volume 3- possible strategies

Ok, final chapter of what originally was going to be one post.

Possible strategies

Just read the Chesapeake investor presentation released recently, this is possibly a blue print for us.
Over the past few months there have been many questions asked on how many wells RFE will have on line this year, when will we be cash positive, when are the new EOK South wells going to be online, all reasonable questions, but the 1 question I come back to with the current gas prices is do we want to drill wildly and bring wells on line or are we looking to increase our reserve size.

What is RFEs ultimate goal?
Is it to be eventually taken over or is it to be a large gas producer into the future hopefully returning dividends. Most holders believe the company is looking at the first option.

Chesapeake recently stated they are drilling their fluid rich sites and basically drilling there gas fields to hold the acreage by production and increase reserves.

My opinion and my opinion only, with the current gas price RFEs strategy should be to drill the 1P sites at West Tulsa talked of in the latest West Tulsa announcement and very selectively drill at EOK to hold land by production while having the greatest effect on our reserve size.
Some time ago I remember Waterfrontage talking of West Tulsa being our cream, not the main target, well in the current climate, i.e. gas prices, imho it is now there as one of our main sources of income to aid in the growth of EOK reserves and more than likely helping us avoid capital raising.

Having looked at releases by Chesapeake and Exxon recently, they are more and more looking for unconventional plays, but in particular low risk assets, their announcements always talk of their proven reserve size.

Well, not only does RFE have a low risk asset it is also low cost and growing in size.

I recall someone mentioning a while back that RFE was no good because we are dealing in BCF not TCF. In a previous post I mentioned the 2P reserve size is what US companies are based on.
In Australia recently a number of CSG companies carried out a gas in place study, and low and behold there SP increased on the back of these figures.
This however is not a valid method in the US, the current reserve size we have is 143.14BCF, and if RFE want to be looked at this is the figure we need to work on.
If RFE did a gas in place study, the reserve figure would be substantially higher.

I have seen a recent release to investors from a hedge fund and it quite clearly mentions reserve sizes vs. takeover and expected prices and believe me, all of these figures were well over $1.50 using current reserves, and yet we languish at 44.5c.
I have also seen a list of takeovers that occurred in the US in the last few years, all of these included a Henry Hub spot gas price at the time of sale, the other main item on this list was the reserve size taken over.
You can probably guess but on similar ratios, RFE is worth massively more than 44.5c. Using the NPV of our 2P reserves RFE has a value of $1.14 per share, not taking into consideration infrastructure in place or cash on hand.

If we are to grow our reserves and if we are eventually going to be the target of a takeover, reserve sizes is the key.
Once again imho only, while gas prices are low, we should not bring numerous new wells on line at EOK, just work on increasing that all important reserve figure, gas prices will rise in the future, we then have a very attractive asset that I hope management will get the best possible price for.

Opinions welcome.