OK, here are my views after trying to make sense of IMP's...

OK, here are my views after trying to make sense of IMP's average disclosure and the reality of a well in the Appalachian Basin

1. Yes a well might be able to produce 1000mcf/day but only for a short period of time before production rates drop off dramatically.

The best resource I can give you is http://media.corporate-ir.net/media_files/IROL/10/104617/presentations/August81806.pdfwhich shows that the average production rate for a Devonian Shale Appalachia gas well is 210mcf for the first month, and 70mcf by the 13th month

2. Average reserves per well is c. 300,000mcf according to Chesapeake - this ties into IMP's statement of 374,000 and explains why 1000mcf is only sustainable for the intial open flow ie maybe a couple of days

3. IMP has a current cost of a well at US$250K - Chesapeake (which is also a major driller as well as being the 7th largest gas producer in the US) reckons US$425K. Maybe IMP's wells are shallower - best case for IMP's 75% cost is around US$200,000

4. Just because IMP has a c.60% share of net revenue does not mean they do not have to deduct operating costs from their revenue - it means they get 60% of the net revenue after these costs. This reflects the farm-in deal they have - 75% of the costs for 60% of the NET revenue. Back of the envelop operating costs are US$2mcf

5. IMP needs to fund these wells. They cannot be only debt funded, hence the previous rights issue ie they will need more capital at some point, and already have 1.5 billion shares outstanding

6. If the wells are debt funded, the interest is say 10% of US$200,000 = US$20,000 - this is a big number particularly when the gas flow rates drop off

7. If you assume (US$7mcf price less US$2mcf costs) x 60% = a pre funding profit of US$3/mcf. If you use the average of the first month and 13 month of flow rates per Chesapeake table, 1st year annual production is 140mcf/day or 50,000mcf for the year ie US$150,000 pre funding costs and tax. Following year is only 22,000mcf or US$66,000, next year US$55,000 etc, gradually becoming uneconomic over 40 years

8. After funding costs of say US$20,000 and tax of say 35%, this equals after tax cashflow of around US$85,000 year 1, US$30,000, year 2, US$23,000 year 3 etc - this compares to the upfront drilling cost of US$200,000

Conclusion

I may have got some of these number wrong - done this quite quickly and I have not over-complicated the calcs for depreciation etc, but overall I think this is a pup - at the very least returns are moderate and highly leveraged to the gas price i.e. increasing the gas price assumption makes a big difference.

This is a very mature industry and IMP is nothing special - there are hundreds of companies operating in the area. Clearly they would not be doing so if they did not make a profit, but they are not making super profits - Chesapeake is a US$13 billion company on a PE of 10 - the market is overall efficient.

Good luck to all those that hold and think that I have got this wrong. If I have made an obvious mistake please reply, but in my view the IMP gas play is worth not much, and the BMX holding is worth about 0.5 cents a share after debt and a guess at tax. I don't think IMP is worth anything like the current 2.1 cents, but just by opinion.

Cheers
Monty