Saturday, September 22, 2012

Corridor Resources Valuation

I generated a Google Document that calculates Corridor Resources’ PV10.  Sheet1 matches page 34 of the December 31, 2011 Reserve Report for the proved plus probable reserves using the following Henry Hub prices for natural gas:

2012 - $3.80/mcf
2013 - $4.50/mcf
2014 - $5.00/mcf
2015 - $5.50/mcf
2016 - $6.00/mcf
2017 - $6.50/mcf
2018 - $6.76/mcf
2019 - $6.89/mcf
2020 - $7.03/mcf
2021 - $7.17/mcf
Thereafter - +2%/yr

Well almost matches.  The undiscounted value of $464 million matches and the before tax 10% discounted cash flow matches to within three significant digits ($178 million verses $171 million).  $171 million / 88.5 common shares = $1.93 per share.

Sprott Asset Management thinks we’ll have a $4.50/mcf ceiling for the next five years.  Therefore, I have created a second page on my spreadsheet to estimate the 2P PV10 value using $4.50/mcf for the next five years and +2%/yr thereafter.  I personally think these assumptions are probably harsh, but I still calculate $1.24 per share 2P PV10 value (before taxes).  I also think a 10% discount rate is harsh in a world of very low interest rates, but I like to use it as a level of conservatism.

Low downside risk with (3) free lottery tickets.

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