Gherkin,
I would have to agree with you regarding the SP at 45c not making sense in the short term. However, they (PYM) were being valued at 6c per share while producing 150 bpd, so the question could be asked why not 45c if they are producing 1200 bpd (they would need a flow rate of over 3000bpd from DesHotels for this to happen, I think they are hoping for somewhere over the 2500 mark)?
Much depends on the rate of production decline. In the medium to longer term, if they have hit a few good fracture systems at DesHotels, then the rate of decline in flow rate may be substantially slower than the average rate of decline for Chalk wells. If they manage 1000bpd for 12months from all their projects, then that is some serious revenue over $20 million. They might get this from DesHotels alone. Then get another couple of wells in and next year they could be heading towards $40million or more in revenue per year and then 45c will seem cheap!
What I don't understand is why people think that this is a shale gas/oil play? Its deep Austin Chalk, and the horizontals are not being fracked, instead they aim to drill through exisiting fracture systems. If they hit a few big fracture systems with their horizontal they will have flow rates of somewhere between 1000 and 3000 bpd for quite some time.
Anyways, just my 2cents!
Cheers,
turtle
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