Hello all,I posted this on the possible value added by the...

Hello all,

I posted this on the possible value added by the upcoming drilling programme.

1. Drill 8 out of 10 wells.
2. 1 Duster.
3. P50 reserves = 7 x 352,000 = 2.5 MM bbls.
4. Recovery factor of 30% ?? = 750,000 bbls
5. Value of oil in ground = $40/bbl ? Therefore value of exploration programme = $30 MM.
6. Roughly 900 MM shares so value per share = 3.33 cents

I was roundly disagreed with which is fine, I know how to drill wells not value companies which is why i'm asking for advice.

Just so I am clear could a poster more experienced in valuations than I explain something please?

In my model above I have taken the value of oil to be approx $70/bbl and then subtracted a guesstimate of $30 production cost to get it out the ground to market. Hence an in ground value of $40 for recoverable reserves. I have applied a recovery factor of 30% so in fact I am valuing the total reserve at:

30% x $40 = $12/bbl in the ground.

Is this what other posters were alluding to? Or were they suggesting that a recovery factor should be applied to the reserves (say 30%) then the recoverable reserves are only worth $5 - $15 bbl in ground?

thanks in advance for clarification.

cheers,

Oilman.