A Look at Comparative Valuations

A little bit of a brain dump looking at my sheets today. 

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Range v Trinity

Trinity is an excellent local peer for direct comparison to Range. If you care to look at the E&P Metric Comparison -Summary under Trinidad you can see the numbers side by side. Focusing on the EV/BOED and EV/2P numbers you see that Range's resources are price at half of Trinity's. You can look down the sheet and see that $10 per 2P reserve is usual and the average of my selection is $13.53. I shall return to this when considering possible fair values for Range later. Our production is valued at $84k per barrel which is low but not crazy. $100k is more usual but depending on the gassy nature of production, the regional netbacks and likelihood of production growth the number can move around. Lets be honest the supporting chart showing Range's production is no exactly encouraging.

Trinity recently has been smacked down by the market for 2 dry wells and a lack of short-medium term cataysts for growth in reserves and production. The TGAL discovery is exciting but its likely 6 months before the FDP is complete and any idea of development or addition to reserves is likely. It saw the stock fall for north of 140p to around about 110p. However production remains above 4,000 BOED and reserves at 48.60mmboe. Range has production of 600 and reserves of 38mmboe. Range has an enterprise value of $50mln USD to Trinity's $165mln USD and Trinity is far from overvalued. If anything the EV/BOED is far far too low and should be closer to $80k which would also bring the EV/2P number up from $3.39 to something approaching an industry average. At $6.7 is would not be crazy for Trinidad reserves but still well below the industry average.

Range Base Valuations

From my industry analysis I use EV/BOED for oily production of $100k and EV/2P of $5 as a base minimum. That is without significant default risk this is the base enterprise value for production and 2P reserves. I have a level of comfort by looking across the industry from the majors to the small caps and then working back in time to see where various companies/industries/capsize companies trade.

If you care to look at the Rough Calculation - Trinidad only sheet. I have some points to work through. Ignoring all other assets (including the 35.9mmboe 2P reserves of Texas sold without receiving any consideration but removing the reserves from the total). Range has a EV of $58mln (differing to above EV statement as I have set debt and cash at $0). I presume they will spend what they have and the only way that 4bln shares were issued was to clear the debt so both are at $0.  We see EV/2P at $1.33 and EV/BOED at $97k. This is the most conservative calculation I can perform on Range. Factoring in Texas sale cash or readdition of Texas reserves, firesale valuations of our other assets or values implied by listed equity in those other assets will only serve to increase the current undervaluation of our production and reserves. I would like to try to demonstrate just how freaking low they have become, completely detached from any sense of proportion. Sooner or later the market will rerate or a TO will occur. Its just too cheap.

If you took the current conservative model proposed and place 2P reserves at $5 the SP would be 2.83p.
If you look at the other model sheet with $25mln for Texas removed from the EV and $5.5mln for Guat and still ignoring Puntland and Georgia and you move the 2P reserves to $5 the SP should be 3.29p.

On the subject I can show that the current valuation for CTR is EV/2P of $7.47 and EV/BOED at $114,000. If asked I would say that CTR is fairly valued at the moment. We sold the Texas asset reserves of 35.9mmboe for a consideration of $25mln an EV/2P of $0.70.  Roughly the firesale valuation that IOP just tried when selling its Russian assets. Oddly the reserves in Texas would only have increased in value as the cold winter has picked nat gas off the floor and the acrege still have undeveloped upside if I remember correctly.

So $3.29 for EV/2P gives an SP of 3.29p and you can double that and still be well under the industry average.

Range in 12 months

March 2015 I can see Range's production at 2,500 and 2P at 50mmboe. Those numbers are conservative; its essentially half of what PL promised. At $5 per 2P reserve the SP should be 4.2p and that production oddly implies the same price of 4.2p. Right smack bang where new management will need the stock price to get all their options and make a few quid on top of the option strike price. 

In realty I can see it being much better - these projections are being made with a conservative view to the 2P reserve value which should be closer to double that. Again 8p would not be beyond the realm of reasonable valuation for that kind of production and reserves. Just take a look at comparable companies on the summary list.

One thing I consider important is the resolution of Texas and not for the obvious frustration felt by all but with regards to the unsettled issue of those reserves being removed from the group's total. Either $25mln needs to be added to the cash or the 2P reserves should include Texas. If that is down the EV/2P number right now is just silly and closer to $0.70. 70 cents for 2P reserve is bankruptcy, its IOP desperation to dump at any price, it utterly undervalued and I'm surprised given the poor direction of the company that Range has not seen a cheeky bid by a larger fish looks to add cheap reserves and some great prospective acreage in a multitude of interesting plays.

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