"The issue here is not so about how much 88E values its reserves, it's about how much a likely buyer is going to discount those barrels at the front end, knowing the technical risks, stratospheric costs and paths to commercialization."
I totally agree. And at the moment, prior to having established that the oil is extractable in a commercially viable manner, one would think that this amount will be marginal. A mooted farm-out will reflect an industry assessment of that risk/reward equation at this point in time.
You will note the hypothesized full-cycle costs in an April 2016 Investor Presentation. The P50-mid cost case being break-even (i.e NPV=zero) at $39 / bbl. The range of scenarios being from $27/bbl to $68/bbl, if memory serves me correctly. Obviously, behind these scenarios are untested assumptions on flow rates, decline rates and EUR's etc (and so much more) behind this.....and as you say, these need to be suitably discounted at this juncture in time. However, at PoO of $70, I estimate (based on the $39 full-cycle b/e) an NPV of almost $8 /bbl. Based on your experience, what do you think a likely buyer [will] discount those barrels at the front end, knowing the technical risks, stratospheric costs and paths to commercialization?
Cheers
88E Price at posting:
2.2¢ Sentiment: Buy Disclosure: Held
(20min delay)
