transforming nse, page-29

I agree that NSE will not be testing Pearsall for some time. However there is an emerging value over Pearsall shale and NSE is holding good size of acreage at the Four corners. That increases the value of NSE's acreage.

On the second image, we can see that Cabot's Pearsall wells are just next to NSE's Alright permits. They produce 600 boepd (half of it is oil) from six wells at that location. I mean it is already under production.

I know a $10m well is too expensive for NSE now. Let's forget about the Pearsall shale then.

When it comes to the Eagle Ford (EF) assets;

I can understand that NSE now wants to transform the company to a cash flowing business. A cash flowing business wouldn’t come by itself. You need to invest on it, or you might have a cash flowing father or grandpa! Investment is a must. We need to look at what we are buying, if it’s worth it, how risky it is, etc.

There should be min. 12 million boe reserve in EF assets
We are all asking about the reserves of EF assets NSE wants to buy. But NSE can’t give them because of the reason stated on its anns. “Notice of EGM & Independent Geologist Report” on Dec.20;
“At this stage, and despite the existence of SEC certified reserves that based on discussions to date are supporting potential lending proposals, the recent change to reporting requirements adopted by the ASX that became effective on December 1, 2013 mean these existing SEC certified reserves are no longer disclosable as they do not meet the newly adopted reporting standards for ASX listed entities.”

It means that we need to find it out ourselves. When I calculate the low case scenario, those assets contain at least 12m barrel of oil. This is a huge amount. You need to make a lot of drilling to discover this amount of oil in Australia if you can find a good place to drill. This is about the amount Buru declares in Ungani field.

EF is a shale formation which is homogenous and goes for hundreds of miles. The next doors to our acreage were drilled by EOG and the production was started which confirms the above numbers.

The calculation is simple; When you look at the very low or ordinary EUR (Estimated Ultimate Recovery) numbers in Eagle Ford shale, it is about 200,000 boepd. If NSE has 60 drilling locations on these tenements, and it makes 12 million boe in total reserves in low valuation case IMO.

Then the money we are paying looked to me cheap; $5,300 per acre (I still don't like the money we are paying to OEH on top of this $5,300, which is $1,300 per acre in form of 45m shares, but I am now looking at it as a sales commission because I acknowledged that it is very hard to buy something on this area!

Paying $25.5m for 12m boe (mainly oil) assets is definitely cheap.

Because I made a lot of research for the other assets sold around EF shales. If they are at a good point and developed; they are between $50,000 and $75,000 per acre. That's the truth. (I am not going to give any examples although I have many. DYOR. There are some many of them. One of them is Comstock which was given by cmonassuie above).

When it comes to saying; "But Magnum Hunter bought that very cheap!". That's a different story, that was long time ago. Even 6 months is "long time ago" at EF shale area. Everything goes very fast there. If you make a little bit research you will see it.

Then I looked at the assets, and said this is like buying an expensive asset and opening a coffee shop at the middle of City centre. If you ask "Can we sell coffee here?" There is only one definite answer to this question. "Yes, of course. No doubt about it". Another question "Wouldn't it better to open a much better looking shop in an area where there was no or a few coffee shops". The answer is for me "it has a high risky". Same thing here. You are buying an asset at a very good price, with very little risk but with good cash flow.

The cash flow is not going to be created immediately in deed. But there will be a break-even point when your existing wells’ cash flow meets your new well costs. After then you will direct the cash flow to the bank accounts or to new investments. This is how we make business.


Magnum Hunter is selling all of their EF assets because CEO G Evans says they are bullish on gas but not on oil. The sale of EF assets reduced their huge debt and gave them the opportunity to fund the new exploration and production wells and prove huge reserves on the cheaper acreage of Utica shales.

NSE’s Canning and Cooper assets are also being very attractive for MHR as they are also about gas

I thought I had to have a good understanding of Magnum Hunter for understanding the merits of NSE’s transactions (while I did the same thing for OEH/PFE but I am not going to talk about them here for now)

I acknowledged after making a lot research that those assets were good.

The main reason for my need to understand the soul of Magnum Hunter was, “what was the reason Magnum Hunter was selling these assets at a cheap price?”

Magnum Hunter sold its 19,000 acres EF assets to Pen Virginia at $401m in April 2013. $42.3m was paid as PV’s shares and the rest was cash. NSE pays more in shares in terms of share/cash ratio. Those assets produced 700,000 bbls (barrel of oil) in 2012, bigger than any other shale assets and close to half their whole oil production. But MHR didn’t show any mercy and sold them. They closed some part of $800m debt but the biggest part went into the investment to other shale areas

I have read Magnum Hunter presentations and Annual Report 2012. I watched many videos of Gary Evans CEO of Magnum Hunter on YouTube. I listened to his comments about their business. Now I have a good idea about that. You can find all Magnum Hunter Resources YouTube Channel here

Watch the video of interview made by The Energy Makers with Gary Evans (Published on YouTube on Dec.9 2013;
The interviewer asks to Gary Evans “What was it to motivate you to leave Eagle Ford?”
Gary Evans answers; “We didn’t have what we call shale scale. Shale scale is a term of use that we have to have enough leases on an area to really build something substantial. We only owned 19,000 acres in Eagle Ford, we had great success to drill 50 wells, but it wasn’t going to be big enough. So we monetize it, we doubled our money. We had about $180m invested, sold for $401m, and then move that money onto these other place. So, in the Eagle Ford as I said we wouldn’t have the scale but in the Marcellus, the Utica, the Bakken 100, 150, 200 thousand acres placed there. “

The he explains the advantage of especially Utica shale play. He says even though Utica shales are in the early stages of exploration and it is pure gas play therefore it is risky but it suits to their profile for significant growth. He also says that the other shale plays in the other areas will struggle to compete with Utica shales, and they will be able to move the gas to many locations of US from Utica shales (Utica and Marcellus shale are close to New York, up at the north-east). And says that they are very bullish on gas and predicts that the gas prices will rise.

You can watch another video; BNN Interview with Magnum Hunter Resources CEO Gary Evans and see how much bullish Gary Evans is about Utica shale and gas. He says here that the reserves per well in Eagle Ford shales was about 450,000 boe (the part they sold to Penn Virginia in April 2013. You can see that I am considering even less than half this for our acreage as low case at 200,000 boe). He says that the reserves per well in Utica is two or three times bigger than Eagle Ford, with very low decline rates and high flow rates about 30 mmcf which is about 5,000 boepd.

Gary Evans plays big. He wants more gas, and he thinks he is going to be the winner in the long term despite he thinks they might have some little problems in the short term. He clearly says he will sell this company too as he sold the previous Hunter company he built and sold at $2.2b in 2005.

Magnum Hunter's assets in US.
Now They will not be in Eagle Ford if the deal is approved in NSE's EGM.


Magnum Hunter's debts in years (reduced)