Ultimate Conclusion?, page-14

I believe that fundamental value will be calculated as follows:

V=PoS*[NP + 0.25*NC + 0.05*NR]

where:
V = Value
PoS = Probability of Success
NP = NPV of PUD Reserves
NC = NPV of Contingent Reserves valued as PUD
NR = NPV of Prospective Resources valued as PUD

If V is then divided by number of shares on fully diluted basis, you will have an estimate of fair value per share. Whether or not share price reflects this is another matter entirely. The two numbers above are also somewhat up for debate. So anyone can make a valid guess on value if you can substantiate your assumption of the above variables.

The reason why farmout increases value is because farmout increases PoS in the near term, and in the mid to longer term, the successful deployment of farmout dollars should result in a reclassification of Prospective resource towards contingent reserve or proven undeveloped (PUD) reserve status.

While the answer above is somewhat flippant....I do believe that there is more than a kernel of truth contained as to how value gets unlocked over time through the strategic injection of farmout funded appraisal activities. Creaming the curve, so to speak!