It all depends on the investors where the stock will be ... many talking heads are predicting oil pricing at $90+ per barrel by the end of the year.
If 3-D P50 estimates are in the bilions of barrels and drilling is to begin Q4 of 2011 then I can certainly see $10 -20 before the first gusher ... imho
Msg 39533 of 39569 at 3/17/2010 2:04:28 PM by
e_2motion
Valuation comparables?
Getting back to Hyper valuation for a second,
I have a couple of thoughts of future valuation drivers:
HDY is currently sitting close to $100 Million total valuation. We all expect that once the contract and relationship with Guinea is formalized to a stable basis the value of the company will increase. Once we have fully vested Joint Venture partners on board, we assume the value of the company will increase as well. The $50 million cash will not hurt valuation either. Jason Davis is on record saying that they want to attract institutional investors to rotate into the stock. This should provide both some stability to the share price, and also perhaps a bit of upward momentum.
Beyond that we have the 2D analysis, 3D, and then the drilling to look forward to in the next 18 months. Does that mean we will float around for a year or so as the funds rotate in to replace us retail folks? Perhaps, but lets look at this from another perspective. As mentioned yesterday, a South Korean company, inexperienced in the oil markets is interested in getting a couple of offshore blocks. With the much publicized shift in policy within the majors about going after previously unacceptable oil targets (due to size, or perhaps political instability), I think we should expect to see additional interest in Guinea after they prove to the world that they are open for business in the offshore oil area (i.e. after they sign with HDY). Having free and open elections this summer should only help this situation further, even understanding that democracy is by nature a messy form of government.
Thinking rationally, Guinea will plan to lease the rights for these blocks. My guess is that they will intend to do this sooner than later. The country is coming off a bad political time, during which time their revenues from bauxite decreased as the global recession reduced the demand for aluminum. In short I think they need the cash now. While they might wait, as Ray has suggested, until after HDY has made a discovery which should increase the block prices by 10X, they will most likely not wait to lease all the blocks in the 64%.
What this could mean to HDY is to give the market the closest thing to a "comparable" for the stock as is possible. Here's what I mean. If the average leasing price for the blocks is $10M each, that means that our 8 blocks are worth more than $80M (knowing we made an informed choice and we choose wisely) and the company is likely to be valued at more than $.80/share. If the selling price is $100M per block, the "comparable" values HDY at more than $8.00/share, with, perhaps, a linear relationship in between. It's a total guess what price the blocks will go for. My guess is they might start off on the low side and raise from there, but who knows? I guess my point is to get us all to think, when was the last time we have read of a block being sold off for $10M.
With the oil find next door, rumored to contain 250M barrels, and our blocks on trend with that and similar finds, I suspect we will see north of $10M price per block lease. Especially considering that we have found 2 source rock activate systems, and are in the flow pattern of many Cretaceous, and prior Jurassic river deltas.
As Mike has pointed out, there are a lot of companies who have seen some of the offshore data, and as Dennis mentioned, it might well be worth it for HDY to assist Guinea in getting the most for these blocks possible. Being a helpful resource by providing 2D on blocks HDY has no interest in, might be looked at very favorable by the Guinea Government, and it might be one of the drivers which could propel the HDY share price to levels much higher than many of us thought possible prior to drilling. It seems clear that there is a very good chance that there is significant oil and gas in many of these blocks within the 64%. Maybe it's time to help Guinea get the job done. Their success is our success, and vice versa.
Jim
