Stockrock,Thanks for the background. I was wondering what all...

Stockrock,

Thanks for the background. I was wondering what all the fuss was about, but I now appreciate that GDN are trying to improve their the potential of Para #1 and Para #2.

If they get reasonable flows, they will almost certainly declare the well commercial and produce. After all they have spent the money upfront so commercial really just means that the flow covers their lease and lifting costs. This is how VIL / GGP can declare they have commercial flow ove at Fausse Point.

More interesting to me are the following questions
a) What flow will be needed to make the current share price good value
b) What flow will be needed to make future wells commercially viable to drill.

I'll start with the latter. These wells are expensive - approx $6M. At 5000 mcfg/d with a gas price of $4 per mcfg and lifting/leasing costs of $2 per mcfg, you are looking at a revenue of approx $3.6M yr not including down time and reducing flow rates over time. Realistically thats 2 yrs to pay off the well. If flow rates are less, this can blow out to 3-4 years. Strike rates for success wont be 100% so it seems that these wells won't be hugely profitable.

Contrast this with Fause Point where they were targeting flow rates of about 300-500BOPD with well costs of approx $1.5M - even at the lower end of the flow they would pay off the well within 6 months. Obviously things didnt go as planned and they are yet to see what will happen.

An even greater contrast is AOK who have 480BOPD from their Clarke#1 well and drill costs of $300K (maybe $500K once they get their water disposal well sorted). Interestingly they will be drilling Clarke # 2, 3, and 4 at monthly intervals. I'll let you do the maths.

I guess what I'm saying is that the headline flowrates can't be taken in isolation and claiming a well is commercial does not mean the field will be.


As to the first question, assuming all 3 wells flow at 5000 mcfg/day, EBITDA will be approx 10M/yr. At a 6X EBITDA, the EV should be approx 60M.

This looks like a 2 bagger if all goes well and will end in tears if it goes pear shaped.

Sorry for the negativity but I call it as I see it. Best of luck.

Dis:
-No sentiment because it depends of your risk reward comfort zone.
- Hold AOK and a small amount of VIL (I used them as examples because I'm familiar with them).