risk/reward outstanding, page-13

What I see as worst case…

First, gas price. Sometime ago it was quoted that Songo gas was fetching about 3.95 per mcf based on 80% power / 20% industrial according to Songo’s breakdown at $2.05 for power and $11.55 for industrial (back in 2007/08). This is concessional due to the agreement with the Tanzanian government and the actual amount might be much more, so let’s assume that this amount is net of expenses. (I don’t have more recent estimates for this, but would appreciate opinions).

Flow rate for JV is 40 mmcfd, or 8mmcfd for KEY from KN1 only. This equates to $31,600 per day (at the gas prices above), or circa $11m per annum for KEY. With 50% JV share, this is $5.5m pa to KEY.

A NPV calc with a conservative 15% discount rate assuming 10 years of production gives $28m (or $34m at 10%). This requires, as a minimum, a reserve of 0.15 tcf (150 bcf or 150,000 mmcf), assuming a well depletion rate of 40mmcf per day, or 14,600 mmcf per annum.

IMO, under some extremely conservative assumptions (low gas price, total reserves are only 0.15tcf, and ALL other KEY investments, including UK/Italy/etc… are given zero value), we could justify a SP of at least $0.22 (assuming 129m shares on issue, no cash).

Given the UK, and early signs pointing to a larger Nyuni field size, I fully expect to see multiples of this.