Intrinsic value of Erin Energy - ERN

Previous Close

$2.45

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

  Value-price divergence*

-76%

Previous close

$2.45

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

 
Value-price divergence*

-76%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of ERN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  14.71
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  78
  125
  193
  288
  418
  590
  812
  1,089
  1,430
  1,840
  2,325
  2,887
  3,529
  4,254
  5,061
  5,951
  6,923
  7,974
  9,105
  10,311
  11,593
  12,948
  14,374
  15,872
  17,439
  19,076
  20,783
  22,561
  24,410
  26,333
  28,332
Variable operating expenses, $m
 
  890
  1,374
  2,055
  2,982
  4,208
  5,784
  7,764
  10,195
  13,119
  16,570
  20,576
  25,156
  30,322
  36,077
  42,420
  49,345
  56,841
  64,897
  73,499
  82,635
  92,292
  102,461
  113,134
  124,305
  135,974
  148,141
  160,813
  173,996
  187,705
  201,952
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  215
  890
  1,374
  2,055
  2,982
  4,208
  5,784
  7,764
  10,195
  13,119
  16,570
  20,576
  25,156
  30,322
  36,077
  42,420
  49,345
  56,841
  64,897
  73,499
  82,635
  92,292
  102,461
  113,134
  124,305
  135,974
  148,141
  160,813
  173,996
  187,705
  201,952
Operating income, $m
  -137
  -765
  -1,182
  -1,767
  -2,564
  -3,617
  -4,973
  -6,675
  -8,765
  -11,278
  -14,245
  -17,690
  -21,627
  -26,068
  -31,016
  -36,469
  -42,422
  -48,867
  -55,792
  -63,188
  -71,042
  -79,344
  -88,087
  -97,262
  -106,866
  -116,898
  -127,358
  -138,252
  -149,586
  -161,371
  -173,620
EBITDA, $m
  -79
  -715
  -1,105
  -1,653
  -2,399
  -3,384
  -4,652
  -6,245
  -8,200
  -10,551
  -13,327
  -16,550
  -20,233
  -24,388
  -29,017
  -34,119
  -39,688
  -45,718
  -52,197
  -59,116
  -66,464
  -74,231
  -82,410
  -90,994
  -99,979
  -109,365
  -119,151
  -129,343
  -139,947
  -150,972
  -162,432
Interest expense (income), $m
  10
  10
  5
  16
  31
  50
  77
  111
  153
  206
  269
  343
  429
  527
  639
  762
  899
  1,048
  1,209
  1,382
  1,567
  1,764
  1,972
  2,190
  2,420
  2,660
  2,911
  3,173
  3,446
  3,729
  4,024
Earnings before tax, $m
  -143
  -775
  -1,187
  -1,783
  -2,594
  -3,668
  -5,050
  -6,786
  -8,918
  -11,484
  -14,514
  -18,032
  -22,056
  -26,595
  -31,654
  -37,231
  -43,321
  -49,915
  -57,001
  -64,570
  -72,609
  -81,108
  -90,058
  -99,452
  -109,286
  -119,558
  -130,270
  -141,425
  -153,032
  -165,100
  -177,644
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -142
  -775
  -1,187
  -1,783
  -2,594
  -3,668
  -5,050
  -6,786
  -8,918
  -11,484
  -14,514
  -18,032
  -22,056
  -26,595
  -31,654
  -37,231
  -43,321
  -49,915
  -57,001
  -64,570
  -72,609
  -81,108
  -90,058
  -99,452
  -109,286
  -119,558
  -130,270
  -141,425
  -153,032
  -165,100
  -177,644

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  7
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  289
  462
  714
  1,068
  1,550
  2,186
  3,006
  4,034
  5,297
  6,816
  8,610
  10,691
  13,071
  15,755
  18,746
  22,041
  25,640
  29,535
  33,720
  38,190
  42,937
  47,955
  53,239
  58,784
  64,589
  70,652
  76,974
  83,558
  90,408
  97,531
  104,934
Adjusted assets (=assets-cash), $m
  282
  462
  714
  1,068
  1,550
  2,186
  3,006
  4,034
  5,297
  6,816
  8,610
  10,691
  13,071
  15,755
  18,746
  22,041
  25,640
  29,535
  33,720
  38,190
  42,937
  47,955
  53,239
  58,784
  64,589
  70,652
  76,974
  83,558
  90,408
  97,531
  104,934
Revenue / Adjusted assets
  0.277
  0.271
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
  0.270
Average production assets, $m
  308
  493
  761
  1,139
  1,652
  2,331
  3,205
  4,302
  5,648
  7,268
  9,180
  11,399
  13,937
  16,799
  19,987
  23,501
  27,338
  31,491
  35,954
  40,719
  45,781
  51,131
  56,765
  62,677
  68,867
  75,331
  82,072
  89,092
  96,396
  103,991
  111,884
Working capital, $m
  -264
  -12
  -19
  -29
  -42
  -59
  -81
  -109
  -143
  -184
  -232
  -289
  -353
  -425
  -506
  -595
  -692
  -797
  -910
  -1,031
  -1,159
  -1,295
  -1,437
  -1,587
  -1,744
  -1,908
  -2,078
  -2,256
  -2,441
  -2,633
  -2,833
Total debt, $m
  217
  119
  346
  664
  1,098
  1,671
  2,408
  3,334
  4,471
  5,838
  7,452
  9,325
  11,467
  13,883
  16,574
  19,540
  22,779
  26,284
  30,051
  34,074
  38,346
  42,862
  47,618
  52,609
  57,833
  63,290
  68,980
  74,905
  81,071
  87,481
  94,144
Total liabilities, $m
  515
  416
  643
  961
  1,395
  1,968
  2,705
  3,631
  4,768
  6,135
  7,749
  9,622
  11,764
  14,180
  16,871
  19,837
  23,076
  26,581
  30,348
  34,371
  38,643
  43,159
  47,915
  52,906
  58,130
  63,587
  69,277
  75,202
  81,368
  87,778
  94,441
Total equity, $m
  -225
  46
  71
  107
  155
  219
  301
  403
  530
  682
  861
  1,069
  1,307
  1,576
  1,875
  2,204
  2,564
  2,953
  3,372
  3,819
  4,294
  4,795
  5,324
  5,878
  6,459
  7,065
  7,697
  8,356
  9,041
  9,753
  10,493
Total liabilities and equity, $m
  290
  462
  714
  1,068
  1,550
  2,187
  3,006
  4,034
  5,298
  6,817
  8,610
  10,691
  13,071
  15,756
  18,746
  22,041
  25,640
  29,534
  33,720
  38,190
  42,937
  47,954
  53,239
  58,784
  64,589
  70,652
  76,974
  83,558
  90,409
  97,531
  104,934
Debt-to-equity ratio
  -0.964
  2.570
  4.840
  6.220
  7.080
  7.640
  8.010
  8.260
  8.440
  8.560
  8.660
  8.720
  8.770
  8.810
  8.840
  8.870
  8.880
  8.900
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
Adjusted equity ratio
  -0.823
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -142
  -775
  -1,187
  -1,783
  -2,594
  -3,668
  -5,050
  -6,786
  -8,918
  -11,484
  -14,514
  -18,032
  -22,056
  -26,595
  -31,654
  -37,231
  -43,321
  -49,915
  -57,001
  -64,570
  -72,609
  -81,108
  -90,058
  -99,452
  -109,286
  -119,558
  -130,270
  -141,425
  -153,032
  -165,100
  -177,644
Depreciation, amort., depletion, $m
  58
  49
  76
  114
  165
  233
  320
  430
  565
  727
  918
  1,140
  1,394
  1,680
  1,999
  2,350
  2,734
  3,149
  3,595
  4,072
  4,578
  5,113
  5,676
  6,268
  6,887
  7,533
  8,207
  8,909
  9,640
  10,399
  11,188
Funds from operations, $m
  71
  -725
  -1,111
  -1,669
  -2,429
  -3,435
  -4,729
  -6,356
  -8,353
  -10,757
  -13,596
  -16,892
  -20,662
  -24,916
  -29,656
  -34,881
  -40,587
  -46,766
  -53,406
  -60,498
  -68,031
  -75,995
  -84,382
  -93,185
  -102,399
  -112,025
  -122,062
  -132,516
  -143,392
  -154,701
  -166,456
Change in working capital, $m
  65
  -5
  -7
  -10
  -13
  -17
  -22
  -28
  -34
  -41
  -48
  -56
  -64
  -72
  -81
  -89
  -97
  -105
  -113
  -121
  -128
  -135
  -143
  -150
  -157
  -164
  -171
  -178
  -185
  -192
  -200
Cash from operations, $m
  6
  -721
  -1,104
  -1,660
  -2,416
  -3,417
  -4,707
  -6,328
  -8,319
  -10,716
  -13,547
  -16,836
  -20,598
  -24,843
  -29,575
  -34,792
  -40,490
  -46,660
  -53,293
  -60,378
  -67,903
  -75,860
  -84,239
  -93,035
  -102,243
  -111,861
  -121,892
  -132,338
  -143,207
  -154,509
  -166,256
Maintenance CAPEX, $m
  0
  -31
  -49
  -76
  -114
  -165
  -233
  -320
  -430
  -565
  -727
  -918
  -1,140
  -1,394
  -1,680
  -1,999
  -2,350
  -2,734
  -3,149
  -3,595
  -4,072
  -4,578
  -5,113
  -5,676
  -6,268
  -6,887
  -7,533
  -8,207
  -8,909
  -9,640
  -10,399
New CAPEX, $m
  -19
  -185
  -269
  -377
  -514
  -679
  -874
  -1,097
  -1,347
  -1,620
  -1,912
  -2,219
  -2,537
  -2,862
  -3,188
  -3,514
  -3,836
  -4,153
  -4,463
  -4,766
  -5,061
  -5,350
  -5,634
  -5,913
  -6,189
  -6,465
  -6,741
  -7,020
  -7,304
  -7,594
  -7,893
Cash from investing activities, $m
  -19
  -216
  -318
  -453
  -628
  -844
  -1,107
  -1,417
  -1,777
  -2,185
  -2,639
  -3,137
  -3,677
  -4,256
  -4,868
  -5,513
  -6,186
  -6,887
  -7,612
  -8,361
  -9,133
  -9,928
  -10,747
  -11,589
  -12,457
  -13,352
  -14,274
  -15,227
  -16,213
  -17,234
  -18,292
Free cash flow, $m
  -13
  -936
  -1,422
  -2,113
  -3,044
  -4,262
  -5,814
  -7,745
  -10,096
  -12,901
  -16,186
  -19,974
  -24,276
  -29,099
  -34,443
  -40,305
  -46,677
  -53,547
  -60,905
  -68,739
  -77,036
  -85,788
  -94,986
  -104,624
  -114,700
  -125,212
  -136,166
  -147,565
  -159,420
  -171,743
  -184,549
Issuance/(repayment) of debt, $m
  1
  -98
  227
  318
  433
  573
  737
  926
  1,137
  1,367
  1,614
  1,873
  2,142
  2,416
  2,691
  2,966
  3,238
  3,506
  3,767
  4,023
  4,272
  4,516
  4,755
  4,991
  5,224
  5,457
  5,690
  5,926
  6,165
  6,410
  6,663
Issuance/(repurchase) of shares, $m
  0
  1,046
  1,212
  1,818
  2,643
  3,731
  5,132
  6,889
  9,045
  11,636
  14,693
  18,240
  22,294
  26,864
  31,953
  37,561
  43,681
  50,304
  57,420
  65,017
  73,084
  81,610
  90,587
  100,007
  109,867
  120,164
  130,902
  142,083
  153,717
  165,813
  178,385
Cash from financing (excl. dividends), $m  
  6
  948
  1,439
  2,136
  3,076
  4,304
  5,869
  7,815
  10,182
  13,003
  16,307
  20,113
  24,436
  29,280
  34,644
  40,527
  46,919
  53,810
  61,187
  69,040
  77,356
  86,126
  95,342
  104,998
  115,091
  125,621
  136,592
  148,009
  159,882
  172,223
  185,048
Total cash flow (excl. dividends), $m
  -1
  12
  17
  24
  32
  43
  55
  69
  85
  102
  121
  140
  160
  181
  202
  222
  242
  262
  282
  301
  320
  338
  356
  374
  391
  409
  426
  444
  462
  480
  499
Retained Cash Flow (-), $m
  139
  -1,046
  -1,212
  -1,818
  -2,643
  -3,731
  -5,132
  -6,889
  -9,045
  -11,636
  -14,693
  -18,240
  -22,294
  -26,864
  -31,953
  -37,561
  -43,681
  -50,304
  -57,420
  -65,017
  -73,084
  -81,610
  -90,587
  -100,007
  -109,867
  -120,164
  -130,902
  -142,083
  -153,717
  -165,813
  -178,385
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -1,034
  -1,195
  -1,794
  -2,610
  -3,689
  -5,077
  -6,819
  -8,959
  -11,533
  -14,572
  -18,100
  -22,134
  -26,683
  -31,752
  -37,339
  -43,438
  -50,042
  -57,138
  -64,716
  -72,764
  -81,272
  -90,230
  -99,633
  -109,475
  -119,756
  -130,476
  -141,640
  -153,255
  -165,333
  -177,886
Discount rate, %
 
  5.90
  6.20
  6.50
  6.83
  7.17
  7.53
  7.91
  8.30
  8.72
  9.15
  9.61
  10.09
  10.60
  11.13
  11.68
  12.27
  12.88
  13.52
  14.20
  14.91
  15.65
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
PV of cash for distribution, $m
 
  -977
  -1,060
  -1,485
  -2,004
  -2,609
  -3,284
  -4,003
  -4,734
  -5,436
  -6,070
  -6,596
  -6,983
  -7,205
  -7,251
  -7,119
  -6,822
  -6,381
  -5,827
  -5,193
  -4,517
  -3,833
  -3,172
  -2,559
  -2,011
  -1,538
  -1,145
  -828
  -582
  -396
  -262
Current shareholders' claim on cash, %
  100
  50.0
  1.8
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Erin Energy Corporation operates as an independent oil and gas exploration and production company focused on energy resources in Africa. Its asset portfolio consists of nine licenses covering an area of 40,000 square kilometers, including production and exploration properties offshore Nigeria; and exploration licenses offshore Ghana, The Gambia, and offshore and onshore Kenya. The company was formerly known as CAMAC Energy Inc. and changed its name to Erin Energy Corporation in April 2015. The company was founded in 2005 and is headquartered in Houston, Texas. Erin Energy Corporation is a subsidiary of CAMAC Energy Holdings Limited.

FINANCIAL RATIOS  of  Erin Energy (ERN)

Valuation Ratios
P/E Ratio -3.7
Price to Sales 6.7
Price to Book -2.3
Price to Tangible Book
Price to Cash Flow 86.8
Price to Free Cash Flow -40.1
Growth Rates
Sales Growth Rate 14.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -77.4%
Cap. Spend. - 3 Yr. Gr. Rate 80.2%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity -90.7%
Total Debt to Equity -96.4%
Interest Coverage -13
Management Effectiveness
Return On Assets -38.6%
Ret/ On Assets - 3 Yr. Avg. -45.8%
Return On Total Capital -230.9%
Ret/ On T. Cap. - 3 Yr. Avg. -130.2%
Return On Equity 91.3%
Return On Equity - 3 Yr. Avg. -94.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin -19.2%
Gross Margin - 3 Yr. Avg. -41%
EBITDA Margin -96.2%
EBITDA Margin - 3 Yr. Avg. -236.6%
Operating Margin -175.6%
Oper. Margin - 3 Yr. Avg. -320.4%
Pre-Tax Margin -183.3%
Pre-Tax Margin - 3 Yr. Avg. -332.1%
Net Profit Margin -182.1%
Net Profit Margin - 3 Yr. Avg. -331.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

ERN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ERN stock intrinsic value calculation we used $78 million for the last fiscal year's total revenue generated by Erin Energy. The default revenue input number comes from 2016 income statement of Erin Energy. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ERN stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 5.9%, whose default value for ERN is calculated based on our internal credit rating of Erin Energy, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Erin Energy.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ERN stock the variable cost ratio is equal to 712.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ERN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.6% for Erin Energy.

Corporate tax rate of 27% is the nominal tax rate for Erin Energy. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ERN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ERN are equal to 394.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Erin Energy operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ERN is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-225 million for Erin Energy - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 197.916 million for Erin Energy is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Erin Energy at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Erin Energy Announces the Spud of Oyo-9 Well   [Aug-14-17 07:00AM  Business Wire]
▶ Erin Energy to Present at EnerComs The Oil & Gas Conference   [Aug-11-17 11:51AM  Business Wire]
▶ Erin Energy reports 2Q loss   [Aug-10-17 08:01PM  Associated Press]
▶ Erin Energy Announces Second Quarter 2017 Results   [Aug-09-17 07:56PM  Business Wire]
▶ Erin Energy Announces the Arrival of Rig to Oyo Field   [Aug-01-17 07:30AM  Business Wire]
▶ Erin Energy Drilling and Production Update   [Jul-10-17 08:00AM  Business Wire]
▶ ETFs with exposure to Erin Energy Corp. : May 31, 2017   [May-31-17 12:31PM  Capital Cube]
▶ Erin Energy reports 1Q loss   [May-10-17 06:52PM  Associated Press]
▶ Erin Energy Announces Audit Opinion   [Mar-23-17 06:30PM  Business Wire]
▶ Erin Energy Announces Execution of a Drilling Rig Contract   [Mar-06-17 07:00AM  Business Wire]
▶ Erin Energy Announces Resignation of CEO   [Feb-22-17 05:04PM  Business Wire]
▶ Erin Energy Announces Debt Financing   [Feb-09-17 06:32AM  Business Wire]
▶ Erin Energy to Present at EnerComs The Oil & Gas Conference   [Aug-15-16 11:25AM  Business Wire]
Financial statements of ERN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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