RelaxFor those whining about the deal today and even considering calling the company to complain, you should consider the fact that today's financing news secured the following things for you:
1. Buy-out of the 8% royalty on Durango. That alone is worth about $50 million. BUK bought it for $4 million plus a few shares.
2. North Piper is fully funded and there's cash on hand for overruns. That saves the bacon for you spec run hopes for the flippers in this play.
3. Extra cash covers the cost overruns at Durango... did you really think that extra month of drilling came for free?
Given the tough markets out there, the huge interest in this equity deal is a positive in my view. Clearly the stock is in high demand and people see significant upside of they wouldn't be buying the snot out of it.
Remember, cash flow is king for juniors. And how long is the list of Canadian companies that will have cash flow in the North Sea before 2010? Oh yeah, two... OIL and BUK.
Let's revisit the math:
Gas in the UK is currently trading at about $20/mcf and oil is $140... BUK plans to hedge their gas and condensate production.
Let's assume $16/mcf hedge on the gas and $100/bbl on the condensate. At 30 mmcf/d and 1,000 bcpd (minus $1.70/mcf op costs) that equates to about $200 million PER YEAR in cash flow.
So BUK will be cash flowing $1.00 per fully diluted share as of October of this year. Most North Sea producers trade between 3-4x forward cash flow, so let's assume BUK only trades at 2-2.5x cash flow... that's still $2.00-$2.50 for Duango alone.
BUK will spend all of that sweet cash flow on drilling. 4 wells are planned for 2009, one of which is another re-drill of a past discovery.
Now BUK has plenty of cash and debt capacity to get them to production after which point the company will be totally self sufficient. 4 wells planned for next year, all fully funded from internal cash flow, with ~$60-80mm of "extra" cash to spend on farm-ins or tuck-in acquisitions.
Be glad that BUK is well liked and give you heads a shake.
BUK just got stronger and is at the end of the share dilution phase of its life cycle.
Be happy. North Piper spuds in a little over 3 weeks.