stab in the dark

Hey all

D'day is quickly approaching so thought i would have a crack at valuing block 430 based on estimating reserves for a Galp/Petrobras buy out.

Have been playing around heaps with different formulas for the best and most appropriate way of valuing OIP at 430. The approach that i have taken is the one set out by the Oxford Institute for Energy Studies, who take the current oil price and use a 10% discount rate to risk it. There seems to be a ton of different ways to do this but i think this seems the most transparent and was setup by the Oxford Institute for the SEC (Securities and Exchange Commission) to regulate how the energy industry report their valuations back to the market.

I did make a mistake in a previous post and said that these valuations are based on OIP they are actually be based on recoverable resource only.

I know it seems a little strange giving all companies the same discount rate on their reserves (you would think the woodside would get a far better rate than ERH but we are not rating the the companies but rather the resource)but this is the approach that ensures transparency is maintained. Once you have rated the resource you can then rate the company at any discount you see fit. Hope that explains this process clearly. If not let me know and i will either get you a copy of the worksheet by the Oxford Institute or attempt to explain it again.

OK
Using an average oil price of $75.00 a barrel and a discount rate of 10% and because our project has a life spanned much longer than 10 years it makes it pretty easy to get fair value on the oil at $7.50. Dont think i need to explain how i got $7.50 as most should understand 10% discount based on 10 years?? If not let me know and i will go into it a bit more.

So working on the assumption that each barrel has a value of $7.50 in the ground we need to get an estimate of how much oil there is at 430.

We have 3 points of reference to work from Tatu1 and Tatu2 and a mud map of the reserve size released in June 2008. Not the best tools for estimating a reserve but will hopefully ball park the figure and we can call this our HC P50 lol.

Working out the area i have used the mud map



All the Sergipe-Alagoas Basin are 30 squared Km and using that as my ref point i have used an estimation for the mapped out area 5km by 2km.
I will break this back down into meters as it is easier to convert into barrels later on

So thats
2000 x 5000 = 10,000,000.00 squared meters of surface area.

I am going to take a little short cut so this post doesn't drag on forever

Below are mud logs from both Tatu1 & 2

The first is Tatu2 as i find it easier to work back down dip rather than up dip.




Now looking at and using the oil shows on the mud logs we can ascertain that on Tatu2 we got 154m of oil shows and on Tatu1 we got 143m of oil shows. This is about 10% decline in the down-dip oil shows. I have estimated that the 2 drill sites are 0.5km part to make this a little easier. So now we have something that looks like this.





I get an area of the triangle



........-5929 ........-5929

LOL after all that H=4999.40706484279
Sorry about the Geometry lesson but makes it easier if anyone wishes to check my numbers. Ok so now we have this


=1/2...(154)(4999.41)
=1/2 x 29,641,501.89
So the area of the triangle = 14,820,750.95

Haha finally got there
Ok we now have to times the 14,820,750.95 by 2000 to cover the reserve area so the squared meters is this
= 29,641,501,890 sq meters
Becuase i short cut this i wont brake it into sections but instead use an average porosity of 7% over the whole area. For those that are interested in how to break into areas check out
http://wwwaussieoilersciggys.blogspot.com/2009/04/sleeping-giant.html

Right
Now we have the area can bring this post to and end
To estimate the OIP and recoverable its
29,641,501,890 sq meters X 6.289808
(A 1 cubic meter container would hold 6.289808 barrels of oil)
= 186,439,355,719.74

and i am going to go with and average oil saturation of .10%
I am using an average porosity of .04%
and a recovery rate of 10%
My sum looks like this
186,439,355,719.74 X .10 = 18,643,935,571.97
18,643,935,571.97 X 0.04 = 745,757,422.88
745,757,422.88 X .10 = 74,575,742.29 recoverable barrels

74,575,742.29 X $7.50 = $559,318,067.16
ERH has 40% so that =
$223,727,226.86

Not sure how we will be effected by tax but will have a look at that if we get close to anything even looking like this as i am sure most will.

Anyway guys best of luck with it in the next couple of weeks as 430 end results will come to light.


Cheers


Ciggys