rak,
With 400 bod net to ROR and assuming US$14 netback per bbl I get about
$2mm a year in cash flow. I've lost track of how many ROR shares are
out there but I think there are about 20mm. So this is $.10 per share.
The ave. market multiple is 6 x cash flow for O&G exploration companies.
This would price ROR stock at C$.83, or 60% higher than the current
quote of C$.52.
Now lets look at reserves. The consensus guess right now is that the
field discovered by the Esteros well will ultimately be proven to
contain 60 mm bbls. If you price the oil in the ground at US $4 per
bbl. (conservative) for ROR's 10% net revenue interest you get a per-share
value of US$1.20 or C$1.67 per share. Note that the whole 60 mm has
not been proven out by this first well, however. It will take at least
one, probably two more wells to fully delineate the areal extent of the
field. These should be drilled by early '98.
The discussion of what happens for a field over 60 mm bbls. is irrelevant
in valuing the stock right now IMO. The percentage that Ecopete gets
goes up only after a field has CUMULATIVE PRODUCTION of > 60mm bbls.
It does not go up when the reserves are discovered. Even if they drill
another two or three wells in the next year and discover 150 mm bbls. h
here, that won't start to impact ROR's cash flow until well into the
next millennium. And in any event the stock would have tripled in
the meantime, since as shown above its a C$1.67 stock once 60mm bbls.
are proven out. Believe me, I fervently _hope we will be talking about
the problem of Ecopete getting 70% of the production from this field
this time next year! To be talking about that would mean my ROR shares
will have quadrupled or quintupled in price!
ROR is getting pressure from Harken to raise more cash in order to be
in a position to keep the exploration & development program going at a
blistering rate as soon as the weather lets them. The word is that
Harken is applying for permission to spud the next well possibly as
early as October, depending on how soon the rainy season ends.
My bet is that the folks that ROR is talking to about the private placement
are getting psyched about the prospects of the stock and buying it on
the open market. I understand that ROR is holding out for a convertible
bond deal instead of the typical stock plus warrants deal that small
Canadian resource companies typically have to accept. Their feeling
is that they are sitting on a valuable asset whose value just hasn't
been realized by the market yet. They know the stock will be over C$.50
when the rest of their $.50 warrants expire in October. That will give]
them all the money they need for this next round of cash calls from
Harken. So they are just trying to bridge the gap from here to October.
Re: Bre-X, it is a lot harder to pull off a scam in O&G than it is in
gold mining. This is because you typically have several companies involved
early in the exploratory stage in O&G, whereas Bre-X was doing its own
drilling for quite a while before getting Freeport McMoran involved. Here
we have one major US co. (Harken) and two Canadian juniors involved.
To have rigged the results of the Estero you would have to have collusion
of all three of these companies. Harken would not rig a well like the
Esteros --- if they were going to rig anything it would be one of the
wells where they are going after billion-barrel targets. So anyone
truly concerned with fraud here with ROR would have to be considered
as uninformed, paranoid, or both. Just for kicks though, I've e-mailed
the webmaster here to change the name of this thread to reflect Rochester's
new name --- to further distance us from Bre-X!
I don't pay much attention to technical analysis but it looks like ROR
has formed a double bottom, which I understand is bullish. Note that
each time it has cracked under C$.50 since the company got resurrected
in September it has popped right back over C$.50. See the stock chart at
chart.canada-stockwatch.com
IMO this baby is poised to take off as soon as the next financing
round is announced and it is assured that ROR shareholders will not
get diluted out as much as the market is currently fearing they will.
Look for such news within the next month. The potential
financing sources know they need to do something before the Esteros
well starts producing, which is currently estimated to be in the mid-June
time frame. Once production starts the stock will start to rally and
the financing sources will have to pay more to get in than presently.
Also, ROR wants to do the financing sooner rather than later in order
to be able to prove to Harken that it is all set to go for next round,
with the required funds in the bank.
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