profitability potential

All seems to be quiet on the 'western front', so I thought a few musings on the business profitability might be of interest to some.

I would assume most of the costs are up front capital costs for well establishment and that once running the fixed and variable costs of running the wells would be fairly low. Just need to keep a watching brief on all the wells and fix any problems as and when they arrive.

On the back of my envelope I am going to write $40m for cap ex and and annual interest bill of $4m. Annual fixed and variable costs I am penciling in $30m. I am not going to consider depreciation as a full expense because a lot of the infrastructure will remain in place until the exhausting of the wells and will not be replaced.

Let's assume annual revenue at not $100m but the lesser figure of $80m less my annual costs of $34m and that leaves a cash surplus of $46m or 12.8 cents per share. Let's apply a PE ratio of 12 to that and bingo we have a valuation of $1.54 per share. Now that is a scenario that is two years away and so I ask the question am I right to expect at least 60c for my shares now ?

Sure, a successful bidder takes on execution risk but look at the potential value accretion from 60c to $1.54 in say two years.

You could say the company will be a steal at 60c !!