I would like to keep an open mind here, so perhaps someone can set me straight. However, given the fundamentals of the company, I believe it is WAY overvalued and up on hype. This is for several reasons, which I will outline below. I also note that this is a gas producing company (with miniscule oil reserves), that the director Gilbert has sold half his shares at $7.41, and that the latest run up in share price from $2.12 to $7.50 is speculation on something not well understood my most investors.
Disclosure: I own put options at $7.50 on Royal. I have worked in the oil and gas industry for 30 years. I have gas producion in the Sacramento Valley. My stock trade portfolio has increased more than 100X since 1991.
My Valuation Estimate for ROYL:
1) Proven gas reserves = 9.2 BCF. Based on the current gas price and my operations experience, I value this at $2.20/mcf net present value (npv). Total value = $20.2 million.
The $2.20/mcf number accounts for operating expenses, taxes, minor overhead, and gas hyperbolic depletion over 8 years. (Straight line depletion does not match Forbes formation wells, particularly in the first 3 years.) This number also matches the amount that VQ paid to purchase the Aspen gas reserves in the Sacramento Valley last year - a $28 million purchase, in a bid competition.
2) Proven oil reserves = 16,000 bbl * $50/bbl npv = $0.8 million. Again, this number accounts for expenses to estimate profit per barrel.
3) Value of recent Bowerbank Sale to somebody (VQ probably) = unknown, but is an ORRI (overriding royalty interest). I believe the value of the Monterey to be limited (see my comments about VQ on their message board), but a good deal for ROYL, since it is an ORRI and they will get paid something regardless of VQ success or failure. Value: $3 million npv maximum. It simply is not a large transaction.
4) Value of recent gas discoveries in the Sac Basin = 5 BCF max, and this is being very liberal. There just are no room to fit a larger discovery in this area, and there have not been 5 BCF discoveries for a long time. Therefore, despite the large flow rates, the ultimate yield will be less than 5 BCF. [BTW, Royal opened this up to drain quickly because of competition along their lease lines. They simply want to get as much now as possible before they get drained by adjacent leases]. Value maximum = 5 BCF x 2.20 per mcf (npv) = $11 million.
Total Value Estimate ROYL = $35 million.
Total Shares Outstanding = 10.24 million
Value per share = $3.42 per share
I realize this may not be a popular valuation on this board, but it is based on the logic that prevails to evaluate one oil or gas company against another. Good luck out there, and understand that there is a great amount of speculation in the price of this stock, and in my opinion, the company will soon return to its fair value. Upside potential may exist (one might argue), but I believe this is limited, given the land position held by ROYL. Furthermore, there is speculation on these boards of a share offering in the works, which would make much sense under current circumstances, and if true, would be dilutive to current owners.
Posted for RPSMITH2000 who today was asking for comments on evaluations of ROYL. For what it is worth, this is the short version of how I have evaluated oil and gas companies as an independent auditor for both buyers and sellers. I am free to discuss details in depth if you have questions. You can use this method to do a quick scan of almost any company.
Lifesgood, is this true? You actually work for ROYL? And then you come here and pump up this stock with RahRah comments? I have never seen you make a logical comment why this is a decent company. How about telling us about the cash flow coming mostly from fleecing the investors? I had no idea that the production income was so low compared to the revenue from charging your partners. And by the way, how many aliases to you have that you post on this board with?
In my original evaluation I overlooked that ROYL has 50% working interest in projects. Hence, the $11 million value attributed to the Goddard wells (1,2, and 3) needs to be reduced to $6 million Maximum, and hence fair market value of the gas company ROYL is $2.90, not the $3.42 that I stated previously. Sorry for the overestimation, the error is my fault for missing this detail.
Accordingly, since I covered my puts recently (at $5.10, due to unusual strength at that level), and as the price has again risen for no fundamental evaluation reason (rise on hype), I have re-established $7.50 puts for a short position. This is in anticipation of the stock eventually meeting its fair market value, when compared to other companies. Accordingly, I will cover below $3.50 sometime in the not so distant future. Good luck all.
Nat Gas only needs to rise 50% before we can make some profit! Yahoo... In the meantime, no oil sales for this gas company and the gas price still sux and will stay down at least 2 more years... Dam gas companies.
April 2011 contract
$ / million BTUs Floor 4.37 -0.029 -0.66% 1:56pm ET
Electronic 4.34 -0.029 -0.66% 9:56pm ET
I would not short an oil stock. But since ROYL is not an oil stock, that comment does not matter.
LOOK! Natural gas up 15 cents! Woohoo - only 2 more dollars (50%) and we can start to make profit!
April 2011 contract
$ / million BTUs Floor 4.40 s +0.159 +3.75% 2:33pm ET
Electronic 4.43 +0.024 +0.55% 4:57pm ET
clearly hype in this one to come out. The reason one knows it is hype, not fundamentals, is that the stock trades on Oil, not Nat Gas, down almost 2% today.
A Nat Gas company trading on oil simply means those who bought don't know what they bought. Those who buy without knowing what they bought don't have the conviction to hold and keep the stock from coming back down.
Thank you. I am a petroleum geologist and have been professionally evaluating oil and gas companies for a long time. I am currently long on several oil companies, and short on one other... VQ (Venoco). I have posted my evaluation on their board as well.
Natural Gas (posted March 10, 2011)
April 2011 contract
$ / million BTUs Floor 3.83 -0.10 -2.54% 2:33pm ET
Electronic 3.83 0.00 0.00% 6:18pm ET
Better yet why are you posting? what do you have to gain by tacking the time to share with us that you are short and blah blah blah. You are behind the scenes and no one should listen to anything you have to contribute, Are you related to Barack you moron?
I think it is great that people are actively trading ROYL, and find no fault with the company if there stock is at $7.50 - even if I believe it is fairly valued at $3.40. What concerns me is that the traders seem to all be the "rah rah" type. Trading is trading, and equal consideration should be given to shorting as well as long positions if one is a trader. Trading by going long is just a chicken's "buy and hold", without the conviction. Who really has conviction with this stock? That it will go to $12? Again, if you want to trade, be able to swing your position in the direction of the wind... which I think most people can not do. Good luck!