Posted by: tryoty Date: Monday, February 11, 2008 8:32:55 PM
In reply to: None Post # of 135538
Valuing ERHE shares...
"Profitability is everything" does not apply. At this stage it is "Profitability is nothing". It truly is a meaningless measure.
Why?
ERHE will be priced as an asset play. Many here, myself included, believe ERHE will be in control of a billion barrels of oil when blocks 2, 3, and 4 are all proven. A billion barrels, discounted for royalties, taxes, development costs, and any other hands in the cookie jar, was valued at $5B by the Chinese when oil was $50 a barrel. I'm using China's purchase of 45% of AKPO as real world support for those numbers. Oil is near $100 now, and with all the energy companies running conservation and alternative energy commercials the writing is on the wall, Peak Oil is here. Knowing that, I don't expect a billion barrels to be worth twice what it was when oil was $50, there will be a premium. I am confident that in today's world a billion barrels of proven oil is worth in excess of $10B. Don't forget, that's factoring in all the taxes, royalties, and costs of development.
When ERHE is commanding 1 billion barrels, if ERHE commands 1 billion barrels, the share price will reflect that value... roughly $14 per share.
Before anyone goes off on me, I didn't say ERHE will be $14 when the drill bit turns. The JDZ is going to be a repeat cycle of drilling and finding 200-500M barrel pockets of oil. With each hit (and Addax has put the chance of success at an unheard of 78%) ERHE will jump to reflect the additional asset value. I wouldn't be surprised to see the current blocks take 5 years or longer to fully prove, and that's okay, because it will be a steady and dramatic rise in share price the entire time. If they haven't been eaten by then ERHE should be drilling in the STPEEZ where the structures are "extremely large". With two 100% blocks I twitch when I think about what that means.
This is my last post about trying to calculate profitability. It's just not a meaningful measure and I don't think it ever will be a meaningful measure for ERHE. There is a massive land-grab for deepwater assets going on worldwide. There's a reason for that... it's a perfect storm.
