back of envelope projections for value

The only way anyone will get rich from GDN is to trade it and sell before news IMO. The only ones who made a packet last time were the BESBS and the braver ones who got in after the pipe was cleared and got out prior to results.

IMO this isn't likely to go much higher than this unless the result is very positive. The lack of movement beyond about 10c shows how little faith there is in this well. If it is good maybe we could get 20c so limited upside for substantial risk.

I think those that doubt this need to do the sums for themselves:

349 million shares
152 million options
26 million unlisted options

IF this is very successful and SP rises above 20c then assume options exercised, so about 527 million shares total plus whatever else they might issue to fund completion and pipe laying/plant building etc. (Note: This would bring in about another $35m dollars of course).

PB1: Initial flow only 0.5mmcf/d, almost certain to fall to 0.1 to 0.2mmcf/d within a couple of years of production commencing.

Assume gas price of $8mcf (around double current price) to allow for the best possible potential upside average price over the next two years as/if economy improves.

Then value of PB1:
- assuming it actually maintains 0.5mmcf/d (which would be unprecedented in a hydrocarbon well, but we are looking at theoretical BEST POSSIBLE case here).
- annual production 180mmcf, worth $8000* 180 = $1.44m

The fact they set a world record for land-well cost with the last well at $21m this would require 15 years to payback if we didn't take into account inflated directors fees (considering their level of competence) and running cost of plant etc. Now that is in the past and paid for so I will not consider that further.

At this rate even if this had cost the projected $5m payback would be about 4 years.

Now in the real world:
- Gas flow will decline exponentially and about half of total well lifetime production will occur in the first couple of years. Total production is likely to average about 0.3mmcf/d year one and 0.15mmcf/d year two for a total of about 160mmcf over this two years and total around 300-400mmcf over well lifetime.
- A large chunk of total production would occur early in the life of the well at current poor gas prices of about $3.8/mcf (= $3800/mmcf), hence average price is more likely $6/mmcf.
- This would make the total GROSS return from the well about $2m over the well lifetime.

- Now remove royalties of about 12% (US average, not sure what it is in Utah). We now have $1.76m

- now from this we need to reduce this by about 10%pa for each years future production to bring back to NPV, say a reduction by about 10% total (as most gas is produced early in the life of the well NPV reductions are less significant in Oil and Gas than for minerals). Now we have $1.58m

- If we take out the costs of running plant over several years and rental of pipe capacity to take it to the nearest hub where it can be sold then we are probably lucky if there is $1.2m left in value at NPV.


SO, now for PB2:

For a well costing in the vicinity of $5m, based on the above projection, they will need somewhere between a 1.5 and 2.5mmcf/d initial flow rate (given normal natural well decline) just to pay back drilling costs.

Lets assume that the current drilling costs are already fully paid for by current cash holdings. Then assume that this well actually does produce at 2mmcf/d and hence has a NPV of about the $5m to pay for this well.

Then this $5m has corporate tax in the US applied:
- rate 34% for $335K to $10M PA revenue
Tax on $5M = $1.7M
$3.3M left over.

divide by fully diluted 527m shares.

This works out at 0.66 cents per share total value of this well over several years - WOW.

SO:
GDN would need at least 16 more wells producing this amount of gas to just pay back the current SP (IF drilling costs were zero) - but that would take many years so NPV would come into play and that would be more like 20-25 wells.

BUT: as these future wells would need to be payed for either from cashflow or by dilution, the cost of drilling these does need to be taken into account. Hence to be this profitable then they need to produce initial flow of about 4-5 mmcf/d in order to be expected to produce enough income over a lifetime to pay for the well and provide some return.

it is possible options could be converted which would fund about 6 more wells assuming no further problems, but then we have to justify a SP of 20c - gee that would require 40-50 wells producing 4-5mmcf/d initially!


So as I see it, GDN is purely for the traders to hype and make money, and the mugs to get sucked in.