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Greg :
There are no seminars being conducted by this investor. I am merely looking to put values on companies and their assets to make more intelligent investment choices.
What is the value of a barrel of oil in the ground? When will this barrel be brought to the surface, transported, sold, and bring in revenue? Until a company starts producing oil and has cash flow and thus cash flow per share, I like to discount to the present the value of the Company's wealth in the ground. Zeev likes to be ultra conservative and uses $3 pbo. I've seen analysts use $5 pbo and for the most part, I'll take the middle ground at $4 pbo. I have however used all three values over the course of my postings on SI. There is no single correct value. Take the value per barrel of oil, subtract transportation costs, cost of well, taxes, etc. and maybe you have $10 or $12 per barrel. Take 1/2 of this amount to discount to today and you have $5 or $6. Can't hurt to be conservative.
When a company has cash flow, they can be valued by a multiple of cash flow per share. This can be 5 x or 7.5 times cash flow.
Regarding my post #23 I'll have to re-read to see what multiple you are talking about.
Torcaz #2 225mbo gives HEC 40,620,000 bo x $5 p/b in ground = $203,100,000 divided by 111,551,364 shares outstanding = $1.82. Please keep in mind that HEC has a 40% partner in addition to Colombia Royalties and Ecopetrol. HEC's share is roughly 18% on this hit. There share would be reduced to 15% on a 1 billion barrel find in Torcaz so that would bring 152.220 mbo x $5 p/b in ground = $761,100,000 divided by 111,551,364 = $6.82 p/s. Now if the billion barrel hit came without a partner, HEC's share would be twice this amount or between $11 - $13 per share. Please keep in mind that partners will reduce the share to HEC as will the size of the hit. Once 150 mbo have been found, (which it has), percentages escalate to Ecopetrol to about 70%.
HEC's NAV has not included any oil from Colombian program to date, simply because we still do not know exactly how much they hit in Torcaz #2. We've been waiting to find out. One thing for sure, after the hit, you could have bought HEC at $2, $2 1/4, $2 1/2.....up to $3 as of the 1st of January 1997. HEC didn't reach it's fair value until recently. Many people saw this and took advantage of the situation and have gained 55% this year already.
I don't profess to know why things have happened like they have. For some strange reason I have been right more than wrong on HEC. Instead of trying to figure out why, I'll just enjoy it while I can.
Look at NAV as Book Value. Certain sectors and issues within those sectors trade at multiples of book value, cash flow and a host of other ratios. My thinking, figuring, quessing will continue to change. As long as I can put a finger on why HEC is trading where it is, I am comfortable with my investment.
Sorry if I haven't answered all your questions. I think you should be comfortable with any investment you make and if you are not, be it HEC or ROR or whatever, get out and try to limit your investing to things you know and that come easy to you. I don't have any such luxury, I have to work for whatever I get.
Regards,
RFB |
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