Block 430 whats she worth as D,day approachers

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 onSo 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.

To 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 this is

= 29,641,501,890 sq meters

Becuase i short cut this i wont brake it into sections but instead use an average porosity of 4% 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 4%

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

Im Back

Hey guys



Been a long time between drinks and time to get ALL OIL up and going again as there are heaps of things i am keen to be discussing and kicking around for debate.

Like to welcome the new comers and hope that you pick up some good stuff from this blog and feel free to add comments or ask questions as they arise.
One quick thing i would like to draw to everyone attention to is Orion Petroleum Limited OIP . This little company has a few blocks in NSW and a current market cap of $9.3million but the thing that sparked my interest is they currently have $11,000,000.00 in the bank so their market cap is well below their cash backing, some weekend research could be very rewarding here.



We are also about to see a little US company float on the ASX Maverick Drilling & Exploration Limited. These guys look great and will be listing with the code MAD. Have been following them for a spell now and they are currently in a full field development plan of 400 wells on their Blue Ridge oil field and with completion of this field it will be producing around 10,000bopd. The kicker here is their very low cost drilling at only $200,000 to complete a well and they are aiming at getting in 6 wells in a month with a flow rate of 25bopd using 2 drill rigs.



I ran the DCF over them and tested their business plan many different ways and 2 warning came up which are as follow


•2 warnings came up in the IRR an DCF
•If drilling costs blow out to $400,000 per well
•If oil falls below $60.00 a barrel
•1a. Due to the set up of the company and there low cost operation it seems a good investment but with a blow out in drilling costs to $400,00.00 puts considerable pressure on the operation. This would be 100% increase on their current budgeted costs but still only $200.000.00 above those figures. The $300,000 seems to indicate a break even in the IRR with some small dilution in the market cap also indicated at this cost rate per well. Investors are advised to check and cross reference quarterly development expenditure with wells drilled for that quarter to ensure costs are being maintained at the budgeted amount. 2a. If the oil price falls below the $60 mark again this puts pressure on the operation. $60 is not an indicator to sell. What needs to be established is the long term trend. If this trend indicates less than $60 a barrel then revaluation is advised



I have also been working hard on the technicals of how to valuate oil fields to get a price book value which i will share over the coming weeks as i strongly believe that Eromanga's block 430 will be taken out by Galp once UBX complete Manga. Just cant see them going into a splitting of production agreement with us.

There is a ton of chatter going on in the world about the big oil spill off the US gulf coast so we will be taking a very close look at this to see how this could impact our on shore companies which we mainly follow on ALL OIL.

Anyways hope everyone is safe and well and families are good

See you all soon

Cheers

Ciggys