Thoughts on Valuation Thanks for all of the useful comments on this board
Having banged around some numbers on RMP/Iron Bridge for the last couple of years I thought it might be interesting to share my projections based on a hypothetical business plan for the next three and a half years.
The scenario contemplated is to drill, complete and tie in six wells a year for the next three years at $7m per well plus two more 6,000 boe/d facilities at $20m each. So six new wells in early 2019 plus one facility, six more wells in early 2020 and a second facility and six more wells in early 2021. It's likely the 2019 date may now be quite unrealistic but I'll just ignore that for convenience of synchronizing the calculations to the calender.
Key assumptions include $1.80 AECO and $70.00 WTI (both with appropriate quality adjustments), 70% gas, total operating/transport of $14.50/boe, $4.5m annual G&A and all wells coming on line simultaneously at the beginning of each year. I have used a composite of Montney type curves put forth in presentations from a variety of Alberta Montney players to arrive at IPs of 1,500 boe/d and cums of 800,000 boe per well.
Annual production in the model averages 7,500 boe/d in 2019, 10,300 boe/d in 2020 and 11,300 boe/d in 2021 with a 2021 exit in excess of 11,000 boe/d.
EBITDA of $16m in H2 2018, $54m in 2019, $76m in 2020 and $84m in 2021 more than covers the Jun/18 working capital deficit of $6m and the capex over the three years of $166m, leaving a year end 2021 working capital balance of $58m.
Of course some portion of the 2019 capex of $62m needs to be financed, with 2020/2021 capex being financed from cash flow.
That is where Iron Bridge management can hopefully come up with some "non dilutive" solution. Maybe a small share issue to a strategic investor combined with some debt. I'm told Velvet sold their midstream assets to Meritage so that scenario may be a source of capital for Iron Bridge.
Taking all of the above one can apply a price per flowing barrel to the 2021 production exit rate, add the 2021 working capital and some value for Tangle Creek, present value that back 3.5 years and then deduct the current financing requirement to arrive at a present value of Iron Bridge's equity.
For example $30,000 per flowing barrel on 11,000 boe/d is $330m plus working capital of $58m plus Tangle Creek at $5m for at total future value of $393m. Discounted at 10% gets a present value of $282m less whatever financing you think will be needed in 2018/2019. If the entire $62m in 2019 capex is financed then the present value of Iron Bridge equity is $220m or $1.42 per share.
The calculations above DO NOT reflect the land and reserves value that will exist at year end 2021 which obviously would be very additive to the present values calculated and absolutely cannot be ignored.
All of the above is fairly simplistic and I think reasonably conservative and the intent is to highlight Iron Bridge's potential as a stand alone entity. More sophistcated models are probably around but I am a big believer in "being approximately right rather than precisely wrong".
Obviously value per acre of land and value per barrel of reserves are valuation metrics to be considered along with the above calculations and the recent Strath and Nuvista purchases provide some usefull benchmarks.
Any thoughts....?