RE: RE: RE: RE: RE: RE: news release..... Hi brodiev:
I evaluate the value of these jr E&Ps by looking at a combination of current production as based on current wells drilled. For current production, I assign a value of $xxx per flowing barrel.
For the remaining net undrilled lands, I assign a probability of finding resource, based on proximity of already successful wells. Important to this is the assumption of how many wells/section you think the company will drill. 4 wells/section is typical. Quarters near the successful wells get assigned a higher percentage of hitting than wells that are farther away (wildcat). Once the number of net percentage adjusted wells is determined, this is multiplied by the expected NPV(10). Doing it this way ignores who is farming with who. In general if someone farms out 50%, they only have to pay half the cost to drill the well. I find that focusing on farming percentages just clutters the model. It also ignores the eventual depletion of a play such as what you mention. I ignore this.
Trioil is into two plays, so in order to evaluate, I apply this thinking across both to come up with what is in my view the current value of the company.
Now with this said, one has to look at the balance sheet. Is it viable for planned capital program? As long as the debt/cashflow is not over about 1.25, then I don't worry about the viability of the company.
I see a great post by JohnnyFocker today over on the IV PEAK board today. Here is the link. It explains how companies lay out their drilling patterns. If the link doesn't work, just look it up.
https://www.investorvillage.com/groups.asp?mb=13681&mn=23339&pt=msg&mid=12460291
Cheers.