CVN - Carnarvon Energy

[cgf]

Great AGM. Ted made it was clear that he never thought at last years AGM that CVN would be so far ahead of his projected target goals. Its also worth noting that Ted mentioned they are looking at "all" the Thailand refinery options as their production obviously continues to increase. As he mentioned this is a great problem to have (i.e. too much oil) as its far better than "not having" any oil. His 2P (proved,probable) oil reserves of 50+ million barrels net to CVN will soon be upgraded as their seems to be a strong confidence that their strike rate will continue through out 2008.

His original 2006 targets where more targeting sandstones, which has now changed to his priority being volcanics. After gaining 2007 exploration knowledge the excitement over the targeted WB-1 (Deep) could clearly be seen. He went over why they now believe their Thailand fields volcanics could be far better than they ever first thought.

Loved how he said CVN in a far better oil reserve position than TAP which has been strong lately.

Tap shares have returned to favour after a poor first (June) half loss of $280,000, the result of higher operating costs. But Tap's production rate - based on its 12.5 per cent interest in the Harriet joint venture and 15 per cent stake in the Woollybutt field - met expectations.

Tap's priority is to supplement its scant reserve position of 7.5 million barrels. Underwood admits Taps' exploration efforts in the past have "lacked technical rigour". In other words, they weren't looking for oil in the right place. "We are all about trying to deliver reserves and are on the right path to improve reserves in the near term." - The Australian - Tim Boreham | October 17, 2007

 

[Riles]

His 2P (proved,probable) oil reserves of 50+ million barrels net to CVN will soon be upgraded

According to my notes from the AGM PDF, 2P reserves for the NS East area for the JV are currently 2.83mmbbls - a far cry from 50+ mmbbls net to CVN.
Their 3P reserves are 30+mmbbls.
Of course I'm expecting a significant upgrade to their 2P reserves, but where did you hear 50+ million barrels?

I'd love to be able to work out a valuation for CVN but - apart from my limited knowledge in this area - there's scant information available.

What do we know apart from 2400 bopd and $6 Opex?

How much are they actually getting per barrel?

How much is the Capex per barrel?
$1m per well - is that nett to CVN or the cost to the JV?

How much are they paying for royalties right now and later? "Sliding scale" doesn't mean much. Is it 30% or 45%...?
Will it go higher or lower with more production?

What % tax are they paying?

The only thing I could glean from the presentation is they average 800bopd per well, which pays back the $1m well cost in 2 months.
So 60 days @ 800bopd = 48,000 barrels to pay back $1m means $20.80 per barrel profit.

So my inept reckoning going by that:
say $20 per barrel for 2P reserves of say 3m barrels, of which CVN get 1.2mmbbls = $24m divided by 680m shares = 3.5c per share. Give a PER of 10 (realistic given their 3P reserves are currently 30mmbbls) gives us 35c per share.

Of course this all depends on
a) the actual net profit per barrel
b) the actual upgraded proven & probable reserves which we won't know till Jan sometime.

Jeff Chisholm in his recent POE presentation suggested up to 42mmbbls recoverable from NS East field.

So using the same figures as above would give us:
42*40%=16.8mmbbls net to CVN @ $20 =$336m / 680m shares = 49.4c. Which is a p/e of 1.

So the next reserves upgrade for Na Sanun East will have a big impact on their valuation.

And then there's Wichian Buri.
And Bo Rang
And Si Thep
And JV with SUR

I don't profess to know what I'm talking about here. I'm really just looking for answers...

 

[kransky]

The ann from 31/10/07 (Sept Qtrly) has the revenue at US$60 per barrel. Oil prices are higher now so its probably around US$70 now.

From a poster on HC who was at the AGM, the royalties are sliding scale from 5% to 12.5%. Thailand company tax rates are apparently complex. but from a quick search on the web it looks like its 30%.. ??

I dont understand the figure of taking 2 months to repay each well...

revenue per well per day = 800 * 70 = 56,000
minus 12.5% royalty = 56,000 * 0.875 = 49,000
costs per well per day = 800 * 6 = 4,800
profit per well per day = 49,000 - 4,800 = 44,200
after tax profit per well per day = 0.7 * 442,000 = 30940
CVN share of profit = 40% * 30940 = 12,376
well cost repayment period = 1,000,000 / 12,376 = 80 days

if you assume well cost for CVN is 40% * 1M = 400k
well cost repayment period = 400,000 / 12,376 = 32 days

cant work it out. maybe they are using long term average oil prices and not the current peak prices...

lets take a more conservative oil price of 60.
(60-6) * 2400 * 365 * 0.875 * 0.7 = 28.9M per annum after tax profit (Excluding well costs)

28.9*a PE of 15 = 433M => 65c SP.. but this is excluding well drilling costs...

 

[lazyfish]

The ann from 31/10/07 (Sept Qtrly) has the revenue at US$60 per barrel. Oil prices are higher now so its probably around US$70 now.

From a poster on HC who was at the AGM, the royalties are sliding scale from 5% to 12.5%. Thailand company tax rates are apparently complex. but from a quick search on the web it looks like its 30%.. ??

I dont understand the figure of taking 2 months to repay each well...

revenue per well per day = 800 * 70 = 56,000
minus 12.5% royalty = 56,000 * 0.875 = 49,000
costs per well per day = 800 * 6 = 4,800
profit per well per day = 49,000 - 4,800 = 44,200
after tax profit per well per day = 0.7 * 442,000 = 30940
CVN share of profit = 40% * 30940 = 12,376
well cost repayment period = 1,000,000 / 12,376 = 80 days

if you assume well cost for CVN is 40% * 1M = 400k
well cost repayment period = 400,000 / 12,376 = 32 days

cant work it out. maybe they are using long term average oil prices and not the current peak prices...

lets take a more conservative oil price of 60.
(60-6) * 2400 * 365 * 0.875 * 0.7 = 28.9M per annum after tax profit (Excluding well costs)

28.9*a PE of 15 = 433M => 65c SP.. but this is excluding well drilling costs...

Thailand tax is 50%, that should bring the number closer to their estimate.

(60-6) * 2400 * 365 * 0.875 * 0.5 = 20.7M PER of 15 is 310M. 60 probably isn't really a fair number to use, though.

 

[Riles]

Thanks Kransky and Lazyfish.
Now we're getting somewhere.

So using Lazyfish's formula we can assume:
$60 per barrel, less $6 opex, less 12.5% royalty, less 50% tax and give a per of 15.
So at 2400 bopd equals 45.5 cps

$70 per barrel would equate to 54 cps.

I note this still doesn't include Capex which would bring it down a bit more.

Let's look ahead to potential for next year:
20-30 more wells, say 25.
Capex therefore $25m
Possible strike rate of 50%, say 10 wells at 800bopd would add another 8000 bopd (net 3200 to CVN)

Could be looking at a total of 5600 per day which @ $60 per barrel would give SP target of over $1.00.

I'm happy with all those figures - especially the last one!

 

[cgf]

According to my notes from the AGM PDF, 2P reserves for the NS East area for the JV are currently 2.83mmbbls - a far cry from 50+ mmbbls net to CVN.
Their 3P reserves are 30+mmbbls.
Of course I'm expecting a significant upgrade to their 2P reserves, but where did you hear 50+ million barrels?

Im sorry Ive got to be careful about how I "word my posts" as you cant correct it once its posted. Ted pointed it out after the presentation - its forms part of the 2007 Annual report. It is CVNs reserve estimate at a un-risked 2P confidence level on all reserves within CVNs Thailand assets.

All shareholders must remember that in the 2006 exploration (and subsequent Dec06 2P reserves) they where only chasing the low flow sandstones of Wichian Buri. What was anticipated (in Nov 2006) for the 2007 season was to put as many wells into Wichian Buri (at low cost) to get more bopd. Their aim was 2500bopd by this years AGM with self funded exploration taken out of cash flow.

The dramatic change came when Ted wanted to risk doing the wildcat hole POE9 down at Na Sanun East. He told everyone at the 2006 AGM that POE9 was a big gamble and that finding recoverable oil requires a whole lot of luck.

So the important thing to take into account is the 2.83mmbbls at 2P level was all done before the NS3D1, L44GD1, L44G, L44H wells at Na Sanun & Na Sanun East.

As per the Annual report. In the 3mths to June 2007 they where showing a US$26.92 cash profit per bbl with the oil price @ US$50.24 bbl. Ted did say they are still trying to get their head around the sliding scale royalties as they can be complex. I am sure it will be announced once the bean counters find out what effects them and what doesn't. They also have big tax losses from previous years which will come in handy since the money is pouring in.

As an 20+ yr driller the truth is that it will take all of the 2008/2009 exploration seasons to really get a realistic idea on how big the reserves will be. The update to the reserve in Dec/Jan will no doubt give a big boost, but the full story for CVN is not a day traders paradise. With 2 rigs and now 8,000sq kms (within the Petchabun Basin) they will not be in a position to know the limitations of what they have for quite some time.

I take it from talks to the directors that they are looking hard at pushing their story to gain interest from financial institutions. This will help soak up some of the mess they inherited from the old directors shenanigans. I think Ted said there where something like 6000 shareholders for the 660million odd shares with 82% of these under the 100,000 parcel size.

Out of all the AGM talk it was good to hear confirmation that the deal/s that Ted has been working on since he joined CVN are still on target. Although he couldn't say what is being done .... in his words "these deals will dramatically effect CVNs standing". As a long term shareholder I couldn't think of anyone I would rather have leading my stock than Ted Jacobson.

 

[Riles]

Good one CGF, thanks for taking the time to post that.

RE: the 50 million barrels

Ted pointed it out after the presentation - it forms part of the 2007 Annual report. It is CVNs reserve estimate at a un-risked 2P confidence level on all reserves within CVNs Thailand assets.

POE's Jeff Chisholm sugested Na Sanun could be second only to Shell's Sirikit oil field which has been producing since 1992 - so far over 200 million barrels.
So it seems to me 50 million barrels would be within the realms of probability.

 

[cgf]

Good one CGF, thanks for taking the time to post that.

RE: the 50 million barrels


POE's Jeff Chisholm sugested Na Sanun could be second only to Shell's Sirikit oil field which has been producing since 1992 - so far over 200 million barrels.
So it seems to me 50 million barrels would be within the realms of probability.

Although nothing is 100% till its in the bag, I have a gut feeling that 2nd will at least prove to be factual within the 2008 exploration period. The "potential" for the equivalent of another Sirikit sized oil field within the Petchabun Basin (going on 2007 geology/return/strike rates) is also IMO within the bounds or rational reasoning.

Im not sure of Jeffs credentials but Ted is extremely well respected and very well known throughout the petroleum world as one of the best hands on oil men in the biz. His many home runs are well documented especially when it comes to finding oil and building companies from the ground up (like TAP oil). I remember when CVN first talked about asking Ted to look at the company. As he himself will tell you he is a technical based "oil man" not a beancounter so when asked about money he jokes and says you should talk to Peter. His big drive is for finding oil and building a strong technical based petroleum company. The two easiest decisions Ive had to make as far as CVN was concerned was voting out the old board and putting Ted in as CEO.

As people who have talked and seen Ted do presentations know, he is very reserved and very conservative in what he says. When has enough confidence to say 50+ million barrels nett to CVN at a 2P confidence level you can bet its not a pie in the sky figure plucked from a marketing guru. This is from CVN who are known to be ultra conservative. One thing that is very clear with the whole CVN board is they have no interest in a "speculative based" sudden explosion of the SP. If you want to buy into that you get into speculative stocks like FDL, RAU etc and hold onto your hats as the roller coaster takes you on a ride.

From an investment stand point the CVN board are very keen to pull in a much stronger institutional support base for their 660mil stock and I am positive that this will happen in the short term. 6000 shareholders with the vast majority holding less than 100,000 is not going to be the trend going forward. CVNs board has no interest in speculative pricing that day traders love. The board want to see a slow steady climb for its long term shareholders which reflects the true value of its assets.

I recommend to family and friends many different stocks depending on how bigger risk they are willing to take and how soon they want to see a return. But if they want a sure thing for their long term investment (like their superfunds) my first recommendation is that they buy as many CVN shares as they can, because in five years or so the SP will not be recognisable vs todays low pricing. I believe within 2008 CVN will reflect more of its real worth as the day traders look elsewhere for their speculation. With CVN you will see more a market pattern like my other oil/gas stock OSH and WPL.

 

[INORE]

anyone see the latest Hartleys evaluation at 89c well thats a bit more like it...after settling at around 50 for so long, it will be nice to see a well deserved climb...its still allmost 40% cheaper than their evaluation sheesh

 

[MS+Tradesim]

http://www.carnarvon.com.au/docs/Hartleys031207.pdf

Haven't read it yet myself but here it is for those who want to.

 

[kransky]

This is a great read for holders of CVN stock

here is the last paragraph:

"We believe that CVN is significantly undervalued based on our 89cps valuation and feel that there is significant further upside to this valuation as the Company expands its development, appraisal and exploration activities in Thailand and is also able to more aggressively explore other opportunities. Due to strong production, another busy year with strong news flow and high exposure to exploration upside in CY2008 we have re rated Carnarvon Petroleum Limited from a Speculative Buy to a Buy."

http://www.carnarvon.com.au/docs/Hartleys031207.pdf

 

[cgf]

anyone see the latest Hartleys evaluation at 89c well thats a bit more like it...after settling at around 50 for so long, it will be nice to see a well deserved climb...its still allmost 40% cheaper than their evaluation sheesh

I have a pretty big portfolio and a watch list that covers a whole lot of stock. CVN is by far and away the most undervalued stock that I know of (based on real world worth). Actually I look at so many of my watch lists and can see many SP's that are so out of whack with reality that its quite alarming. I cant understand why you would hold obviously overpriced stock as you risk being the only one without a chair when the music stops (and it will).

Besides needing or being desperate for money I would love to hear why anyone would be selling CVN based on anything since the exploration started in March 2007? There has been nothing but positive after positive moves by CVN since POE9 in late 2006. Read how many dusters other oil companies deliver day after day and you may then see what a rarity hitting deliverable oil is.

Until CVN shakes off the day traders they will remain vulnerable to speculative good news bad news sell offs. Lets hope the institutions come in heavy and gobble up 2000-3000 of these small shareholders so then the share price can indicate the true fundamentals of CVN. The reality is most don't even know what they have, as they simply cant see past the latest flow announcements and so buy/sell based solely on the latest news.

Trouble with CVN is conservatism, I extrapolated their projections from the 2005 AGM and they go and exceed them within the 2006 period. They then did even better in the 2007 period and simply blew away all their projections and expectations.

I'm a sucker for punishment so Ive now done my new 2008 projections based on CVNs conservative numbers, and its indicates that Hartleys will no doubt upgrade the 0.89c once the 1st quarter 2008 release of the new reserves/drilling become official. The future looks very good, and with more press exposure I hope it will attract the big boys into the stock which will help stabilize things.

 

[MS+Tradesim]

I hear you CGF. As I read through Hartley's report I kept thinking "But what about....? But what about...........?" They even state in it at least two times that they are using very conservative assumptions.

 

[cgf]

I hear you CGF. As I read through Hartley's report I kept thinking "But what about....? But what about...........?" They even state in it at least two times that they are using very conservative assumptions.

One of the parts often overlooked is the "license restrictions" they have had in both drilling and increasing facilities especially with such a big increase in flow rates. With Thailand wanting more oil exploration (due to it having to rely on imported oil) this is only a formality but it has been a constraint, although one soon be lifted.

Resources Analyst
David Wall
Ph: +61 8 9268 2826
david_wall@hartleys.com.au

The currently producing zone in Na Sanun East will be fully appraised with development commencing in 2008 following the award of a full production license (expected around March). This will likely see reserves upgrades and potential flow rates of 15,000 bopd by Dec 08.

The JV applied for the Na Sanun East production license late this year. Typically the approval process takes six months; however, with an election on the 23rd December, we expect that the production license may not be awarded until March 2008. Once the license is in place, negotiations can be finalised to increase facilities to match production levels and drilling targets within the license area can be drilled at will without waiting for approvals (exploration drilling locations can take up to 3 months for approval). This will allow full development of the Na Sanun East field, in particular delineation of the eastern field boundary, which will allow for a more accurate reserves calculation.

The three month approval cycle for exploration wells means that the majority of wells in Na Sanun East are currently deviated as they are drilled from the Na Sanun production license area into the Na Sanun East exploration license area. The award of the production license should see a reduction in well costs, as deviated wells are more expensive than vertical wells.

Once infrastructure and trucking constraints are removed, sales will be increased and the field will be further developed. This could mean production rates in 2009 upwards of 20,000 bopd.

 

[INORE]

I have a pretty big portfolio and a watch list that covers a whole lot of stock. CVN is by far and away the most undervalued stock that I know of (based on real world worth). Actually I look at so many of my watch lists and can see many SP's that are so out of whack with reality that its quite alarming. I cant understand why you would hold obviously overpriced stock as you risk being the only one without a chair when the music stops (and it will).

Besides needing or being desperate for money I would love to hear why anyone would be selling CVN based on anything since the exploration started in March 2007? There has been nothing but positive after positive moves by CVN since POE9 in late 2006. Read how many dusters other oil companies deliver day after day and you may then see what a rarity hitting deliverable oil is.

Until CVN shakes off the day traders they will remain vulnerable to speculative good news bad news sell offs. Lets hope the institutions come in heavy and gobble up 2000-3000 of these small shareholders so then the share price can indicate the true fundamentals of CVN. The reality is most don't even know what they have, as they simply cant see past the latest flow announcements and so buy/sell based solely on the latest news.

Trouble with CVN is conservatism, I extrapolated their projections from the 2005 AGM and they go and exceed them within the 2006 period. They then did even better in the 2007 period and simply blew away all their projections and expectations.

I'm a sucker for punishment so Ive now done my new 2008 projections based on CVNs conservative numbers, and its indicates that Hartleys will no doubt upgrade the 0.89c once the 1st quarter 2008 release of the new reserves/drilling become official. The future looks very good, and with more press exposure I hope it will attract the big boys into the stock which will help stabilize things.

CGF....i agree on the comparison to the oilers i have traded for years (AZZ ADI and some others)....a friend of mine told me what a dog he thought CVN was when it was 18c and he bought for 23c ... after doing a little more research i couldnt beleive what i saw was about to happen...they were in a politically stable country, had good management and they were starting to get hits on their drills. now compared to others whose oil discoveries have taken years and years...CVN have done that in 12 months or so...at times i have thought about getting rid of some but then i remind myself of the fundamentals here and what another poster said a while back that ' cvn was hopefully going to be his woodside'...i will be happy to hold this stock for at least another 2-3 years and am hoping that the developement of their current and future fields just keep on adding and adding to their reserves.

 

[cgf]

CGF....i agree on the comparison to the oilers i have traded for years (AZZ ADI and some others)....a friend of mine told me what a dog he thought CVN was when it was 18c and he bought for 23c ... after doing a little more research i couldnt beleive what i saw was about to happen...they were in a politically stable country, had good management and they were starting to get hits on their drills. now compared to others whose oil discoveries have taken years and years...CVN have done that in 12 months or so...at times i have thought about getting rid of some but then i remind myself of the fundamentals here and what another poster said a while back that ' cvn was hopefully going to be his woodside'...i will be happy to hold this stock for at least another 2-3 years and am hoping that the developement of their current and future fields just keep on adding and adding to their reserves.

The key to CVN is not actually the Thai JVs "its Ted" and his ability to do deals. I know so many other oil companies have been chasing Ted for years, they all want his knowledge and technical skill and hence why CVN will be offered joint venture deals that will make Thai look like small potatoes. I remember back at the 2005 AGM talking to other shareholders and noted that many where in/been in the oil biz. I got the same response from many when I asked why did you invest in CVN? The answer was alway Ted is now the new CEO and he is excited by the challenge so its a no brainer. His departure from TAP has left an enormous hole in TAPs technical skill which is why TAP has not forfilled its early promise and why a certain group is in the process of gaining control to sort out the fundamentals TAP lacks.

I'm a hell of a lot older than most here so I guess I look at things from a patient more long term view point. I feel a lot like an old bull looking at a paddock full of cows next door, rather than busting through the fence I would prefer to stoll down and use the gate.

I always look if the company is sound and has the "right management", drive and fundamentals to expand. Except if its the occasional "in and out" in a bull market (which I except the risk) I don't invest in anything I don't research heavily. My mins are 5 years for 99.9% of my portfolio. After much research I first brought into my WPL stock about 22yrs ago for under $1.90 and that investment over those years has been very good, but even though I had my naysayers at the time I could see the stock had potential because the fundamentals where clear. I first brought into CVN at 0.02c and I can tell you I will still hold significant CVN in 2015 because I can see where they will be and the fact that Ted will have achieved his vision by the time he retires (about then).

Investment on the ASX is all I do as I gave up working for a living decades ago. I must admit I enjoy the internet and I take an avid interest in the market sentiment, but the reality is it doest matter if its 0.45 one day and 1.80 the next because its what it is in 5 or 6 yrs time that is relevant to me. Your profit is only dictated by when you choose to sell, so the daily fluctuations are just fodder to talk about.

My perfect stock is CVN with 2000 shareholders controlling the 660m shares keeping the speculators away so we can let Ted do his thing.

 

[jonojpsg]

Hi CGF,
I know this is probably impertinent, but when you say you are a hell of a lot older than most of us, what age bracket does that put you in? I'm just interested as I figure once you get to a certain point surely you'd want to just sit back and enjoy spending your money rather than keep adding to it? Of course it is always nice to have more to spend I suppose, and I admit I really enjoy researching and investing so will probably still be doing it when I'm as old as you

 

[cgf]

Hi CGF,
I know this is probably impertinent, but when you say you are a hell of a lot older than most of us, what age bracket does that put you in? I'm just interested as I figure once you get to a certain point surely you'd want to just sit back and enjoy spending your money rather than keep adding to it? Of course it is always nice to have more to spend I suppose, and I admit I really enjoy researching and investing so will probably still be doing it when I'm as old as you

Don't worry I spend and enjoy my money with lots of cars and houses. I had kids very very late (after which the ex wife cost me big time) so really I should have had even sillier amounts. As far as age, put it this way Im quite a bit older than any of the board members of CVN. Obviously I could never spend all my money (even if I tried), but my 4 kids will be able to pay cash for their first houses and yet still have an excellent portfolio to keep them out of trouble for the rest of their lives.

The ASX and my interest in the economics of the world keep me pretty busy. Not being a gardener, hating bowls I continue do what Ive been good at all my life and that is making my money make more money. Its not hard work like what I started off doing in the first 28 years of my life. The secret is not to need the money you invest, do in depth homework and most of all be patient.

 

[camaybay]

CGF,
A boat is more economical than a wife, or upgrades there of (you can trade a boat ). If the market is good and as you have been sailing well for quite a few quality years then you need a luxury cruiser, and internet satellite connection! !

Cheers

 

[JTLP]

CGF you always make me happy when I read what you write about CVN. I get disheartened quite easily when the SP rocks back and forth, then I stroll onto ASF and bam, you have restored my faith (DW i do my own research its just nice to have information put into other words as well).

Out of curiousity, you say CVN is headed for an increase, but for how long do you think it will track sideways before lifting? And at what current resistance level does it need to surpass?

Thanks =)