confirmation of numbers...

Always nice wehn the company comes out with numbers vindicating my original prognosis...

I cop a lot of cra.p from people over them...but will not let that prevent me from calling it as I see it.

Significant that my suggestions of 50-100bbls/d being possible for the upper percentile producers of the area...with the company suggesting "40-100 barrels per day not uncommon".

My initial numbers suggested a PE value of 10-20c per well, based on $1-2m profits per well after costs.

Lets see what the company have just told us...

Economics of One barrel per day production
Oil Production: One bpd
Days of production: 365 pa
Oil Price: $US 65
Annual Revenue: $US23,725
Landowners Royalty: 12.5%
Net Revenue after royalty: $US20,759
Exchange Rate: .81
Net Revenue after royalty: $AUD $25,628
Payback of drilling costs: 9 months

So...equating this to...

20bbls/day we get annual revenue = AUD$0.513m

50bbls/day we get annual revenue = AUD$1.28m

100bbls/day we get annual revenue = AUD$2.56m

With 94m pieces of paper on issue (fully diluted) we get the following PE values (per well) based on 20, 50 and 100bbls/day respectively...

20bbls per day production
Net revenue = $0.53m (or 0.55cps)
PE of 8 = 4.4c per well
PE of 10 = 5.5 per well
PE of 12 = 6.6c per well


50bbls per day production
Net revenue = $1.28m (or 1.23cps)
PE of 8 = 9.84c per well
PE of 10 = 12.3c per well
PE of 12 = 14.76c per well

100bbls per day production
Net revenue = $2.56m (or 2.72cps)
PE of 8 = 21.76c per well
PE of 10 = 27.20c per well
PE of 12 = 32.64c per well

We can make same basic assumptions from this.

We know they at least two good wells already; Riddle Numbers 5 and 7...and given typical local production parameters, in addition to the companies own assumptions, we can probably safely assume at least 20bbls/d from the two wells already drilled.

Adopting our middle of the road PE valuations, for this base case conservative assumption, we get 5.5c of PE value per well...or a total potential PE rated value of some 11c per share.

Interestingly, the shares were trading at 7.5c priort to the Kentucky hit, with little sign (no in fact) of preliminary buying, so it is probably safe to assume this is the value the market is prepared to apply (for now) to the rest of the company.

So...add the two Kentucky Oil finds (11c) the the previous share price and we get 18.5c per share as a reasonably fair carry forward value!

This of course does not include any premium for the Thomas Number 1 Oil strike, nor the next "Riddle" well, nor the next lot of wells to be drilling on the adjoinint lease, nor the now expanded drilling campaign, nor the general upgrading of all their leases in the region...nor indeed the acquisition of additional nearby leases!

Room to move higher in my view...especially if the next Riddle well comes in as good as the first two.

Still the rest of the company to consider too.

Market hard to read though...they may have expected more...or like me, may see the value still to be had at current prices.

Cheers!