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Wednesday, February 23, 2011

Taking advantage of silly valuations on Xcite and Rockhopper

Lets look at Rockhopper (RKH) first :

Market capitalisation = £600 million at 231p a share.
Cash in bank = £200 million
Proven reserves = 170 million barrels  of oil @ $5 dollars a barrel = $850 million (£524 million at £1=$1.62)
Cash + reserves = £724 million, i.e. £124 million greater than market cap

The market is pricing Rockhopper at less than the oil it has found at Sea Lion plus cash. it is highly unlikely that all 7 wells due in 2011 will be unsuccessful i.e. there is reserves upgrade. Lets not forget that Brent crude hit $108 a barrel.

The lets look at Xcite (XEL):

Market capitalisation = £550 million at 346p a share
Cash in bank =  approx £25 million
Proven reserves = 166 million barrels = $747 million @ $5 a barrel (plus discounting by 10% since heavy oil at Bentley)= £461 million.
Assuming pessimistic CPR upgrade in reserves to 200 million barrels = $900 million @$5 a barrel and heavy oil discount= £555 million

Xcite is currently priced on the basis of a 200 million field at only $5 a barrel with no upside from the CPR or on the future exploration licenses. As a reminder on the Xcite story, here's my post from January: http://contrarianinvestoruk.blogspot.com/2011/01/xcite-energy-should-prove-highly.html

After selling a big chunk of Xcite a couple of weeks ago on the takeover rumours I have bought a nice slug first thing today together with Rockhopper. Hopefully fundamentals will finally prevail on these stocks. I also bought more Weatherly International (WTI) on interim results as the story is now very compelling (http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html).

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