counted in this year's income (timing difference between production and payment from refiners). And do not overlook the project capital cost - $40M NZ odd to be paid back.

[Nitaa]

$116M profit this year alone is rather at odds with the "Balance" value calculation of a total project value of $89M. Choose which you feel is the more realistic.

seems weird. The words 'BALANCE" and "ODD" conflict some what. Anyway, they say opposites attract.

[zorba]

Some errors there Fish.

1. Forget the 50,000 barrels per day (2.3M barrels a year) - we missed a month (July 2007) and production should tail off during the year. We have an updated estimate of 1.4M barrels for NZO to 30 June 2008, anything over that should be seen as a bonus.

2. Don't forget the production costs, about $10M p.a. for the FPSO (which corresponds to the $15 odd per barrel costs over the project lifetime that were recently quoted).

3. Royalties are the significant cost - allow 20%.

4. Early production was at somewhat less that $130NZ, and the call options limit a month or so of production to about $113NZ.

My current estimate is 1.4M barrels at $85US at an exchange rate of 76c. So 1.4 * 85 / .76 = $156M - 10M = $146M * 0.8 = $116M (45 cps) less some Head Office overhead and tax (but there are plenty of tax losses to offset).

The 3 key parameters will inevitably change over time (production rate, price of oil, and exchange rate) so this valuation will almost inevitably be proved wrong. But the longer the price stays above $85, and production stays near 50,000 barrels a day the better it looks.

$116M profit this year alone is rather at odds with the "Balance" value calculation of a total project value of $89M. Choose which you feel is the more realistic.

Note that the NZO should only be expected to report about 90% of this as profit, because June 2008 production will not be counted in this year's income (timing difference between production and payment from refiners). And do not overlook the project capital cost - $40M NZ odd to be paid back.

Unicorn,

So then according to your mo.del, NZOG will book tax and royalty paid earnings in the 07 - 08 financial year of approx 45 cents per share ......

On this basis and given the present share price of approx 110 cents .....

Then presumably we are currently, at todays share price, looking at a forward P/E ratio = 2.4

Compared to average P/E ratios above 8 - 10 or more for the NZX and ASX .....

Can this last ??
.

[Dr_Who]

I actually love the fact that the sp is not going up. Good opportunity to buy more shares. Abit like PRC when the sp was at 85 cents. The Dr just love it!

[digger]

My current estimate is 1.4M barrels at $85US at an exchange rate of 76c. So 1.4 * 85 / .76 = $156M - 10M = $146M * 0.8 = $116M (45 cps) less some Head Office overhead and tax (but there are plenty of tax losses to offset).

The 3 key parameters will inevitably change over time (production rate, price of oil, and exchange rate) so this valuation will almost inevitably be proved wrong. But the longer the price stays above $85, and production stays near 50,000 barrels a day the better it looks.

$116M profit this year alone is rather at odds with the "Balance" value calculation of a total project value of $89M. Choose which you feel is the more realistic.

Note that the NZO should only be expected to report about 90% of this as profit, because June 2008 production will not be counted End Unicorn qoute.

Interesting but remember the company says about 100 million. This can easily be got from your figures. You have 11 months production to 30 june. Remember to also substract another 1.5 months for delayed payments to come through. So this year profits to end june 08 will be payments for 9.5 months or about 100 million.The first full year of payments will come at end of june 09.
I also think the market has failed to mark in that the additional 30% will largely remove the drop off in production in the second year. In fact i am going to email DS and let you know how the thinking will go with expected drop in the second year,if any.

[fish]

Digger
Can you ask DS if Tui oil is currently being sold at the Tapis price-as shareholders we should have a right to know .
Many thanks
Fish
ps Tapis is touching us $100