re INA. Imo: generally for small cap e&p (or just producers, assuming that there's not much exploration risks with Iona --- the oil is there-- can they just produce it in the harsh North Sea environment?) - the market likes production, cash flow and the possibility of growing reserves.
Two knocks on these small producers or e&p producers are that they don't have earnings and they don't pay dividends (generally). Instead they sell on cash flow. A price to cash flow ratio that is about 3:1 is considered "cheap". INA has interests in the Huntington field commencing, and that is expected to lift INA's cash flow to $175M annual rate. INA's enterprise value is about $200M. Depending on who calculates the projected cash flow, and how they do it, in a few months stockholders should see cash flow per share to be about $.50 or greater, it is said. That suggests, that INA could move from it's $.60/sh stock to at least double and still be considered a undervalued stock.
We could also calculate INA's value based on flowing barrels of oil. I believe we will see INA producing at a rate of 7500 bopd this year. With good operating net-backs (term which basically means operating revenue minus operating expenses). If one uses flowing barrels of oil as a metric, one has to choose a bogey -- the point at which the company is perceived as undervalued and where an acquirer might buy it (assuming flowing barrels don't decrease). Some people use $100k/bopd; some people use a lot less -- say $65k/bopd. I like the lower number. Somebody wanting to buy INA and considering $65k per flowing barrel as "cheap" "ought" to be willing to pay $65k x7500 = $487M to acquire INA. Double or more from INA's current price.
INA has three new oil fields that are expected to be producing oil: Orlando in late 2014, Kells in 2015, and West Wick in 2016. Although capex to develop these wells will be rising, the cash flow rise from operating income will be even greater. It is estimated (by the company, and some analysts) that free cash flow, for example, in 2015 might be $230M roughly. My point here is that it's not just the current upcoming production from Huntington that makes INA attractive -- there are other production opportunities in upcoming years. Thus, imo, although the stock might rise and fall short-term, over the next couple of years, it seems likely that INA ought to at least double or triple. Of course, jmo, and I have been wrong many, many times. Especially when it seems that I am confident the reward/risk is in my favor. Especially when I make outsize bets like I am making with INA. |
