Note to all:
The below figures are NAV valuations and NAV projections, not Share Price projections. NAV is not always reflected in the SP, for an endless list of reasons, and clearly any upside from any future assets carries associated risk. Please also read ‘The Small Print’ at the bottom of each post.
- Shared interest with Range Resources’ (RRL) Georgian and Puntland prospects
- Currently on ASX only. Due to float on AIM on 23rd June (RNS)
- Fully funded for proportioned cost of first 3 exploration wells – 2 in Georgia, 1 in Puntland (RNS)
- As with RRL, Georgian Drilling confirmed early June (RNS)
- As with RRL, LOI signed for drilling Puntland (RNS)
Red Emperor Resources NL was pointed out to me by a fellow Range Resources investor. Quite simply, they are partnered with RRL on the Georgia and Puntland exploration prospects, which are due to be carried out in the coming months.
Red Emperor is currently only floated on ASX (Australian Stock Exchange), however they have announced plans to float on London AIM (RNS) later this month.
One of the key, and very noteworthy differences between RRL and RMP is the number of shares in issue. RMP currently has approx 160 million shares, which is an order of 10 x less than RRL. Clearly RRL has a lot else going on, and is currently producing out of Texas, so it’s a different beast, and I will leave the comparisons there for now.
So without further delay, I’ll move on to talk about the high impact prospects and what they might mean for RMP…
RMP has a 20% interest in 2 blocks in Georgia (Vla & Vlb). RPS Energy has identified 68 potential accumulations totalling over 2 billion barrels of OIP (with a conservative 30% recovery factor). 6 ready-to-drill prospects have been identified.
Range have now confirmed that the first drill is due to spud in June 2011 (RNS).
The first drill will target the Vani 3 prospect, which is stated to have a mean expected STOIIP of 115MMb, or P50 of 92.7MMb.
The geological Chance of Success at these Georgian prospects, I’ve found to be quoted as around 10%. Based on the current Share Price, it appears the market is not pricing in much success for any of these high impact prospects as yet (see charts below)
The charts that I’ve done below illustrate RMP’s share of these resources (20%).
An exploration well hasn’t been drilled here in 18 years. However various wells that have been drilled had significant oil shows. RMP has the same share in these licenses as RRL, and has a 20% interest in the Dharoor and Nogal prospects.
RMP’s latest company update (RNS) stated that the combined estimated STOIIP is around 19.9 Billion barrels. The table beneath this statement appears to have a mistake, in that they’ve put 5.8 and 14.1MMBbl for Dharoor and Nugaal respectively, as opposed to 5,800MMBbl (5.8 Billion) and 14,100MMBbl (14.1 Billion) are the reality (confirmed by Old Park Lane Capital’s independent valuation – here)
The first drill in Nogal must spud before the end of July 2011, and a LOI has been signed (RNS) for a drill to take place in Q3 2011.
RMP has a 25% interest in a Copper and Gold project in western Australia, but there’s little else available in the way of information, so I will ignore this for now.
I don’t think you need me to point out just how big these prospects are (or could be). To a company whose Market Capital is presently around A$55m, a discovery at any of these prospects would be transformational, in my opinion.
E.G. Vani 3 alone is 29MMbbl net to RMP (mean STOIIP), recovery @ 30% = 8.7MMBbl recoverable. An in ground valuation of A$12 per barrel gives A$104m, which is almost double the current Market Cap.
And that’s just one example, being the nearest to spudding.
With the share price currently sat around A$0.35 per share, I believe what we’re currently seeing as the market pricing in just under geological Chance of Success on the upcoming Georgian drills (the first 6). I think with Puntland being potentially so huge, as soon as I price in even 1% CoS, the figures go through the roof, but I’ll come to that.
The chart below shows how NAV works out with a 10% CoS factored in, and with nothing factored in for Puntland.
Note that with respect to Australian Dollar to US Dollar exchange rate, I’ve essentially assumed 1:1 (current actual exchange rate 1:0.95).
All resource figures are STOIIP (Stock-Tank Oil Initially In Place), with recoverability factors applied, and are values that are net to RMP.
RMP NAV – 10% CoS Georgia (first 6) & Puntland 0%
So as you can see, the NAV works out to be around A$0.42 per share without anything priced in for Puntland.
What If – No 1 Chart
So before we move on to Puntland, let’s see what we’d be looking at if Vani 3 (drilling in June) were to be successful and the market were to price the P50 value of 92.7MMBbl in.
RMP NAV – 10% CoS Georgia plus Vani 3 P50 success – Puntland 0%
If Vani 3 comes good, then we’re looking at a NAV of around A$0.78 per share, again, without Puntland or any other Georgian success.
Puntland NAV Charts
OK, so if we re-set Georgia to being 10% CoS, and concentrate on Puntland. I’m not going to go crazy and price in 100% success for either of the Puntland Regions… Well I might, for fun in a minute. But in the mean time, if I put 2% success of Puntland into the NAV, this is what you get (note that the 2% represents 2% of current resource estimates discovered, rather than 2% CoS):
RMP NAV – 10% CoS Georgia (first 6) – Puntland 2%
That’s right, even with just 2% of the resource potential of Puntland, we’re looking at a NAV approaching A$2 per share.
What if – Stupid Chart
Right, OK, one stupid chart, just for fun… Please bear in mind that this is basically nonsense.. Clearly to prove up these sorts of reserves, RMP will need further fund raising etc. But for a laugh, here’s a chart of 50% success across all of Puntland and Georgian assets:
RMP NAV – 50% success at Georgia and Puntland
That’s right people, over A$40 per share. Hmm – that’d be the day!
While the above pictures all look quite rosy and exciting, I feel compelled to highlight that CoS for any oil drilling is always low. If these drills weren’t to find Hydrocarbons, then there’s always downside on offer, particularly with the lovely effect of market sentiment. It’s something worth remembering, at all times.
Red Emperor has some very high impact exploration coming up and is fully funded to carry out the first 3 drills. The upside is really quite attractive, but as mentioned above, there is always a potential downside. These are high risk, high impact prospects, in my opinion.
They do have very few shares in issue and hence a very low Market Capital. It will be interesting to see what happens when they float on AIM later this month. Low number of shares in issue often means volatility, which can be very exciting, or very scary (depending on direction of share movement).
Clearly the prospects have the same attractive qualities that any Range investor must be interested in. But to be invested in both is to be twice exposed to the same risk.
RRL has other things going on, RMP doesn’t have much else at the moment.
Bottom line, it looks exciting, but carries more risk than RRL due to the narrower portfolio, I think this is probably reflected in its current Market Cap. July -Sept will be a VERY interesting few months for this company.
Thanks for reading!
The Small Print
Please note that I am not a financial adviser or even employed in the financial sector and am not providing financial advice. The contents of this blog are from my own research of publicly available data, and any opinions expressed are my own. I trust that you enjoy reading them but you must do your own research or obtain financial advice before making any investment. Naturally, I do everything I can to ensure that the information posted by me is entirely accurate, however, any information provided is subject to the possibility of error, both in fact and interpretation, on my part and for that I can not be held accountable.