AED - AED Oil

[gunditrader]

Hey guys,

I've been loving the recent run. $10 seems more than feasible by my calcs. If the price of oil can hold above US$60 this stock is currnetly trading at a PE of around 2.5. However at the moment with the limited proven field life I can't see it breaking through a PE of 5 without some significant news ie new oil discoveries. However these are more than possible. AED is set to be a real cash cow for the next couple of years.

Cheers
Gundi

 

[chops_a_must]

Hey guys,

I've been loving the recent run. $10 seems more than feasible by my calcs. If the price of oil can hold above US$60 this stock is currnetly trading at a PE of around 2.5. However at the moment with the limited proven field life I can't see it breaking through a PE of 5 without some significant news ie new oil discoveries. However these are more than possible. AED is set to be a real cash cow for the next couple of years.

Cheers
Gundi

Well... AED will be selling at a premium to the TAPIS prices as their oil is of high quality. So from memory... that's about $95AUD... ~ $76USD. Maybe it is worth doing another calc based on $70p/ barrel USD.

 

[doctorj]

Well... AED will be selling at a premium to the TAPIS prices as their oil is of high quality. So from memory... that's about $95AUD... ~ $76USD. Maybe it is worth doing another calc based on $70p/ barrel USD.

You're correct that tapis will sell at a premium to the wti, but it's going to cost them a whole lot more than USD6/bbl to get the oil out of the ground and sell it.

You could be reasonably conservative and start with a valuation based on USD20/bbl and go from there, rather than the USD70/bbl you suggest.

 

[rocka1]

HI doctor j , so where do you get your figures from , glad i never said that. you might have said i was down grading current price get my drift , cheers rocka

 

[doctorj]

Guys, you need to familiarise yourself with ASF's rules before posting. Posts don't disappear without reason.

Some threads for you:
https://www.aussiestockforums.com/forums/announcement.php?f=16
https://www.aussiestockforums.com/forums/showthread.php?t=4118
https://www.aussiestockforums.com/forums/showthread.php?t=4773
https://www.aussiestockforums.com/forums/showthread.php?t=6661

We here at ASF work hard, day and night, to ensure that it remains the highest quality trading/investing forum in the country. By familiarising yourself with the rules, you can help us and save your own time by not creating content that is only going to be deleted.

 

[rocka1]

HI DOCTORJ , i have just familiarized myself with rules hope i get it right next time , could you please tell me why its going to cost so much to get oil out of ground and can you please back up this claim posted by you at 12. 47 am cheer rocka

 

[doctorj]

HI doctor j , so where do you get your figures from , glad i never said that. you might have said i was down grading current price get my drift , cheers rocka

My figures were conservative, but infinitely more realistic than the suggestion of costs of $6/bbl.

Puffin is approximately 100m underwater. It is using an FPSO, from which oil will have to be periodically taken ashore. All costs money.

Take for example the Buffalo field off the north coast of Aust. It's only in 30m of water and has a comparable recoverable reserves of about 32 million barrels and a similar short life and is/was also produced by FPSO. Back in 2004 (last year for which I have data), operating costs were approximately USD33/barrel. It'd take a brave person to argue that costs are likely to have done anything but go up since then. When you start to think perhaps costs of USD40/bbl is reasonable, you're not far off my 'conservative' figure of USD20/bbl after costs.

Now, there's a chance I could be way off the mark as I've not seen the estimates put out by AED. Had a look but couldn't find it - all I can do is compare to similar situations.

To the poster that was talking P/E's, given the short life of the field, 5 would be reasonable (take a look at ZFX's P/E - they also suffer a short life).

I'd be interested to see other's calcs, but based on USD20/bbl, OIP of 67mmbo and recovery of 50%, I get a NPV of between USD$500-600m. AED's current market cap (according to Commsec) is currently $490m.

 

[rocka1]

THANKS DR for your reply very well explained ,thanks for taking the time to reply , ill keep it in mind , tomorows price will be very interesting cheers rocka

 

[chops_a_must]

I'd be interested to see other's calcs, but based on USD20/bbl, OIP of 67mmbo and recovery of 50%, I get a NPV of between USD$500-600m. AED's current market cap (according to Commsec) is currently $490m.

For you to get USD20/bbl costs would have to be close to USD60/bbl. Given NWE are calculating the value at USD50/bbl, I can't see how you are getting these figures. But even on this conservative estimate, AED could go another 25% pre-production to its NPV (as companies tend to rest on their NPV just prior to production).

 

[rocka1]

GDAY CHOPS in my opinion your spot on , im goin nigh nigh , good luck if you buy aed tomorow , as i said i bought 2 days ago im more a short trader cheers rocka

 

[doctorj]

For you to get USD20/bbl costs would have to be close to USD60/bbl. Given NWE are calculating the value at USD50/bbl, I can't see how you are getting these figures. But even on this conservative estimate, AED could go another 25% pre-production to its NPV (as companies tend to rest on their NPV just prior to production).

Therein lies a trading opportunity for you perhaps.

Using $40/bbl after costs, you're looking at an NPV of about $1b. The price you use will ultimately depend on your forward outlook for oil and how aggressive you are in your valuations. This kind of disagreement makes a market

Interesting that, aside from the success of puffin-8, there were plenty of AED on offer between $3-3.50 very recently and there's been no new information to get it here. AED's been good to me (the chart is fantastic), but fundamentally, I'd find it tough to enter around these levels.

 

[rocka1]

HI all see AED is up again almost 3 % the morning new high of $7.45 , Doctorj how can you find it tough to enter at this level when the stock has been rerated by brokers at $8.50 , sure their should be some pull back, my opnion is it cannot keep running up i wish it could as i own some , it should consoladate before new run cheers

 

[Sean K]

HI all see AED is up again almost 3 % the morning new high of $7.45 , Doctorj how can you find it tough to enter at this level when the stock has been rerated by brokers at $8.50 , sure their should be some pull back, my opnion is it cannot keep running up i wish it could as i own some , it should consoladate before new run cheers

Rocka, brokers are not always correct. In fact, you may find stark differences in their 'analysis' and recommendations of stocks on the ASX. It's not uncommon for 5 brokers to have 6 different opinions of where a stock is going. I do note however, that UBS, Credit S and Duetsche all have buys on this, but their price targets vary greatly. Deutsche have a target price of $6.30, for example! So, just because one analyst has an $8.22 target (UBS) does not make it so. I'm not saying this is not a good stock or saying $8.22 or higher is not possible, just an observation.

 

[doctorj]

The other thing to be aware of is my valuation doesn’t consider any potential for exploration upside (such as Puffin 10 later this year) or any other projects. It is also simplistic in the sense that I’ve assumed uniform extraction of the oil over the life of the well rather than high flow rates at the start reducing over the life of the field which is far more realistic.

The purpose of the valuation was to challenge people to come up with their own valuation rather than getting carried away talking about P/Es of 30 etc etc. It wasn’t intended to be thorough – I literally did it on the back of an envelope.

 

[rocka1]

HI KENNAS you are quite right brokers will all have different opinions all they worry about is lining their pockets, i didnt by this stock on brokers re-rating i bought on the fundamentals cheers rocka

 

[chops_a_must]

Interesting that, aside from the success of puffin-8, there were plenty of AED on offer between $3-3.50 very recently and there's been no new information to get it here. AED's been good to me (the chart is fantastic), but fundamentally, I'd find it tough to enter around these levels.

I disagree. Reserves were increased when AED was at $5.00 one of the first times (you may remember the dud reaction for NWE at this time). And then the confirmation of flow rates. Other than that it was a lengthy consolidation and needed to recoup technically after such aggressive runs before its next leg up.

The other thing to be aware of is my valuation doesn’t consider any potential for exploration upside (such as Puffin 10 later this year) or any other projects. It is also simplistic in the sense that I’ve assumed uniform extraction of the oil over the life of the well rather than high flow rates at the start reducing over the life of the field which is far more realistic.

The purpose of the valuation was to challenge people to come up with their own valuation rather than getting carried away talking about P/Es of 30 etc etc. It wasn’t intended to be thorough – I literally did it on the back of an envelope.

Yus. It's almost disingenuous referring to the Buffalo field at the end of its life to base costs for Puffin. Of course fields cost a lot more money to run in their final stages. For some reason, I read someones thesis last night on well costs, and it looks as though the average daily costs for all rig types in the Timor Sea is in the order of $100,000 USD per day (http://www.library.unsw.edu.au/~the...ved/adt-NUN20070508.105146/public/02whole.pdf) . With a conservative TAPIS price of USD70, that is still a 110,000USD a day clearance (with conservative flow rates of 30,000bpd).

P/E's of 30 etc are quite ridiculous IMO. However, some of the fib extensions that I have on AED fit quite well and point to a possible run towards $10. Which to me, would fit in quite well with a conservative initial NPV. After production begins however, and towards the next quarterly, it will begin trading on P/E multiples instead. And we wont really know what fair value is until that point. But given people with more information than us are giving a P/E factor of ~2.5 at current prices, there is still reason to be positive even on very conservative valuations.

And it doesn't appear to value any other targets at all... especially tadpole-frog which is potentially larger than Puffin.

Cheers,
Chops.

 

[doctorj]

Really really really good post chops, thanks

If you have it, I'd love to see AED/NWE estimates on costs per barrel.

 

[resourceboom]

Guys, just to keep you informed, the fully diluted mkt cap is over 1 Billion, as they have approx 150M shares fully diluted.

But between the two main fields they plan on developing they should have 80MBO that will be recovered. And I think the p/e of 2.5 is based on the expected 10MBOPD!

 

[gunditrader]

Hey guys

Here are a few notes from the macquarie circular

Production Process - FPSO
The development of the Puffin Oil Field is to be undertaken using a disconnectable FPSO.
FPSOs have been used successfully in oil field developments proximate to the Puffin Oil Field,
including at Jabiru, Challis, Buffalo, Elang/Kakatua, Laminaria and Skua.
The development method involves the FPSO being tied back to subsea well completions (figure 1
below). The oil will be extracted from the Puffin-7 and the Puffin-8 wells and flow up to the FPSO
through flexible flowlines and umbilicals connected to the FPSO through a subsea manifold. The
FPSO will stabilise the crude oil produced from the wells and store it in its onboard storage tanks.
The stabilised crude will be exported by a flexible floating hose to an offtake tanker moored in
tandem to the FPSO. Storage in the FPSO will allow for the offloading of oil to shuttle tankers and
subsequent crude sale on a free on board basis. The currently anticipated point of delivery of the oil
will occur when the oil is taken out of the development facility to the storage tanks on board the
FPSO. That is, the ownership will change on board the FPSO, prior to offloading to the shuttle
tankers.

Drilling
As noted above, a two well campaign, involving the drilling of Puffin-7 and Puffin-9 wells, was carried
out in the first half of 2006. The Stena Clyde semi-submersible rig was utilised for that campaign.
The Company has also secured the Stena Clyde for the drilling of Puffin-8 commencing in February
2007. This well will supersede the previously announced Puffin-8 which was to be drilled in the Puffin
South West structure, to produce from the Puffin-2 reserves. The Company has appointed the Peak
Group as its drilling manager in relation to the drilling of Puffin-8 as it did with Puffin-7.
As part of its development and exploration activities in 2007, the Company is also considering
undertaking a further three well programme in order to assess further known oil accumulations within
the Permit Area. The programme is expected to include development of one production well in the
North East 1 region during the period October to December 2007. The wells are expected to be
drilled using the new Wilcraft build jack up rig, with Peak Group as drilling managers. The expected
cost to drill and complete this programme is approximately US$100 million and is planned to be
funded mostly from cash inflow from expected oil production.

Development and Ongoing operating costs
The Company has estimated that a total remaining capital cost of A$97.2 million will be required to
complete the Puffin-7 and Puffin-8 development wells (Phase 1 and 1A of the Puffin Oil Field
project). It is expected the that the funds from issue of the Unsecured Notes will be used for the
associated costs of developing the additional production well, Puffin- 8. As discussed above under
“Schedule for development and exploration”, the scope of Puffin-8 is beyond what was originally
contemplated by the existing debt facility, which was undertaken to fund only one production well,
Puffin-7.
A summary of the outstanding development costs are highlighted in the table below. These costs will
be funded by drawing down the remaining amount on the existing debt facility, the Unsecured Notes
issue and cash at hand.
Item
Estimated
Development Cost
(A$m)
Drilling of Puffin-8 14.1
Completions (Including Tree) 8
FPSO Capital Expenditure —
Subsea Equipment 20.2
Installation services (AED proportion) 34.6
Project Management 5.8
Other Project Costs Including Insurance and Commissioning 9.6
Other 2.1
Total Development Cost 97.2
60
The total ongoing annual operating costs have been estimated by the Company to be U.S.$70
million. The Company believes that the most significant ongoing cost will be the cost of leasing the
Front Puffin FPSO.

Costs are obviously low in this case due to the sale of oil effectively on the FPSO facility.

Make of this what you will. However I don't think MacBank would be too much off the money.

However on these figures 30,000 bopd ~ 10,500,000 bopa

@ US$60pb = US$630m

EBITDA = US$540m

Even doubling these expected costs AED still looks attractive.

All figures are as of Convertible Note Offering -Exercise of Lead Managers Option 23/02/07.

Looks OK to me .... any opinions

 

[laurie]

The only risk factor for AED and the market is that it's in a cyclone prone area during the period from Oct - May so expect a month lost in moving FPSO to safe ports,that's conservative given 1 cyclone but having lived in the N.T. for over 30yrs and the way weather cycles happen 2 or 3 could be possible you got to see what happened to ERA/BHP/RIO during the last wet season and they were land based operations it's not that AED has other wells producing while Puffin is out of action

cheers laurie