Interesting conversation on here yesterday regarding the potential value of VOG. I thought I would have a go. Worth perhaps considering what we currently have and what we can reasonably hope for. This is based on the recent investors' report released by VOG.
West Med:
I think we all agree that West Med is something of an unknown. Currently 14mm boe from a well that was far from optimally placed (103) and a contribution to share price which is absolutely zero. In fact it seems quite likely that West Med is currently thought of by the market to be a liability. VOG have let it be known that they are looking for a farm in partner. This could happen any time soon and there are a few obvious candidates (BP TNK or Gasprom). If a farm in does take place then we will have a value for this asset, and it will not be zero. The fact that VOG are not currently revenue generating means we are something of a distressed seller. When revenues come from Logbaba this will change overnight.
So what potentially do we have at West Med? - Mineral LLC say that there are prospective resources of 1.4 bnboe (broken down to 670mmbbls and 730 mmboe in gas and condensate). In short a massive resource. Two wells to be drilled at the end of this year and a development plan to be released imminently. Early production currently pencilled in for 2015 sales of oil projected to raise $60per barrel. So far from zero, or even negative influence on West Med, the second a farm in partner is announced (or indeed funding in the absence of a partner) this will become a major asset. Being very bearish I would say $3.5 per barrel of oil currently discovered is $50m plus $50m for potential. This would give a figure of $100m. I am aware that $50m for a potential resource of 1.4bnboe is, to put it mildly, conservative. I am also aware that the company has an awful lot more information upon which to base where to drill both of these wells (gas tomography etc) than they had when drilling 103. If they were to hit oil it could be an absolute game-changer for VOG. So current value that should be factored in I would say $100million, current value factored in $0. Trigger for releasing this value? - Farm in or funding. Expected timing? Has to be soon the wells are due Q4 of this year! Potential upside? - Multiples of current share price. Risk? - medium. I'm assigning only $100m to West Med as it could be $50million if no more oil found or $500million if it is (or anywhere in between).
Logbaba:
Again I think we all agree that current market cap is 100% Logbaba. SP reflects 2P reserves of 212bcf and a gas delivery network which is very near to first major customers and appears to be ontrack to deliver substantial quantities of gas from April. The recent re-rating reflects the market's approval of the absence of delays and concomittant reduction of risk. The near term potential stated by VOG gives a net income after tax of $192m assuming sales increase from 5mmscf/d - 20mmscf/d from 2012-2013 based on current reserves. As soon as production gets above 5mmscf/d, or in other words as soon as VOG can demonstrate that they are on track I see no reason why this would not be reflected in the share price as there is no drilling risk to factor in.
What of the potential? We are all understandably so focused on the pipeline construction that the market seems to have forgotten about Logbaba potential. Currently I would say there is, similar to West Med, nothing in the current SP reflecting potential. VOG management have given us the figures. Assuming production increases from 5mmscf/d 2012 - 44mmscf/d 2015, again based purely on current reserves. Net income after tax to VOG of $672million.If we assume that a miserable 10% of this would be reflected in the SP in advance of production that would be $67.2. Again on no further drills!
But, to misquote Chris Tarrent we don't want Logbaba to give us that. We want, and can reasonably expect given the seismics, much much more. Assuming 3P reserves, which would mean drilling the anomaly (and I, as I've said before, am staying in this share until they do) and production increasing to 60mmscf/d by 2015 which again is consistent with VOG's predictions, then a net income to VOG would be $991million.
Even that though is not the full potential. Assuming 3P plus prospective and sales of 125mmscf/d to a 500MW power plant and 40mmscf/d to a LNG plant (yes VOG actually did talk about a LNG plant) then potential net income after tax to VOG is stated to be $2,086Million. The dates stated are also interesting, they are not some point a decade in the future. The LNG plant assumption was 2013! The power plant 2015! (interesting to cosider whether Bowleven would be interested in joining in with an LNG plant).
So pulling all these threads together. We end up with this:
Current market cap = $183million (Logbaba $183million; West Med $0) SP 4.56p
Anticipated market cap assuming normal progress in Logbaba and farm in at West Med = $359.2million (Logbaba $259.2m; WM $100m) SP 8.95p
Potential MC assuming normal progess at Logbaba to 2013 and farm in at West Med = $792million + (Logbaba $692m; WM $100m+) SP 19.74p
Semi - Optimistic MC by 2015 assuming 3P reserves of 350BCF are realised and 60mmscf/d = $1091million (Logbaba $991m; West Med $100m+) SP 27.2p
Optimistic MC assuming 3P plus prospective realised and 125mmscf/d to power plant 40mmscf/d to LNG plant = $2.186billion (Logbaba $2.086billion; WM $100m+) SP 54.5p.
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