Ruspetro – the facts

UPDATE – MON 08:15AM – Looks like someone’s reading our blog and denying us the chance thus far to fill our boots sub 60p. 

Fridays after hours RNS by RPO management was a bit of a surprise to say the least… After a positive statement on the 19th November in which CEO Don Wolcott re-affirmed the company’s likely production of just over 10k barrels of oil per day, questions now need to be asked about his competency as a matter of course.

The number one question however is – what is the right price for Ruspetro? Our “old friend” Mr Cawkwell aka Evil Knievil felt the company a Buy back in March 2011 (see here, page 32 – http://issuu.com/spreadbetmagazine/docs/advfn) and we also highlighted the Directors purchasing of the stock during the summer too in which just over 7.7m shares were acquired by Alexander Christyakov at a price of 148p, taking his holding upto 48.5m shares or just under 13% buy way of a Put option. Ouch is all I can say here!! Ditto with Thomas Reed who also acquired another 725k shares at 148p taking him to just under 4m shares.

My guess is there is likely to be management changes at Ruspetro, and some of the institutions who backed the float at 125p less than 12 months ago in an IPO led by BoA Merrill Lynch, are likely to also ask some hard questions of these “advisers”… As we have seen with Bumi in recent months, when the “market” loses confidence in management then the consequences can be dire indeed in the short term. But of course, over-reactions create opportunity…

So, the stage looks set for a sell off first thing Monday morning, and as ever, on the greed-fear pendulum, we look to take advantage of an excessive move. The company has 1.5bn barrels of 2P reserves (proven and probable). If we take $1 a barrel as an absolute rock bottom valuation this gives a gross company worth of $1.5bn. Knock off the net debt of $310m and you get to $1.19bn – 2.6 times the current equity value. Taking only the actual proved reserves of 183m barrels and applying a realistic $5 a barrel valuation to this, gives a share value adjusted for net debt of around 113p per share. This ascribes no value to the “probables” – a situation which is pretty unheard of aside from in the unique situation that is Syria and GPX.

It’s worth pointing out also that Non Exec Director Robert Jenkins purchased 50k shares at 112p only in September and so he clearly saw value here – not a large purchase but not a “fluff” purchase either.

The company remains fully funded for their operations throughout 2013 and if the technical issues revealed on Friday prove to be a temporary glitch then any sharp sell of tomorrow morning, certainly south of 60p, looks to be a tuck away for a management shake up/resolution to the technical issue/potential corporate activity story to us. If existing management cannot monetise the large oil field then I am certain other operators will.

We will be in and buying south of 60p.