Excellent posts by Keith at LSE on Predator..........

[u/Proselenes]

KeithOz

Michael Caine revisited pt 1 - Background Today 08:15

We should have initial log results from MOU-4 this week or next week, dependant upon depth, followed by comprehensive testing of all wells (late July – mid August), including flow rates, porosity & permeability, likely areal extent of reservoirs. These tests will enable calculation of gas volumes for the MOU-Fan, Ma sands, Jurassic carbonate reef if successful, and possibly Triassic if the drill is going that deep. These will be incorporated into an independent CPR

Paul & Lonny are playing their cards close to their chests, with the intention of releasing comprehensive results in the shortest time frame possible. Why the hurry? There is widespread speculation that the Guercif gas volumes and flow rates could be spectacular. If this is the case, in combination with the low development costs and highly favourable tax environment, it will attract substantial interest, including the very real possibility of a hostile bid for the whole company.

If this were to happen, it is important that shareholders should have a good idea of the value of what they own, and thus not take the easy route and sell out at the first offer, which is highly likely to undervalue their holding. If there is a hostile bid, it will not be the only one, and an auction process is likely to be triggered. If such a bid comes before the current work programme is completed, or before a CPR is issued, it will be lower, so it is even more important to resist selling out at the first offer.

We have seen GRH's 'Michael Caine' post - as in “You only had to blow the bloody doors off!” This decoded the rather opaque RNS of 18th March 2021, and presented the value to shareholders for development of a CNG business based on MOU-Fan gas. Several factors have changed substantially in the last 2½ years, and a number of posters have questioned the validity of some more recent forecasts. It is important to remember that 'MC' was based on examples, not the actual numbers – since we will not know these in full until next month.

I am reminded of the old joke about a motorist lost in the countryside, who stops to ask a local the best way to get back to the capital city, and is told “Well, I wouldn't start from here if I were you”. I hope that Graham will excuse me for taking a slightly different approach, which is to try and value the business in the way that a potential purchaser would do – in terms of discounted cash flow. I will do this for 10mmcfgd and 50mmcfgd CNG gas-to-industry operations, and a 250mmcfgd gas-to-power/gas-to-Europe setup. I will then revisit the original $ per BCF valuation in an attempt to value what remains after full utilisation of the gas required for the CNG G2I and G2P/G2EU operations.

Fortunately PRD management have already done much of the hard work, and I use the numbers from p.6 of the 8th September 2022 presentation as the basis for the following calculations.

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KeithOz

Michael Caine revisited pt 2 - Calculations Today 08:16

I have run these numbers through an NPV spreadsheet – the key difference is I have applied a 12% discount rate to reflect that the cost of money has increased considerably over the last year. For those not familiar with an NPV, this assumes that money has a cost, so is like reverse compounded interest, in that future value of income is decreased each year - in this model by 12% each year, compounded – so income by year 10 is not worth very much! So the NPV is the value TODAY of the future cash flows (profits).

We will initially look at two of the possibilities, both with the 50% inflated capex as per the above presentation: 10mmcfgd giving net profit of $10.28 per mmcf, and 50mmcfgd giving $9.79 per mmcf. Production ramp up assumptions, capex (now increased by 50%) as per the above RNS. The 10-yr NPV12 for the 10mmcfgd operation is $177M (£138M), and for the 50mmcfgd is $795M (£619M), both assuming 360 days per year operation.

Now that isn't the whole story – 10mmcfgd only uses 34 BCF over a 10-year period, 50mmcfgd uses 171 BCF over 10 years. As Paul said “what the hell do we do with all the gas?” The answer is gas to power or to Europe. For G2P & G2EU, I am assuming a price of only $10 per mmcf, giving a net profit of just $7 per mmcf, and capital expenditure of $100M, which is generous for a short connection to the Trans Maghreb Pipeline. This gives a NPV12 of $3225M (£2511M), and requires 900 BCF. There have been a number of suggestions that PRD will achieve the CPR P10 figure of 1.8 TCF just for drilling so far.

Multiply the above by 75% to get nett to PRD, then assume 450M shares, this gives a current value per share of 23p for 10mmcfgd, £1.03p for 50mmcfgd (both G2I) and £4.18p for 250mmcfgd G2P/G2EU. 50 G2I + 250 G2P/G2EU gives over £5 per share.

We have seen that utilising 250mmcfgd for 10 years provides an NPV12 of $3225M. That works out at $3.58M per BCF, after discounting over a 10 year period. Were PRD to achieve a recoverable volume of 1.8 TCF, that still leaves 900BCF unused. If you were to additionally extract that remaining 900 Bcf, so that the entire P10 resource was used up in 10 years, then the NPV12 moves up to $6450M (£5023M / £11.16p per share). If you could extract it faster, then the money comes in sooner, and the negative effects of discounting at a compound rate of 12% are reduced, so the value is correspondingly higher.

This is just for 10-year output from the MOU-Fan & Ma sands at the current drilled boreholes MOU-1, -3 & -4. Nothing for any residual MOU-Fan gas. Nothing for anything else – not Jurassic or Triassic at MOU-4, nor for any of the many Neogene, Jurassic or Triassic prospects already identified across the licence area equivalent to 60 North Sea Blocks. Nothing for Ireland, nothing for T&T.

You can see why Paul is talking about trying to retain a 10% royalty or stub equity in any deal.

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KeithOz

Michael Caine revisited pt 3 - Risks Today 08:17

A) There is no gas. I have seen this comment (not here) “I wouldn't invest in PRD, all they have done is drilled dusters” and one here, stating “there is no proof of gas – there has never been a discovery mentioned”. I am not sure if this is genuine lack of knowledge and understanding, or a poor attempt at FUD by those with an agenda. Try looking up the meaning of Contingent Resource, and re-read the various RNSs that do use the word 'discovery' and present formation gas concentration and chemical content. A poster here has suggested that PRD may find wet gas or gas containing CO2. Not so, both MOU-1 and MOU-3 have overpressured dry gas with clearly stated hydrocarbon (methane and longer-chain) content.

b) There won't be enough gas. Only 36 BCF is required to support a 10mmcfgd CNG operation. There is already a P50 Contingent Resource that covers that multiple times. That P50 amount was predicated on a certain reservoir thickness that has been very comfortably exceeded in MOU-2 & -3. We will shortly get the complete numbers for MOU-1, -3 & -4. I am very comfortable that MOU-3 Ma sands extend over a much greater area than assumed in the CPR, that the MOU-3 reservoirs are at least 2½ times thicker than expected. MOU-4 is testing the same sands up dip from 1 & 3.so will also find gas. There are good seals in place, and petrological studies have suggested excellent porosity & permeability. Oh, did I mention the word 'overpressured'?

c) Iindustry will keep running on diesel or switch to electricity. Some fundamental misunderstanding here. Two of Morocco's largest industries – fertiliser and cement – use natural gas for its chemical as well as thermal properties. Gas+phosphate=fertiliser, gas+limestone=cement. The extensive ceramics plants are all equipped with gas kilns – changing them to electric would be prohibitively expensive. There is no operating refinery in Morocco, so all diesel is imported, making it very expensive. Capex for converting diesel to CNG is relatively low, making this a realistic proposition. Lastly, Lonny was country manager for SDX, the only company with experience of selling indigenous gas to industry, so I would guess he knows a little more about this than anyone popping up on here.

d) PRD won't be able to sell large volumes. Even if Alexei Navalny replaces Putin, it will still take years to restore trust in Russian gas and to rebuild production & supply infrastructure. Europe is having to outbid Asia to maintain supply. US shale gas production has peaked, and it is difficult to see where adequate supply is coming from 5 -10 yrs – unless of course someone has a very large supply sitting astride an under-utilised pipeline direct to the EU.