Urals Energy Share Discussion Threads

[bhoytrader] 15/5/2009 16:25

Pay for your shares in cash and wait. Simples.

[sapper2476] 15/5/2009 16:21

bad day at the office. Have a look next month.....

[mlightfoot] 15/5/2009 16:20

I'm not even sure they are shaking it, the selling pressure has been pretty solid today and and whilst the buyers have been there, you have to way it up on balance!!

[jcgswims] 15/5/2009 16:19

Just when we were settled they shake it again - sell 10k 8.85 - buy 150k at 9.5 - 2 v 2 :)

[matt19] 15/5/2009 16:19

Painful watching this now.

[mlightfoot] 15/5/2009 16:14

Yuk - not a blue end in sight then:(

[landwatcher] 15/5/2009 16:11

Those 10p are buys as well, the real spread at the moment is 9.5/10

[on the up] 15/5/2009 16:10

landwatcher, you're welcome, the 'library' is, unusually for a Friday, open today.

You're absolutely right about enjoying the weekend...but I'd lift that comment about 10p to a multiple of at least five ;->

Cheers, OTU

[landwatcher] 15/5/2009 16:03

Thanks OTU for digging this out, just as Johnspain said worst case is still over 10pps.
Also since there is no huge vol trade at the moment, the saying of leak information of RNS seems breaking down. So UENers should enjoy their weekend.

[seabass] 15/5/2009 15:59

ucasavi - one would hope so.

[ucasavi] 15/5/2009 15:57

I wonder whether they can sign the new deal at all without getting an approval at EGM. I presume, they have to first agree with Sbr, and then put this up for voting at EGM

[on the up] 15/5/2009 15:51

landwatcher: worst case scenario? Back to the egm resolution being put through. On that basis please read the following from spp119 (and on the JREwing3 thread, not here). Appears 48 pps is v conservative.

Cheers, OTU

spp119 - 3 Feb'09 - 02:02 - 268 of 521


Evaluating UEN legacy assets

Posters on this board (myself included) have tried to put a plausible and realistic figure on UEN's value, subsequent to the disposal of D&T to Sberbank and release of all associated debts and related undertakings. This has been done in the conventional way of multiplying 2P barrel assets with a $figure thought best representive of current market appraisal (we have used the $1.40/bbl taken from last month's CNPSEI subsidiary sale), then dividing this by the number of shares outstanding after subtracting any (assumed) debt and any one figure for "known unknowns" or unforeseen liabilities. This has yielded figures assigning value between 20p and 60p per share that will be distributed upon company liquidation and delisting.

In this post, I am taking another approach, broadly based on models used when oil companies evaluate themselves and others. I have used this methodology in my original valuation of UEN potential, as posted on the old thread's header. I do so again here but just for the "legacy" UEN assets (Petrosakh, Arcticneft & Chepetskoye), employing the same assumptions per unit of analysis, unless otherwise stated.

In addition, I base my estimates on the narrowest and most conservative assumptions possible with respect to the elements constituting each of the "legacy" assets, especially those of Petrosakh. Liabilities (debt) conversely, are assumed to exist as stated in any RNS, unless proven otherwise. Moreover, I ignore a possible remaining 1% (or 8.4Mmboe) UEN former 100% holding at Dulisma, of which 99% was pledged to Sberbank (RNS 6/1/09). All this done with the purpose of ferreting out the absolute core value of the company.

----------------------------------

Key Valuation Assumptions and Caveats

1) Reserves

The three assets under sale had, as of late 2006, a combined 2P reserve base of ~87Mmbls, producing with occasional intermittent output decreases, almost 5,400bopd. Accordingly at EOY 2008 it can be assumed that this reserve base had declined to ~83Mmbls. These represent the actual gross number of barrels still to be produced.

No 3P reserves are included in the calculations. Petrosakh for example(~25Mmbls), is thought to contain, both at the onshore Okruzhnoye and the coastal off-shore Pogranichnoye Block fields, between 300 and 800Mmboe unrisked resources on the basis of extensive 2D and 3D seismic survey interpretations. On Kolguyev island on the Articneft asset, the company drilled a side-track well last August to test some deeper horizons, but possible additions have not yet been added to the reserve base (~35Mmbls).Finally, the Chepetskoye field (~23Mmbls) are also thought to contain large possible resources which still are not fully studied.

This non-inclusion is a major concession to a conservative estimation. And this because this year's new SEC rules (which affect trading worldwide) allow company 3P reserves to be disclosed and used by investors for evaluation purposes, subject to those reserves being based on technically credible evidence and properly audited. So a substantial UEN value component, produced on advanced 3D software post original appraisal drilling, is taken out of our equations.

The collary to the above however is that no heavy rollout spend or E&P capex/(cost oil) is included in the calculations .

2) Other Assets

Unaccounted for in the reserve figures are a variety of oil industry specific and expensive, infrastructure. Things ranging from the very large generators located at Articneft, to the plethora of seismic survey vehicles and equipment, storage areas at Petrosakh (capacity 300,000bbls), along with dedicated rail loading depots, a fleet of trucks, a 4500bopd refinery, offshore tanker loading facilities, as well as an onshore drilling rig...even work-camp housing for 250 employees.

This all adds tremendous value, but it will not be considered in the austere context of the present valuation.

3) Debt

For all intents and purposes, it would appear that the only "debt" UEN will have to pay back, subsequent to sales, is what it racks up in the new small, short term loan facility now under completion. I will ascribe a value of ~$10m to it.

However there is also something else. In the 15 August 07 RNS, there is mention that a five year pre-payment facility from Petraco Oil Company (UEN's crude export trader), was one of the two sources company drew funds upon to retire former loans of ~$57m (the other was internal cash generated). This pre-pay facility (which was priced less than the loans retired), while again not strictly a debt, still has to be paid back from production albeit over 5 years.

Based on the fact that ~one third of UEN production is exported to the "far abroad"and the calculation of (ii) below that is as follows;
~470,000 bbls. X ~$70/b (average) = $32.9m over 5 years = $6.58m p/a. I will therefore ascribe an outstanding debt value currently at ~$30m .

Total debt outstanding on these assumptions is thus ~$40m

3) Duration

I assume recovery/development will last 20 years starting now (1H/09) and be back-to-back.

4) Price of Oil

I employ a $70 barrel price. (Some may find this conservative given common projections for triple digit price ranges within a less than 5 year time-frame. However, from this sale price, I assume a lob off for sunk costs (production facilities construction & well tie- ins), S/G&A (salaries, legal costs, personnel transport expense, consulting) and various depreciation, amortization, abandonment and other unforeseen tax issues. Thus IMO, $70/b for good quality Urals grade oil is fully warranted).

5) Taxation

As in former UEN Valuation: - Unified Production Tax - 21%, Export tax - 35%, Other Taxes -10%.
I am aware that there have been tax cuts of late in Russia. However, taxes have always a way of going up again....sometimes defying even the laws of gravity.


5) Model assumptions

This valuation uses a simple production/cash flow method. I am fully aware the oil/gas in reality, is extracted in a peaking formation from the beginning with production then gradually tapering off towards the end of the life of the fields. I use a flat linear distribution and a flat revenue distribution (free cash flow) over the 20 year production time frame envisioned, only to make for easier calculations.

With all the above caveats in mind then, here is what this Valuation looks like;

----------------------

(i) - Gross oil
- produced/sold over total 20 years = 83Mmbls/ 4.15Mmls per year

i(i) -Net Oil (to UEN)
- Gross Oil minus {Unified Production Tax (21%) + Export tax (35%) + Other Taxes (10% = 54.78Mmboe)} =28.22Mmbbls
Cumulative net oil entitlement = 28.22Mmbbls/20 years = 1.41Mmbbls per year
This is the production entitlement net to UEN (Profit Oil) that can be sold at the full oil/gas price of the time.

iii) - Enterprise Value/NPV

Accordingly, the combined discounted value (or enterprise value) appears as follows:

UEN Net Oil entitlement; - 28.22Mmbbls/20years X $70 (discounted at 12%) = $672m
net revenue. In other words the Enterprise Value or NPV = $672m (at 70$/b).

iv) - Fair Value & PPS

Enterprise value is not fair value. To calculate that, I deduct from NPV the total company debt and divide this figure by the number of fully diluted shares outstanding.

PPS = NPV-Debt /# Share Count).
Debt = $40m (see #3 above).
Fully diluted share count = 188,000,000 (rounded).

Therefore PPS = $672m - $40m /188m = $3.36 or £2.40 ($/£ fx rate of 1/1.40)

That $3.36/£2.40 then would be the current fair value of UEN's share price in a "normal" marketplace give or take a few cents/pence. As however both current POO and a dysfunctional global credit system make for a buyers market, such valuations based on something akin to fundamentals are generally thrown out the window.
Discounts reign supreme, and if one must sell, discounts in the order of 50% (£1.20) to even 80% (£0.48) are the order of the day.

Bearing in mind the absolutely minimalist approach this valuation has taken, that expensive assets and very promising 3P reserves are not included, I cannot but wonder why in the world UEN founder/senior managers are so keen to dispose of these assets, and cancel the AIM listing altogether. They do not have to sell. And they and everyone else knows that a global supply side train wreck is coming and the market will turn.... making UEN a very attractive proposition with excellent upside.

Perhaps (to cast my suspicions aside) its just the appeal of what can be gained here and – even - now from a sale. An appeal they seem to share with almost all other large holders.....who continue to hold.

20p-30p per share, you say, tops?........Bxxxxxit.

spp119

[landwatcher] 15/5/2009 15:44

Well thanks john:)

[johnspain] 15/5/2009 15:43

seems to me worst case scenario is as we stood during feb. that is sberbank keep d+t and uen (we) sell the rest and split the procedes amongst shareholders (minus any debt etc.)
seems to me, even that worst case scenario is still better than 10p.
and, we have nearly 5 months oil to sell at $60 instead of $40 in January....

[jcgswims] 15/5/2009 15:39

Buy 150k at 10p sell 1k at 9.51 - still 1 v 2 :)

[beginner3] 15/5/2009 15:36

jcgswims - what r the limits pls

[laserdisc] 15/5/2009 15:32

couple of 90k's buys going through

[landwatcher] 15/5/2009 15:31

Since it is now silent, I just want to know what is the worst case scenario for us. I am not trying to punch our confidence. Just curious:)

[cliffbarns2] 15/5/2009 15:13

remember folks,
nothing has changed here since the last rns
mm,s are making a market today and successfully making money
if things were bad this would have sunk like a stone
stay calm anf focused on wot we know already
the bank does not want to drill for oil they want ther oil experts to do it
and thats the state of play so far

[le mass du pap] 15/5/2009 15:10

Are they going to park it here then? If so then the buyers will be doing some research this weekend no doubt. If it transpires that nothing has changed and it's still all good then we may see some big buys next week instead.

[le mass du pap] 15/5/2009 15:08

edit, thanks!

[jcgswims] 15/5/2009 15:07

Limits 150k buy 10/10.167 and sell 5k at 9.5 still 1 v 2 :)

[comedy] 15/5/2009 15:07

cheers for update mlightfoot.