International Rochester Energy Corp. (V. ROH) Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : International Rochester Energy Corp. (V. ROH)

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: R F B, Jr. who wrote (24)	2/18/1997 11:35:00 PM
From: Greg Burton	of 188

Dear Raymond: Thank you for the reference to Zeev post which I read with care. Since you seem to be conducting a seminar in evaluating oil exploration companies, let me ask you a few elementary (read ignorant) questions: 1. Evidently both you and Zeev are saying that there is a difference in the value of a barrel of oil depending whehter it languishing under ground as a reserve or whether it is in transit to market and producing cash flow. The former deserves a discounted value of $3. The latter should be judged according to the flow of cash it generates and the value of the company should be judged by applying a multiple to that cash flow. You choose 3 for that multiple as you state in #23. You do not multiply the Torcaz 225m by 3 hence my assumption that multiples apply only to production oil. If this is correct, then 2. Why $3 a barrel for reserves? Is not a barrel of oil in Columbia next to pipeline worth more than a barrel in Sudan? Remember that these companies say they can get the stuff to market for $10 leaving $12.50 profit a barrel. Their number represents more than a four fold increase over your $3 valuation and cannot, I think, be explained away as typical puffery of a company pushing its own stock. I find this discrepency quite disconcerting because it means that HEC's NAV is only $1.08 (USA NAV) + $1.82 (Torcaz) + $4 (1Bx$3x15%divided by 118mm shares) even if a billion barrels were to be found if we have to stick with $3 a barrel. My confusion is complete when I read in your #16 to me: " I've been through the math before many times and still maintain that 225 mbo of Torcaz #2 added $1.82/share of HEC AND THAT A BILLION BARREL FIND WOULD ADD ABOUT $7-$10 PER SHARE DEPENDING ON WHERE THEY FIND IT AND WITH WHOM." So, how to reconcile the $3 With the $7 to $10? 3. I think you are saying that NAV is not in itself a predictor of price to be placed on a share by the market but an indicator which can subsequently be inflated by a reduction in the discount for time as reserves are converted into cash flow. 4. When does the market anticipate this conversion? Evidently, you do not think that time had arrived for the Torcaz find because you do not increase its value beyond $1.82 when you evaluate it in #23. Its conventional wisdom that the market will anticipate at least six months. If you are not already in the stock, won't you miss the jump when a discovery is made? Is your analysis intended to be used to guide sell decisions only? 5. How do you get to $7 to $10? 6. Does this mean that the differences between you and Peter Hogan are really only a difference of view of when the conversion or anticipation should occur? That is, if Torcaz were accounted at $7-$10 a barrel (forget Palo Blanco) would that account for the current price of the stock? Am I just all wet? Greg

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next