Here is the jig with Bankers.......IF BRENT remains over $100 per bbl Bankers share price rise is almost cast in stone! They have nearly a quarter billion bbls of 2P reserves to produce from, they are growing production by 15 to 20% per year and they are increasing margins and reducing operating expense. So regardless of the company not getting a fair share yet on valuation from a reserves and cash flow perspective, the market is way too greedy an environment to let the valuation stay too low. Here is what I mearn:
Year Production Cash Flow Cash Flow per Share Valuation Multiple Share Price
2014 21500 $361 M $1.41 3.5 $4.93
2015 24750 $415 M $1.63 3.5 $5.70
2016 28500 $478 M $1.87 3.5 $6.55
etc, etc, etc
I am assuming a net back of $46 (they achieved $49 las quarter) and a very low cash flow multiple of just 3.5. If the multiple is just 4 times cash flow per share as opposed to a low 3.5, then the share prices look like this 2014 - $5.65, 2015 - $6.55, 2016 - $7.50. These share prices do not include the impact of the application of secondary recovery or tertiary recovery or the farm out to a development partner etc etc. This is just steady eddy production from proven and probable reserves. Also, as the company continues to grow production the fact that they have a 35 year reserves life may settle in to the market's valuation of the shares with a premium multiple of 5 or more (which should be the case for a company for out sized 2P reserves). So the only variable that can rain on the Bankers parade IMO is Brent pricing. The cash flow production will be impacted as Brent decends from the $105 I am using for this calculation.