Frontier Oil Corporation (PSE: FOC, the “Company”) is an oil and exploration company not yet in commercial operations. Below is the corporate structure of the Company:
FOC’s most valuable assets are SC 50 and SC 52 which are both expected to generate revenues for the Company in 2014.
SC 50 hosts the Calauit Field which the Company plans to spend approximately 70% of the IPO proceeds. Calauit Field is estimated to produce 6.94 million barrels of oil (MMBBL) in its two-year production period.
SC 52 in an onshore gas prospect in the Cagayan basin that previously produced 3.5 billion cubic feet (BCF) of natural gas to a 1 MW power plant for 14 years (1994-2008). The Company aims to spend approximately 12% of IPO proceeds to determine the commerciality of the Nassiping field in SC 52 which is estimated to contain contingent gas resource ranging from 45.46 BCF to 104.87 BCF to 231.91 BCF. The Nassiping Field will be operated as a gas-to-power (6.5 – 32 MW) project and is expected to generate revenues for the Company for 20 years.
Other Assets of FOC
Other than SC 50 and 52, SC 55 has the highest probability that a discovery will be commercially developed (the Company placed that probability at 85%). SC 55 is estimated to have a mean recoverable resource of 2.1 trillion cubic feet (TCF) of natural gas. However, the statement above of the Company did not consider the potential withdrawal of BHP Billiton, the Operator of SC 55, from the project. 
The Company’s outstanding shares after IPO will be the following:
Within the prospectus, Punongbayan & Araullo (P&A) applied three valuation methods for the company resulting to the following:
P & A performed the above valuation assuming that SC 55 and SC 69 will be developed. Assuming that only SC 52 and SC 50 will be developed, we can have a valuation of P2.69 for the Company using discounted cash flow method (12.78% discount rate) as shown below:
At an IPO price of P2.50, FOC is selling at the value where SC 50 and SC 52 will be operational.
- Update on Service Contract No. 55 – Offshore West Palawan, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-8065_TA.pdf
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