MGM Energy Corp MGMCF

Oil Well - what is it worth to MGM

[OilEng]

Hi Folks

It will be a happy day for us long suffering shareholders IF they make the big strike.   Here an estimate of value.

The well being drilled south of Norman Wells is a high risk exploration prospect with a 1 in 8 chance of success.  The company expects the wells to have a 90% chance of finding more than 10 million barrels recoverable and a 10% chance of finding more than 350 million barrels IF it is a discovery.   Between these two ranges is the mean  (50% chance) of finding more than 90 million barrels.

Here are some assumptions
        1. A good rule of thumb for a high quality reservior is it can produce 10% of its reserves in one year.  
        2. Recent assets sales are valued at $100,000 per flowing barrel
        3. MGM has a 50% working interest
        4. Development capital is $100 million for four wells, gathering system, treater and pump station.
        5. Value the company at a 6 times cash flow multiple.
        6. Net back = $50/bbl  after royalities, operating cost and pipeline tolls
        7. Shares outstanding are about 320 million fully diluted

        Propability of a Dry hole                                            88%
        Chance of discovery                                                  12%

            If they make a discovery here are some rough values
        90%  chance >10 million barrels discovery        
.50/share        
        50%                 >90 million                                           $4                          
        10%                 >350                                                      $15          

The next month is going to be exciting.

Cheers