Happy:
<<Is this a whimper or a bang?>>
Hopefully a bang.
<<Is this before or after AKSEF reflects its "true value" (whatever that is)?>>
Probably somewhere in between IMO.
<<Any estimated price per share?>>
Well according to my research, acquisition premiums in the current oil & gas market typically run 30-40% over the stock's initial trading price at the time a bid is announced.
Let's look at the following three scenarios:
1) Assuming no fundamental changes from today, at a current price of roughly $4/share, that would yield a post-bid price (when the deal closes) of about $5.20-$5.60/share.
2) If Arakis proves up more reserves in Sudan in the meantime, you can easily assume $5.00-6.00/share pre-bid, which gives you $6.50-8.40/share post-bid.
3) Of course, if Arakis achieves positive cash flow from Oman first, the entire situation changes. Hence Zeev's keen interest to see the Oman play through to fruition.
By my estimates, if this occurred, then the stock would most likely start trading on an industry-average P/CF ratio like most of the other E&P stocks. If you make the following assumptions -- (a) 155 MMbbls of recoverable reserves in the Oman concession, (b) 13% or 20 MMbbls of the recoverable reserves produced in the first year, (c) total finding/developing/lifting costs of $6/bbl, (d) an oil price of $20/bbl, and (e) Arakis' cash flow from/(to) the Sudan concession equal to zero as a result of the ongoing carry -- then the Oman concession alone would yield a gross project cash flow of $280 MM in the first year of production.
If you then assume that approximately 50% of this gross project cash flow will ultimately make its way down the food chain to the Contractor as either Cost Oil or Profit Oil (see my previous posts for details of generic Omani fiscal terms), that would leave Arakis with a $98 MM (70%) of the $140 MM total cash flow from operations to the Contractor, or $1/share fully diluted for Arakis.
Now assume that, once cash flow begins, the financial markets finally start to treat Arakis like a real E&P company, having finally seen her nail down the tricky "P" part of this very complicated "E&P" formula. This could realistically kick-start the stock into trading at an average market multiple of 7-9X cash flow from operations, which yields a pre-bid price of $7.00-9.00/share, and a post-bid price of $9.10-12.60/share after the 30-40% acquisition premium.
<<Anyone else agree with this scenario?>>
I don't know. I haven't asked anyone yet. Comments??? |
