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The percentages you mention are before and after payout, i.e. once all capital expenditures from lease acquisition and drilling/completion costs have been recovered. A pipeline of about 3-4 miles is anticipated as well; up to 50% of the cost may now be borne by other parties due to their activity in the area. Time to payout is determined by production rates and prices. I don't know if anyone has computed this precisely, since it's a speculative exercise at best, but we have a good idea of the possible cash flow at different levels of production over a wide range of prices. Assuming $2.50/MCF (current price for Dec. '97 delivery), and 20 MMCF/day for the field, a 2.5% net interest would have an annual cash flow of $260,000. Multiply by six for MWR and we get $1.56 million annually, or about $0.15 per share. These figures are considered the low end expectations for production as wells in the area are known to produce at rates up 20 MMCF/day. Up to four wells in the field are considered likely if successful. Thus, the high end estimates are $0.60 - $1.20 per share considering gas prices of $2.50 - $5 per MCF. CWQ, as operator, would have 40.5% after payout, so one can use a multiple of 16.2 times the figures given for a 2.5% interest. That would be $0.21/share on the low end and $0.84 - $1.68 per share on the high end. As for the chances of success, we've heard a range of 50% - 90% depending on who you're talking to. Most people seem to have settled in the 70%-80% range. It has certainly improved of late with an Amerada discovery within 1 1/2 miles of our claims. The key distinction between Bacon Island and the methane deal is, we don't need any majors to make production, but they've wanted our claims from the start. To be fair, since we're only talking 1000 acres, our upside might not be quite as large, but it's very healthy considering the low dry-hole cost and ease of well completion. It should be a stepping stone for similar situations throughout the west. |
