Analyst comment on TAG
Today TAG Oil announces yet another monster well on their Cheal drilling program and Keith Schaefer of the Oil and Gas investments Bulletin does a little exercise with some mathematics.
He writes, “With an aggressive 28 hole program at Cheal and ongoing drilling at Sidewinder, I think it's fair to GUESSTIMATE that TAG will be producing 7000 boe/d by end of Q2 with a rough 50/50 gas oil split. While most Cheal wells were expected to be in the 200-300 boe/d range, it's clear management has figured something out with the geology as two wells have been announced this week at 1870 boe/d and 2333 boe/d.”
He continues, “On a cash flow basis—well, if I annualize out the current cash flow at $50 netback on 7000 boe/d I get $127.7 million. The Enterprise Value of the stock (market cap – cash) at $7 is just over $300 million, so assuming the stock is still right here at $7 the end of June, the stock trades roughly 2.35x annualized cash flow. The average int'l junior trades about 3.4x cash flow right now.”
Then he writes boldly, “All that voodoo math is meant to show is that with increased production out of Taranaki—and in particular what looks to be a bigger well profile out of Cheal--the premium has gone out of the stock for the Whangai/Waipawa shale. Investors now get that monster upside for FREE.”