3 bed apartment This is frustrating. The entire company carries a valuation of $6.28m, about the price of a 3 bed apartment in Central London.
MIRA published an updated NI51-101 in March 28th 2013. It was prepared by B.L. Whelan, P. Geo. I had another read of it and it really brings home how much this stock is undervalued. I would urge you to read it in full at Sedar.
I’ve looked at NPV10 estimates in the past considering big plans and multiple wells, coming up with some big numbers for MIRA. The NI51 cannot do this as one of the main principles is prudence, as the information is to be used by investors to make investment decisions, there is no blue sky thinking there. The MIRA NI51-101 report therefore sets out a very conservative position based on only the 1C contingent resources, from the single tested TSB-1 U7.0 interval. Only this interval satisfies 1C (moving to 1P) following a +5 day testing program that brought oil to the surface at average rates of 280bopd without stimulation. Consultants (Schlumberger) estimated up to 2,500bopd from a co-mingled gas/oil flow from U4.0 & U7.0 at TSB-1.
Critically, in his calculations Whelan considers only a single well (TSB-1), committing only $2m capex on a work over, with production based on a 20 year LOF. The maximum daily production in year 1 is only 518bopd, this then reduces to 24bopd over the 20 year life. We can see the max 518bopd is well below the modelled potential of TSB-1 of up to 2,500bood, so we are looking at a low success case here and not even drilling another well. This conservative approach leads to total net production to MIRA of only 1.2mmbo. Just a little over 1 million recoverable barrels, compared to a P50 recoverable net to MIRA 2C total across all intervals of 17 million barrels of oil and 3.2bcf of gas. The NI51 is therefore produced on very limited and accurate, proven data.
So what does the prudent/proven data approach yield in valuation terms for MIRA? I extracted Mr Whelan’s calculations to illustrate:
| CONSTANT PRICES $100.82/brl | | | | | |
| | | | | | | | | |
| Year | Net Prod | Price | Net Rev | Op | Abandon | Work | Net Cash | NPV10 |
| | 54% | $/bbl | $'000 | Cost | $'000 | Over | Flow | $'000 |
| | Mbbl | | | $'000 | | $'000 | $'000 | |
| 1 | 189 | 100.82 | 18,102 | 3,811 | | 2,000 | 12,291 | 11,174 |
| 2 | 161 | 100.82 | 15,387 | 3,239 | | | 12,148 | 10,040 |
| 3 | 137 | 100.82 | 13,079 | 2,753 | | | 10,326 | 7,758 |
| 4 | 116 | 100.82 | 11,117 | 2,340 | | | 8,777 | 5,995 |
| 5 | 99 | 100.82 | 9,449 | 1,989 | | | 7,460 | 4,632 |
| 6 | 84 | 100.82 | 8,032 | 1,691 | | | 6,341 | 3,579 |
| 7 | 71 | 100.82 | 6,827 | 1,437 | | | 5,390 | 2,766 |
| 8 | 61 | 100.82 | 5,803 | 1,222 | | | 4,581 | 2,137 |
| 9 | 52 | 100.82 | 4,933 | 1,038 | | | 3,895 | 1,652 |
| 10 | 44 | 100.82 | 4,193 | 883 | | | 3,310 | 1,276 |
| 11 | 37 | 100.82 | 3,564 | 750 | | | 2,814 | 986 |
| 12 | 32 | 100.82 | 3,029 | 638 | | | 2,391 | 762 |
| 13 | 27 | 100.82 | 2,575 | 542 | | | 2,033 | 589 |
| 14 | 23 | 100.82 | 2,189 | 461 | | | 1,728 | 455 |
| 15 | 19 | 100.82 | 1,860 | 392 | | | 1,468 | 351 |
| 16 | 17 | 100.82 | 1,581 | 333 | | | 1,248 | 272 |
| 17 | 14 | 100.82 | 1,344 | 283 | | | 1,061 | 210 |
| 18 | 12 | 100.82 | 1,142 | 241 | | | 901 | 162 |
| 19 | 10 | 100.82 | 971 | 204 | | | 767 | 125 |
| 20 | 9 | 100.82 | 825 | 174 | 100 | | 551 | 82 |
| TOTAL | 1,214 | | 116,002 | 24,421 | 100 | 2,000 | 89,481 | 55,003 |
Notes/
This NPV is based on constant oil prices over 20 years of $100/brl, it would be reasonable to expect the price of oil to increase over the next 20 years. So, again the model is very conservative.
Total 20 year production net to MIRA is limited to a 1.2mmbo total.
This gives a total field revenue of $116m and an $89m NPV0 for the project.
Using a more appropriate 10% rate the NPV10 is $55m vs a $6.28m mkt cap.
Valuation per share at various counts:
| NPV10 $55m | | |
| | Shares ‘000 | $/share |
| Current Share Count | 157,000 | 0.35 |
| Add $5m Financing at 5c | 257,000 | 0.21 |
| Add warrants at 10c* | 357,000 | 0.15 |
| | | |
| * Ignoring potential warrant income of $10m in year 2 that increases NPV10 to $63m, 18c per share. |
We can see that there is proven asset value well beyond the current price and market capitalisation, using highly conservative total production of 1.2mmbo and not even drilling another well. Indeed we sat between the 21c and 35c valuation for a considerable length of time. In reality full field development should realise much greater returns on a multi-well basis, leveraging on our already known 17mmbo 2C, with the potential to further increase these resources and move to reserve status from further drilling. I stay on here only because of this clear disconnect between value and price.
There are though considerable risks here still and it is not clear to me whether this Management can actually capitalise on the quality of the asset. It is often said the most important single factor in the junior markets is the Management and I’ll be honest and say I am not convinced they can deliver, for me the re-entry was a success (safe, oil to surface, increased resources) but this was under Cavanagh. Asibelua must have the contacts to take this thing forward, so what are we waiting for? The other major risk or me is the working capital deficit of $8m in the last published accounts. We have a very large payables balance outstanding and no cash. So getting the cash in is critical to continuing operations and servicing our liabilities. We have seen from the last NR that the Management say the environment is challenging, so this risk has certainly not been mitigated as yet and service provider defaults (whether valid or not legally) do illustrate potential worries (or games) from our partners.
Others believe games are afoot and draw analogies to the early and difficult days of MMT.
Will June finally bring something to the long suffering here?
DYOR/GLTA.