RE:RE:RE:RE:When?Ferret
Book value just forms one base line consideration, the forward earnings are equally important.
Nothing now is going to salvage the oil supply and demand equation, we are rapidly heading towards the most significant oil supply crunch in recent history, which will last for several years with oil prices to match. It is the fact that rebalancing happens slowly, gradually and inexorably that is catching out so many observers. Great interest is applied to each weeks' sector rig data or each months' global rig data with the widely held assumption that the effects will be immediate. In reality it is the change in rig count data from 18 to 24 months ago that is starting to impact us now, such is the delay effect of rig count changes, but the delay works similarly in both directions.
Anyway, assume an oil price for 2017 of $100 - actually it will average considerably higher - and assume Ithaca's output is 20,000 bpd, ignore any hedges as I have assumed the bottom of the output range. I convert back to £s. Ithaca will make at least £25 per barrel after overheads, taxes etc - but assume £25 per barrel. Gives earnings of about £180m. Current market cap £226m. Assume $2 sale doubles this - Ithaca sells for £452m.
That would mean that Ithaca would be selling for a forward earnings multiple of 2.5. Pull back my oil price assumptions to $70 and the earnings multiple is still only around 3.5.
There is just no way that Ithaca and the fund managers will sanction this.
Doug