re: Ann: Initial Production Rate-1,207 Boe/d ...
FD2 rates have caused a big overreaction from some as I see it.
The business model here is how steady your production is AFTER the initial drop off.
The key to self funding this venture is the build up of an something akin to an annuities base. This means the wells in subsequent years may not have amazing BOPD rates but they are very steady producers for many years.
Estimates of Eagleford shale horizontal wells in the west put it at around a 75% decline in year 1. Thereafter there is very gradual decline and steady production for up to 25 years in fact (you can see this in the Nutech modeling presentation from last year)
The way I look at it, at the end of 2010, AZZ will have 10 producing wells, all in stages of various decline. For arguments sake I assume the average production across the 10 wells will be 300 barrels equivalent per day. What does this mean in income?
10 x 300 BOEPD * 75% working interest @ $75USD barrel = $168K per day gross.
Remove 25% for royalties and OPEX, and you have 126K USD per day income.
126 x 30 days per month, $3.8M net income net per month. Over 12 months that is $45M - enough to fund 9 wells @ current estimates of $5M per well.
So I can see AZZ being self sustaining in H1 of 2011, perhaps after 13 or so wells.
By the end of 2011 with 20 wells it will be turning quite a handy profit. Not to mention booking plenty of proven reserves go onto the balance sheet as assets.
Perhaps I am wildly off with the numbers, I take no responsibility for errors, I am not an accountant so I suggest you do your own - willing to hear what others have come up with.
EOG explain the economics quite well (excuse the pun) on their presentation. http://www.eogresources.com/media/slides/ac_st0410.pdf
If it is good enough for EOG, it is good enough for me.
AZZ Price at posting:
61.0¢ Sentiment: Hold Disclosure: Held
