weakness a buying opportunity, page-10

I asked a friend who is an oil and gas engineer and stock analyst about AWE, and he comments:

"...assuming AWE can develop its properties for $2/mcfe, it will cost somewhere around 4-8 billion dollars (assuming 2-4 tcf recoverable). The NPV10 value creation would likely be in the neighborhood of 1-2 billion dollars once developed so it would like net to the company be worth 0.5-1 billion if proved up and sold to another company. Or the company would require a significant partner to develop the property diluting it's stake.

These are very rough numbers, and obviously much more analysis would be required. Considering the company has a market cap of close to a billion dollars, the shale gas property provides 50-100% upside if proven up (net to the company). "

He had trouble understanding how the amount BHP paid for the CHK shale gas land could ever be developed economically unless natural gas pricing returns well above $6.

So if you want to use a more conservative approach, success with shale gas gives us an upside around $3. If you want to engage in wild speculation that we get a BHP type bid, then you get that crazy $13 share price target.

Personally I go with the $3 target. I don't understand the basis for BHP's offer, and that seems unlikely to repeat.