Value Microcaps Junior Energy

[stock_peeker]

MMT.v comment about Nigeria's tax rates (lifted from StockHouse) contains link and quote from that link.

RE: RE: Expected Price to Cashflow Ratio
JustforFun7
2/15/2011 11:04:49 PM

Hey Milsey

I am just looking for explanations as to why the market would only be giving us what we are getting. If our expectations are 3.5 (Vernbonac) but we are only getting 1.9 from the market perhaps there is a reason and maybe our expectations are too high. I am not specifically thiking about now but later because there is so much good news to follow. I was trying to determine my exit point (share price) based on price to cashflow ratio expectations.

here is a link and excerpt to the tax rates for oil profits in Nigeria.

http://www.nigeria-oil-gas.com/doing_business_in_nigeria_-_tax_system-109-1-2-art.html

"The rate of tax on oil profits (Petroleum Profits Tax) for companies undertaking their business as a Joint Venture (J.V.C.) and with a Risk Service Agreement is 65% of taxable income on their gross exports during their first five years of production. Thereafter the rate rises to 85%."

Near as I can tell Mart started production on April 2008 from UMU-1 so we are getting close to year 3 of the first 5 years so we should have another full 2 years and a bit of paying 65% corporate tax rate before moving to 85% tax rate.

I don't believe we should be comparing oil companies on P/Es but I think it reasonable to assume that the amount that hits the bottom line would impact the price to cash-flow ratio that is achieved. I would expect a company paying 55% tax rate to achieve a better price to cash-flow ratio than a company paying 85% tax rate (all other things being equal).

JFF