If the reservoir to be drilled has a potential of say 10mmbls of oil then it has a value of say $60 per barrel Total value of the asset is $600m. If the farm in company is to spend say $3m to drill the first well then there is a risk factor involved say 10:1 so value of the risk maybe assessed at $30m. That would be a starting point for negotiations .... begining at say 5% of the reservoir.
This is only speculation on my behalf ... I have no knowledge of the actual process .... but this is how I would go about starting the process.
If proving the reserve needed 5 wells .... then the total percentage would be agreed to as part of the negotions but they would all be predicated on the success or failure of the first hole. The percentages of the cake for the subsequent holes would be much less than the first ...... so 5 wells may be drilled for as little as 10% including the first.
I repeat I donot know, I have no knowledge of the process so do not make any decisions on what I have posted.
NWE Price at posting:
3.8¢ Sentiment: Buy Disclosure: Held
