Northern Petroleum Share Discussion Threads

[sg31] 03/6/2011 19:58

welcome back bdog.Hope you enjoyed your break.

What do you mean drivel. It wasn't just me posting.

[bionicdog] 03/6/2011 18:14

Zinfandel? You big girl's blouse. It'll be rose next!

[charles clore] 03/6/2011 16:34

Don't you mean dead Derek bounce, bio? I'll join you in a glass of zinfandel later. Have a good weekend all.

[bionicdog] 03/6/2011 15:37

I've just caught up with 75 posts of drivel. Dead cat bounce appears to be playing out.
Now , who's for a drink?

[soulsauce] 03/6/2011 13:37

Quiet here today, where are the big bounce merchants today? Not exactly finished the week where they had hoped - now why is that?

[shuisky] 03/6/2011 12:09

Is this about reserves, revised reserves or is it actually about credibility?

I suspect the latter and there will be a cloud over this stock until the managment is changed, IMHO.

[valhalla3] 03/6/2011 11:43

speck id say about a handful of hobnobs me duk atm lol J=#

[sg31] 03/6/2011 10:53

does anyone know what the new sum of parts valuation for nop is.

Irrellevant.

TW prints one regularly in his ramps.NOP have never traded anywhere near it.

[spcecks] 03/6/2011 10:43

Taking the latest rns announcement does anyone know what the new sum of parts valuation for nop is.

[valhalla3] 03/6/2011 07:21

Tahts bein eaten away litarely J=#

[soulsauce] 02/6/2011 22:54

maxk bang on and what's all this about £20m in cash??

[lyceeuk] 02/6/2011 20:45

parthus!!???????????a irish comp that raped its share holders.now CEVA

[sg31] 02/6/2011 20:34

maxk.why don't you tell us what you really think...

[maxk] 02/6/2011 20:33

Late rhubarb news thingy...

[valhalla3] 02/6/2011 18:47

What does our oracle from the shed say? If tahres ne preditorz knockin about im sellin 2morra lol found taht film scary W=#

[parthus] 02/6/2011 17:41

This was posted on iii..by mam64...hope he won't mind...looks amusing and interesting:


So what a week. Given I have lost a fair amount of money on paper, I think my thoughts are as valid as anyone's.
Firstly then what happened? One theory is that the gas simply got bored of waiting to be extracted and walked. After all after waiting several million years you only want to hang around for so long once someone turns up to dance. Obviously the Dutch police should be called, the gas found and all being well returned to its rightful owner, a little older and wiser.
While clearly compelling, I suspect this explanation is somewhat off the mark. My own guess is that the FD was reviewing the carrying value of the fixed assets/intangibles with KPMG towards the end of the audit and they noted that the revenues being generated in the management accounts were different to those in the forecasts. Questions were raised as to what was going on resulting in a somewhat panic stricken decision to slash reserve estimates without any due process. No consultants opined. No partners were consulted. 2P reserves were assessed subjectively by management. At which point of course they cease to be 2P reserves. This is not impressive. And then we come to the wording of the RNS. No structure, no attempt to place in context. Simply the sky is falling on our heads. Not even a mention that Brakel has not been impaired (hopefully) or that discussions with Shell are on going (are they?). We also do not know if there will be further revisions as the consultants complete their technical review or when that is likely to be. As a result we find ourselves in a position of not being able to rely on the 2P numbers. No wonder there was a reaction. And yes, I agree. No one can blame the BOD for geology. Maybe though, we might have expected a little more.
So, out of the blue we are faced not with the long expected rerating, but a fire sale either of the business or parts there of.
Let's assume though that is won't get any worse. Does the valuation of NOP make sense?
At 75p, NOP is valued at GBP75m. To put this in perspective, it probably has GBP20m of cash on its books and no debt. This means the operations are valued at GBP55m. Somewhere between GBP1 and GBP0.5 per barrel of 2P oil equivalent. Another way of looking at is that no value ascribed to Italy or the UK assets and the Dutch assets are valued at GBP2 per barrel of 2P. Or a sensible value for the UK and nothing for anything else. On paper at least it makes no sense especially when you consider the valuation metrics that appear to be gaining ground for E&P companies.
What might the valuation be expected to be? I got interested in E&P stocks when I realized it was basically a real estate game. Unlike property though you can't look at what you want to buy. You have to rely on clever boffins to tell you the probability that your bit of real estate is very valuable. Then you have to drill and pray. All being well you get 2P reserves. Hence the focus on 2P reserves. Goldman appears to subscribe to the approach and they have made more money than I can dream of so there must be some thing to it. In essence it is very intuitive. Oil is worth more than gas. Producing more than non producing etc and the price the market is willing to pay is the average cost the majors shell out to develop reserves. Having reviewed their recent tome, the metrics for 2P reserves in US$per barrel appear to be : oil producing 20; non producing 10; gas producing 10, non producing 5. Values fluctuate as oil prices do etc. Applying these to NOP we get a valuation of over GBP500m, even now. Throwing the cash back in we get 500 per share even after the current announcement and the farming in to Azimuth in the Adriatic, but without any reserves being attributed to the recent UK find. This represents a premium of 1000% to the current valuation and excluding any upside for Guyana or Italy. With the Dutch and UK oil field producing we get 600p per share.
To validate the approach, I had a look at a number of other companies. One example is Xcite which has just produced a 2P reserve statement and according to Edison is valued at US$14 per barrel. Closer to home, Tullow announced on 24th May it was acquiring the Dutch offshore gas interests of Nuon for EUR300m representing US$16 per boe. So on the 24th the market decided that Nuon's Dutch gas reserves have a value of US$16 per boe, and on the 27th that NOP's US$1-2 per boe. I can only say the plot thickens. If this is really the case NOP should put them up for sale immediately.
Even if I am 50% off in my numbers we should still be in the 250-300p per share range, particularly as revenues is rising and at forecast EUR 20-25m per annum more than sufficient to avoid the threat of dilution as a result of forced fund raising, the usual threat to explorers. Something, then is clearly wrong in the Kingdom of Denmark.
One answer could be that for whatever reason NOPs 2P reserves are not accepted as such. A year or two ago when progress in the Netherlands was glacial, this was more convincing with local planning issues apparently freezing the asset base. (You can see a similar impact in the case of MOG who's 2P reserves have been frozen by the Italian political process and essentially discounted). Now though, this appears to have been overcome. If anything a rerating should have been the order of the day. In terms of the Italy, maybe some skepticism is justified. The reserves are pure 2P (i.e soft 2P). Clearly though, serious people expect to find oil. Otherwise why would Azimuth have farmed in ( and while on the subject why can management not be bothered to explain who Azimuth are? Try finding a web site?)? And thanks to Herr Gadaffi, Italy is now very hot. Even the Maltese are waking up to the fact they may be sitting on oil now the Libyans cannot stop them drilling the Medina Bank. And in any case, 2P is on the whole 2P. KPMG as auditors and the other professional advisors I imagine would have some thoughts of their own if the reserve numbers had not been calculated in the normal accepted way (other than of course now).
What then the market appears to be saying is that it does not believe this management team can unlock the value of these assets. Worse in fact. The market currently believes that management is destroying 90% of the value of the business. If I thought this unfair a week ago, now I am not so sure. Fire sales do not unlock value for minority shareholders. In a publically traded company with few institutional investors, while you may want to, you cannot ignore your share price. Shadenfreude of course also kicks in. If we feel hard done by, Musgrove is doubly so. I don't suppose he had a very good weekend, trying I suspect to shore up his shareholder base. Shadenfreude, though, is overrated.
What is to be done? Two things I would suggest. Firstly, the management team needs strengthening to reflect the evolution and potential of NOP. At the very least, there has to be a question mark over the FD? Why can NOP not get numbers until the end of May/early June? The financials are simple. Is it simply not a priority? And then there is the way the announcement handled. If you want the public to buy your shares you have to communicate with them professionally. That is clearly not happening. Not just in the instance but in general. NOP aspires to be a mid tier oil player. Part of achieving this is to start acting as one. If you don't take yourself seriously why should anyone else? In addition to the FD, they have to strengthen the Board with some credible non execs. Musgrove needs to be freed up to concentrate on what he does so well: the deals. The operations though need driving much harder than at present. He needs a good COO.
Secondly, management needs to set out a clear path to proving up the monetary value of the reserve base. A single vague graph in a power point presentation does not suffice. Excluding Italy, NOP should have somewhere in the region of 25m 2P reserves. This is still a substantial amount and should be sufficient to produce 2m barrels per annum (c5k per day), generating in the region of US$130-150m of revenues (depending on mix), and supporting the core valuations. For each field a clear explanation of the steps to be taken to achieve this should be set out, ideally well before 2015. The issue of selling UK assets should be dropped. The asset base is now a much more important part of the story and diversification of short term cash flow away from the Netherlands is clearly required. If anything they should be looking for opportunities to take out smaller partners adding to the reserve base. Finally a "for sale sign" should be put up over Guyana. What is the strategic fit?
In the short term we are where we are. Cash flows appear to be rising, a raft of positive announcements should be on the cards this year but for now no one will notice. Where does this leave us. I suspect this leaves us with a "for sale" sign in bright lights with a deep discount applied to the price.
In the circumstances, I probably will not be giving up the day job.

[spcecks] 02/6/2011 16:59

Charles Clore You maybe right regarding your post about bp compared to nop.

[ntbb] 02/6/2011 12:50

l2 looking very strong, buy order 212,800 v sell order 92,800

[charles clore] 02/6/2011 12:39

Price bobbing about temptingly today. I think we have a bottom feeder.

[buywell2] 02/6/2011 08:49

Does NOP and DES use this type of seismic data analysis



If not the data could be wrong and the supposed oil could be water.

Use of multicomponent seismic data for oil-water discrimination in fractured reservoirs
Zhongping Qian, Mark Chapman, Xiang-Yang Li, Heng-Chang Dai and Enru Liu
British Geological Survey, Edinburgh, U.K.

Yonggang Zhang and Yanguang Wang

Sinopec, Dongying, China

Corresponding author: [e-mail]

Geophysicists have devoted great efforts to the problem of determining fluid saturation from seismic measurements, with some notable successes. It is commonly believed that fluid information is to be found in the P-wave data, with shear waves being insensitive to fluid, and indeed almost all successful fluid-detection methodologies have been based on analysis of the P-wave.

[spcecks] 02/6/2011 08:45

imperial I dont think we will stay independant much longer.

[maxk] 02/6/2011 08:07

What does our oracle from the shed say?

[imperial3] 02/6/2011 07:53

From now on, upside risk versus downside,-you pay your money and take your choice.Now,so attractive to a predator inmho & dyor.