RE: TO --questionActually, I’ve been watching IAE for the last 6 months or so and just took a position in it this Friday. Its only a fraction of what I will ultimately own of this company, come mid-late 2009 when I think it will start to start moving upward in anticipation of Athena coming online. I just can’t believe its this cheap. But it doesn't surprise me as it is acting the same way OIL did about 1.5 years before their Brenda/Nicol oil field went online.
I was in OIL. It’s a good one. I owned that one since it was a $1 and sold it in the $12’s. I love it longer term, but at one point it was worth a ridiculous % of my portfolio and I needed to decrease my exposure big time to sleep better at night.
It will ultimately be a $40-$50 company as long as they can deliver on their production targets 2-3 years out, no doubt in my mind. The only thing I see that could be a problem for them going forward is that the OG rig will be let go in the ½ half of 2009. So OIL will need to get another rig before then or they will not have enough rigs to drill enough wells to meet their production targets. Also the Huntington Fulmar sands are going to take a lot of holes to prove it up so they might need a 3rd rig as well as it takes 3 months to drill and test each of the Fulmar wells at Huntington. I rig there will only be able to drill 4 wells per year and it might take about 8 wells or so to prove it up. That could delay the current production date. It’s a huge aerial extent.
Right now I like IAE and AEN over OIL from an upside prospective. They both have development projects that have pre-development loans attached to each company. So reserves are there and funding is there and some of the long-lead items for development have been ordered. Now it’s a matter of getting the OK from the UK government for development and both companies will get development loans from RBS and start to look for drill rigs for development drilling.
From a valuation perspective if OIL does go to $50 it will be a 3.33x move from the current price ($15.00).
But if IAE can get to there current target of say 20k/d net by 2010 and it gets a 4x CF multiple from the market @ $100 oil ($85 netback) @ a CAD/US rate of 1 you are looking at a future share price of:
(20,000 bod)(350 production days)(US$85 netback)(4x CF)/150 mm shares = CAD$15.86/diluted share
And this is assuming that IAE will issue a further 33.5 mm shares in the future to raise money for future exploration drilling or acquisitions to bring the total diluted shares from the current 116.5mm to 150 mm shares.
That $15.86 target is just over 7x the $2.25 closing price from Friday making it a much better potential return than OIL over the next 2-3 years. And that doesn’t involve any exploration upside. That’s all from Athena, Jacky and Beatrice development drilling of what they have now. OIL on the other hand has many development projects, but they still have to appraisal drill them first in order to find out what the ultimate reserves are to get the UK’s OK to bring them onto production. So even though they have a good idea of what is there they still have to spend a lot of $ and time to prove it before they can do anything with it.
When I work out AEN’s numbers it falls in-between OIL and IAE in terms of % return at 5x Friday's cloing price.
For the record, I love SOR and GTE. I like Columbia even more than the UK when it comes to energy names. Much lower development and operation costs, much quicker turn around for production, easier to get rigs, the average netbacks are very close to the UK’s, no need to worry about offshore storms and the SE of Columbia is estimated to contain 20 Billion barrels recoverable. The UK can’t math that upside.
I was also in TGE for a trade that I just broke even on. That was a high-risk high reward play just like ENG. No guts no glory on those types.