Iron Brdg Res Inc. OEXFF

A Rough Guess at Unrisked Elmworth Development Value

[ditchdigger251]

Here's the 3rd part of my spreadsheet analysis of what a rough guess at UNRISKED development value might be.  I looked at 3 scenarios at $60, $80 & $90 Cdn Oil and $2 Gas as well as using the performance & PV10 values from the two type wells talked about in my Part 2 post (namely IBR's P50 "Type Well" and my own modified "80 Stage Hz" type well using adjusted Initial Rates and Oil/NGL yields gleened from IBR's May 17th press release.  As with the prevous 2 parts please note that this is work is based on much more assumption than real world data and although I'm striving to give as realistic glimpse at what I see IBR's corporate value becoming - this work can also be wrong so please take everything with the slightest grain of salt.

For the development scenario I assumed an average of 11 wells per year drilled after 2018 (where 4 wells with the new design have been drilled) for a further 20 year development period (not very aggressive - I know).  Some years were higher than 11 and some were lower but the idea was to keep the average gas rate at a stabilized plateau - which occurs incidentally in the year 2022 (about 5 years from now).

Here's a review of the yields and type well reserves used for this exercise:

	Reserves / Yields
	Type Well	80 Stage Hz
Oil	300	381	mbbls
Gas	5.8	4.45	bcf (sales)
NGL's	147	125	mbbls
Ngl yield	25.3	28.0	bbl/mmcf
Gas Shrink%	0.0%	0.0%
Total MBOE (Calc.)	1413.4	1247.8
% Oil & NGL's	31.6%	40.6%
% Oil	21.2%	30.6%
% C5+	4.2%	4.0%
%C3	2.6%	2.5%
%C4	3.6%	3.5%

The two type curves (IBR's P50 "Type Well" and the modified "80 Stage Hz" were then used with the following Hz drilling schedule to achieve a stabilized gas rate by Year 5:

Year	# of Hz's Drilled
1 (2018)	4
2	9
3	13
4	15
5	15
6	12
7	10
8	10
9	9
10	10
11	10
12	10
13	10
14	11
15	11
16	10
17	11
18	10
19	11
20	10
21	10
Total Wells	221
Avg # of Hz's/Yr
After Yr 1	10.9

Using the type curve performance trends (see my 2nd post) with the above drilling schedule the following Total Average Annual Production Rates for Elmworth was created:

	Oil Rate Bbls/D		Gas Rate MMCFD		NGL Rate Bbls/D		Total Rate MBOED
	Type Well	80 Stg Hz	Type Well	80 Stg Hz	Type Well	80 Stg Hz	Type Well	80 Stg Hz
Year
1	999	1,655	21.5	19.3	544	541	5.1	5.4
2	2,721	4,508	58.6	52.6	1,482	1,474	14.0	14.8
3	4,684	7,760	100.8	90.6	2,551	2,538	24.0	25.4
4	6,415	10,627	138.1	124.0	3,494	3,475	32.9	34.8
5	7,620	12,623	164.1	147.3	4,151	4,128	39.1	41.3
6	7,819	12,952	168.3	151.2	4,259	4,236	40.1	42.4
7	7,710	12,772	166.0	149.1	4,200	4,177	39.6	41.8
8	7,781	12,890	167.5	150.4	4,238	4,215	39.9	42.2
9	7,587	12,568	163.3	146.7	4,133	4,110	38.9	41.1
10	7,752	12,841	166.9	149.9	4,222	4,200	39.8	42.0
11	7,744	12,828	166.7	149.7	4,218	4,195	39.7	42.0
12	7,669	12,705	165.1	148.3	4,177	4,155	39.4	41.6
13	7,559	12,522	162.7	146.1	4,117	4,095	38.8	41.0
14	7,699	12,754	165.8	148.8	4,194	4,171	39.5	41.7
15	7,739	12,819	166.6	149.6	4,215	4,192	39.7	41.9
16	7,560	12,524	162.8	146.2	4,118	4,096	38.8	41.0
17	7,771	12,873	167.3	150.2	4,233	4,210	39.9	42.1
18	7,611	12,608	163.9	147.1	4,146	4,123	39.1	41.3
19	7,822	12,958	168.4	151.2	4,261	4,238	40.2	42.4
20	7,649	12,671	164.7	147.9	4,166	4,144	39.3	41.5
21	7,591	12,575	163.4	146.8	4,135	4,112	39.0	41.1
						Avg MBOED Yr 5 Onwards	39.5	41.7

 To estimate Total Project NPV value I used the NPV10 values from my previous 2nd post for the two different type wells with pricing scenarios for oil of $60, $80 & $90/bbl with gas flat at $2.  Those NPV10 values were then multiplied by the number of drills for each year and then re-discounted for a Project Total NPV10 value for each scenario.  Since Excel does not automatically provide a "mid-point" NPV10 value that industry people like to see I needed to average start & end period NPV10 values to get the mid point values.  I then made a wild guess that another $100 million in capex will be needed to expand facilities to accomodate 40,000 boed of production that was subtracted from the Total Project NPV's and divided that number by the number of IBR shares outstanding to get a range of share values.  Finally I estimated was the corporate value would be in terms of $/boed's using those share prices and averaged stabilized production.  That Table is as follows:

EST. ELMWORTH DEVELOPMENT VALUE  ($/Share) BASED ON ~11 WELLS/YR (UNRISKED)
		$60 Cdn Oil $2 Gas		$80 Cdn Oil $2 Gas		$90 Cdn Oil $2 Gas
		Type Well	80 Stage Hz	Type Well	80 Stage Hz	Type Well	80 Stage Hz
	NPV10 Avg Single Hz ($M)	$6,351	$9,473	$10,925	$15,270	$13,212	$18,169
	NPV10 Total Hz's ($MM) - start yr	$575	$858	$989	$1,383	$1,196	$1,645
	NPV10 Total Hz's ($MM) - end yr	$633	$944	$1,088	$1,521	$1,316	$1,810
	NPV10 Total Hz's - mid point	$604	$901	$1,039	$1,452	$1,256	$1,727
	Est. Facility Expan Cost ($MM)	$100	$100	$100	$100	$100	$100
	Est. Net Value/Share	$3.25	$5.17	$6.06	$8.72	$7.46	$10.50
	Stabilzed MBOED's (Yr 5 onward)	39.5	41.7	39.5	41.7	39.5	41.7
	Company Value per Stablized BOED	$12,768	$19,215	$23,790	$32,442	$29,301	$39,055

Keep in mind that the above values are UNRISKED which means that the actual realized value for the above scenarios would likely be lower.  However light oil is currently at ~$86 Cdn ($66.50 WTI) even after a couple of days of Saudi/Russia tree shaking so focusing on the two $80 Oil scenarios (Avg Price of $7.39/sh) could be viewed, In my opinion, as a possibly conservative scenario especially when some big Banks believe that oil will spike to $100 US next year regardless of what OPEC does.

My whole point of posting this spreadsheet analysis is to show a clearly reasoned perspective of IBR value from a somewhat knowledgeable outsider and demonstrate that there is a ton of future value to be realized by shareholders.  This is a similar work-up to what competitors and potential bidders will do to determine their level of interest.  I believe that the current $0.90 to $1.00 target prices aren't even close to the actual present value of IBR - especially when taking into account how the street is valuing other Montney operators multiples of time higher.  Please feel free to challenge or point out flaws.  It's always a good thing to generate discussion and bring in different perspectives to give balance.  I think it will be a very interesting 2nd quarter and good results from the two new Hz's will reduce risk further which will do wonders for the share price!