Evolution of NAVPS GrowthSomeone mentioned that the share value is all about production. I respectfully beg to differ.
It is all about NAVPS. The share price, over the long haul will reflect the NAVPS (eventually). I won't go into a long theoretical diatribe about this. It is too subjective. Perceptions of risk, and differing tolerances of this perceived risk are huge variables in coming up with values for the NAVPS.
An excellent case study in this, however, is to review the asset transactions conducted by UTS. PetroCanada and Teck Cominco both have a very shrewd bunch of deal makers in their ranks, so the deal values that they conducted with UTS is very instructive.
UTS is still several years away from production (likely be 2012). And only a little while ago, there was risk associated with the timing of sanctioning on the Fort Hills Project, or if it may be shelved for a time period, as determined by the operator, PCA.
Therefore, for UTS, as it is for all OS operators, share price is reflective of NAVPS.
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This data is from the recent UTS presentation they did at the CIBC sponsored symposium at Whistler.
Following data is from slide 34 of:
https://www.uts.ca/documents/presentations/CIBC%20Whistler%20Inst%20Investor%20Conf%20Feb.%2020-23,2008%20website.pdf
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July 09,2004:UTS buys from TN 2,184 mm bbls for $125 mm : $0.06 per bbl: WTI oil price $53 Cad or $40 US.
March 01,2005:PCA buys from UTS 1,680 mm bbls for $300 mm: $0.18 per bbl: WTI oil price of $65 Cad or $52 US.
Sept 06,2005:TEK buys from UTS 280 mm bbls for $350 mm: $1.25 per bbls: WTI oil price of $77 CAD or $55 US.
Sept 20,2007:PCA and TEK buys from UTS 470 mm bbls for $750 mm: $1.60 per bbl: WTI oil price of $83 CAD or $83 US.
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If one is really hung up on looking at production and how that impacts NAVPS, then maybe review the COS.UN purchase of TLM's share of Syncrude in Dec 2006. They paid $475 mm for 102 mm bbls of reserves. This translates into $4.66 per bbl. The reserves supports production at higher levels than now, thus not all the capex has yet been spent. ie. if the expansions had been done, this number would be yet higher. Of course, this number also represents an upgraded bbl.
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AOS
Last time I checked, we were at around $0.03 per bbl. One can argue all one wants, that the drilling hasn't been done yet. We don't have third party verification and quantification. Of course we don't. It is coming. It is all a balance of probabilities. Every investor has to make their own judgements in this regard.
So, compare $0.03 to $1.60. That is the comparison that reflects the fact that the major capital has not yet been spent. The reserve risk is perceived to have been mostly removed at UTS. That is a factor of 53 times one's money for risk discount. That is unrealistic in my estimation. In my personal estimation I think 10:1 is a more realistic risk discount. That would put us at about $0.16 per recoverable bbl at the current level of available information (risk). As the data comes in to us, this level would rise. I see this as an intrinsic value of the assets represented under AOS.
I did not see $2.40 as being over valued in terms of NAVPS, or intrinsic value. Sentiment was in our favour then. It is not now. It will return. I don't know when. {Note: I am not arguing about trading opps. I admit that 7 out of 10 times my trading timing is not very good. Thus, I don't try to trade very often. My investment strategy is best at finding very deep asset value as early as possible, go long and stick to it, even when it feels very uncomfortable. I see myself as more of a business partner in the corporation, than a speculator.}
The daily share price is a voting mechanism, not a weighing mechanism. Eventually, however, all assets are 'weighed' by the mkt one way or another.
Currently, all the junior OS stocks are being voted down. Shabir only manages one of them, so I guess he is not to blame for that. If the other OS juniors were near all time highs, and we were still at 80 cents, then I would most likely be the first to agree that something has to occur. But, right now, I see things progressing very well at AOS. The share price will eventually reflect that.
All just my humble opinion. Do your own DD.
nb