Bridge Resources Corp V.BUK

BUK Valuation...

[Tinmann]

Here's a post that I'd put together 2-3 weeks ago on my view of BUK's value. I kept it off this board, as I don't like to give things with this much detail away for free, but given that some on this board have a vested interest in having as much info as they can, I'll include it here for anyone who wants to have a fairly detailed breakdown of BUK's value.

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There's a Blackmont report from July but it doesn't have any price deck info in it, nor does it provide a production profile. That makes it hard to critically evaluate their numbers, so I did it myself.

I'll give you the basics that I use and give you a run-down on the NPV as I see it.

First off... production profile:

2008: 7.5 mmcf/d + 250 bcpd average (that's Q4 at 30 mmcf/d and 1,000 bcpd)
2009 30 mmcf/d + 1,000 bcpd (no decline)
2010 30 mmcf/d + 1,000 bcpd (still no decline)
2011 24 mmcf/d + 800 bcpd (decline starts to set in)
2012 5 mmcf/d + 160 bcpd (field is done by the end of this year)

The well has been designed to perform as above. The horizontal section is completed with a 7" liner, meaning that the well will be hugely restricted during early life. As reservoir pressure drops, the wellhead will be opened more and more, keeping flow constant. By the end of the field life, the well will be wide open. The reserves associated with the above production profile are about 36 Bcf and 1 mmbbls of condensate, which is right in line with the P50 resource estimates for Durango, which I think is a vert fair (if not conservative) estimate.

Next... cash flow: (note that op costs + transportation are going to be about $2/boe and that BUK will have at least $120 million in tax shields to begin with... in reality, I don't expect that BUK will ever pay tax on Durango revenue as they'll keep spending on drilling new targets and thus keep racking up tax credits... but for this example, let's take the most conservative view and assume only $120 million in accumulated tax credits once Durango is developed AND let's look at the "zero-tax" NPV.

Price deck I'm using is $12 gas and $100 condensate... this is very conservative given what spot and forward prices look like today and considering that BUK will hedge their future gas production. I'll spare you the math, but the cash flows are as follows.

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A) ZERO TAX CASE CASH FLOWS NET OF OP COSTS:

2008: $41 million
2009: $164 million ($149 million discounted at 10% for one year)
2010: $164 million ($136 million discounted at 10% for two years)
2011: $131 million ($98 million discounted at 10% for three years)
2012: $27 million ($18 million discounted at 10% for four years)
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TOTAL: $527 million undiscounted (or $442 million NPV10)

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B) ONLY $120mm TAX CREDIT CASE CASH FLOWS NET OF OP COSTS:

2008: $41 million
2009: $122 million (first $79 million of zero tax case is tax free, $85 millon balance is taxed at 50%)
2010: $82 million
2011: $66 million
2012: $14 million
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TOTAL: $325 million undiscounted (or $279 million NPV10, same method as above)


Also, I'm going to ignore the $70mm debt that BUK will have... the company has about 65 million warrants outstanding, the proceeds of which fully cancel the debt on a fully diluted basis.

Sooooo, long story short...

F/D sharecount is about 200 million shares:

ZERO TAX NPV undiscounted =======> $527 million or $2.63/share
ZERO TAX NPV discounted at 10% ===> $442 million or $2.21/share

TAXABLE NPV undiscounted ========> $325 million or $1.62/share
TAXABLE NPV discounted at 10% ====> $279 million or $1.40/share

Long answer to a short question, but this is how it looks. Note that this assigns no value to any of Bridge's other blocks, two of which have existing gas discoveries (Wherry and Hewett) and the balance of which have some great looking targets, both oil and gas. I would argue that these additional blocks are very conservatively worth another $30-40 million, or 15-20 cents per share (remember that Venture PLC bought WHAM Energy last year for $30 million for pure exploration blocks).

Personally, because BUK will always be re-investing their cash, I think the zero tax NPV10 of $442 million is the"right" number to use... hence my bullishness on the story.

A second way to look at it would be to say that BUK is going to spend $527 million over the next 4 years on drilling and development, so how many reserves could they expect to rack up during that time? Well, to date BUK is spending $120 million to find and develop about 7 million boe, so their F&D costs are about $20/boe... personally, I think they can do better than $20/boe going forward, but let's go with that.

$527 million worth of drilling should see BUK with 26 million boe in reserves found and developed from Durango cash flow. Given the high netback of the boe's that BUK finds (low op costs and close to infrastructure), I'd argue that those developed boe's would be worth $25-30/boe at a minimum.

Which tells me that from Durango alone, BUK could have accumulated somewhere between $650-780 million in value over the life of the field with no further dilution. That would get me a NAV of $3.25-3.90 at the end of the period... which is EXACTLY why BUK is a long term hold for me, with or without North Piper.

[Resilience]

[Chattyc]

Tinmann, your post was beyond excellent!Thanks..Come October when the gas-flow, and cash-flow starts flowing, losvegas will wonder what's going on. Certainly by Christmas BUK will be BUK-ing once again in the North Sea full of money!

[losvegas]

Yes, excellent post Tinman. But I wouldn't expect anything less from a member of a pro pump-and-dump team. I know one of your members that was definitely dumping while you all were pumping, so don't give me that crap that you haven't sold any. Heard that one before, many times.

[Tinmann]

Ah losvegas... always the skeptic. I wasn't aware that I had a "team" of any sort. There are people that I know on here from years of investing, but that's about it. If you have constructive comments on the valuation that I laid out, then I'm always open to discussion. As for the rest of your comments, think what you like... it would be pretty hard to convince

[2t3m]

Thanks for your insight, time and contribution to this board Tinman. ....for others, Tell us what is your contribution Lost Vegas?GLTA

[Bigbadoil]

Great post Mr TIn...Cash flow coming in October and would expect to see action on southern gas basin lands especialy in close proximity to Durango.Not sure when Aspen prospect to be drilled....will have to read presentation again....I see a very competent management here. This could be another "oil" from a few years from now..European gas prices may hold up better than N. America over

[dbalfour]

Thanks Tman for sharing your opinion, it's much appreciated.Flash