N5, Ricky has nailed a good approach for the structure any jv may take on.
Lets be conservative and call the flow rate 500bopd from each horizontal well. Assuming revenue of $80 per barrel after extraction and distribution costs thats a revenue flow of $14.6M per annum in the first year. (dropping off thereafter).
Each well is forecast to cost $7.5M so an individual well could pay for itself in a little over 6 months.
If we assume a joint venture is struck then its likely the deal would require the new party to fully fund say the initial 3 wells(could be more, depends on the % given up) as payment for their percentage within a set time frame. With 3 wells up and running Neon would not need to draw on its own funds for future wells. (estimated to be 15 wells for the conventional reservoir). The exception would be if the jv decided to fast track development so that all 15 wells were completed in a relatively short time frame...say 12-18 months. I see this as a less likely scenario.
Bear in mind that PD-2 itself could be put on production as a vertical well at around 100bopd. They may even run a horizontal lateral off the exiting PD-1 and PD-2 wells. Who knows at this stage.
The unconventional reservoir is thought to need 12 wells at $10M each. The strategy right now is to develop the unconventional after the conventional is complete. This project ought to be easily self funding if that occurs.
NEN Price at posting:
24.0¢ Sentiment: LT Buy Disclosure: Held
