Shrewd crude report...Heres a valuation...Im going to show an...

Shrewd crude report...

Heres a valuation...

Im going to show an example using the present value growing annuity formula...
I will break it down and explain everything, but first,

To value something like NWE's North Perth Basin shales is no easy task... Every shale is different, we have no production data in Australia to go on... The oil business changes regulary... time delays impact on present values immensely... and most importantly we have no idea what Arrowsmith will flow test...
I have no idea how each shale will produce... and reserves are the big unknown...

So,
I have decided to ignore reserves and look at the likely production life of one well...

To answer the question of what one of these wells is worth over its life time, we can write down the future revenue streams and discount them back to a present value... equivalently we can use the growing Annuity formula to get the same answer... as flow rates are going to decline, in the formula we put a negative number...

we will first work out the cashflows and then put the answer into the annuity formula...
firstly,
It was very interesting to read what pottermore said about gas pricing at the EOG..." Well the range quoted by the WA minister, he thought was between $6 to $14 per 1000cubft but other speakers mentioned ranges up to $18 per 1000cubft" pottermore said
these comments just blow everything out of the water...

So for pure sake... I will just assume that we get a low $8 per MCF after production costs...
lets assume Arrowsmith flows at 4MMCF per day...

1TCF= 1000 BCF= 1,000,000 MMCF= 1000,000,000 MCF

if we flow at 4MMCF = 4,000 MCF per day
at a price of $8 after production costs =$32,000
we have 27.945%...
$32000 * .27945 = $8942.4 per day...
8942.4*330= $2,950,992 per year... assuming 330 day production per year

Now for the growing annuity formula as we want to find the cashflows for this project for its life time, (20 year production)...

Present value of a growing Annuity formula is

PV= C (1/r-g) -(1/r-g)*(1+g/1+r)^t

where PV is the present value
C is the revenue stream per year ($2,950,992)
r is the interest rate/discount rate (10%)
g is the growth rate (-8%)...
t is time (20 years)

to assume a discount rate of 10% corresponds to the level of risk, and the fact that investors need to be compensated more for holding a (risky) development stock...percieved to be risky...


so plug the numbers into the equation

PV= $2,950,992((1/.10--.08)-(1/.10--.08)*((1-.08)/(1+.15))^20)

this equals $2,950,992 * 9.963785513 = $29,403,501

Hummm...

so $29,403,501 is the present value of one production well over a wells life term...

9.963785513 is the annuity factor which is multiplied by the period payment of $2,950,992 per year...
to work through the annuity equation you need to solve the brackets first and there is a double negative in the formula because growth rate is negative with declining production...

having a discount rate, and a declining flow rate, makes production after say 10 years discounted very high...
This model is quite simplistic around declining flow rates, but at this moment wont make comment to it...

$30 million per well doesnt seem to bad at all considering we have acerage for many hundreds of wells..

There is considerable upside to $30million, if you drop the discount rate, increase the price...


The next task I guess is to work out how many wells we can fit in?
anyone got any ideas on the stepout distance per producing well...?

So basically... If NWE can produce from two wells, we will have enough to support the current market cap for the indefinate future... I think assuming we dont get taken over... a one billion dollar company is on the cards...


NWE also stated that NWE have hundreds and thousands of acres, and in the USA deals for 15k per acre have been achieved... so, we are talking more than billions on that sort of valuation...

this has got to be the most exciting things we have ever been involved in.... tell your friends to get onboard... this is a shift of global energy...

THE USA IS BACK... and better than ever...
Saudi kings... they are coming to Australia..
weeeeeeeee

if you watch that presentation link I posted,
MAY is when Mainstream USA, mums and dads wake up to shale gas riches... and everyone will want a piece...

what another poster said is so true...
weekends now suck !... lets get NWE open and trading...
huge weeks looming leading into fracc and flow test

current sentiment...
long term buy...

.^sc