Nope, you’re still wrong. Firstly, there is no US$200 million to...

Nope, you’re still wrong.

Firstly, there is no US$200 million to drill 20 wells. BRK raised US$5 million. You can’t spend 200 if you’ve only got 5. Surely everyone understands this? BRK will have another $US13 million coming in from the options next year which are almost certain to be converted. They also have US$3.8 of high interest debt which I would think they’ll want to get rid of. No one should even begin to be thinking there’s 20 well until the company explains where the money is coming from. I think only 3 will be to prove up the reserves.

Jewell will be 35% for BRK and in a few years it’ll be down to 50 barrels a day (approx let’s keep it simple).

Take a look at the revenue.

50 x 35% = 17.5 net a day for BRK’s share.

17.5 x US$15 barrel net after costs = US$262.50 a day profit or $95 812 a year. It will be more than that because they’ll have revenue from the gas. Obviously the revenue lasts for many many many years. But it’s tiny.

Can everyone see why this business is so marginal? Why hundreds of billions were lost in the industry and why so many companies went broke last year? You need to be constantly drilling these enormously expensive wells to build up any decent long term revenue/profit after payback.

This type of investment is far more suited to the landholders who chip in and then get a monthly check for decades. They then pass it onto the kids when they die. Or suited to wealthy private investors who get a nice monthly income. Also it’s good for private equity income funds. But it’s not suited for publicly listed companies that have shareholders wanting growth and fat profits.

And P/E ratios aren’t suitable to stocks like this. Not at all. BRK isn’t an industrial stock.

David has build himself a nice little company. I don’t believe it’s underpriced or overpriced but rather fully valued and priced for success based on 2000 acres at 40k an acre = $80 million.

It’s a shame Black Mesa couldn’t get to 8000 which was the original target.

PS for some weekend research. Have a look how much SHE paid for their stake in Bullard and then check their quarterly reports to see how little net revenue comes in.