Hi Paul - Good overview of your thought process on your sales. Are you looking at forward PE's to come up with "fair value" figures or rather peeling off shares as PE's approach historical mean values? As the market reaches new highs, I am more apt to peel off shares, book profits w/ the expectation to reenter down the road at lower prices. So far this strategy has not worked out for me that well.
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Here is my first take at arriving at a fair value figure for the LEI JV w/ Marathon Oil announced Friday April 1, 2011. It is based on a back of an envelope first guess based on a very interesting 241 page Eagle Ford report (for the LITTLE TOM FIELD located in ZAVALA COUNTY, TEXAS) prepared for Dyami Energy LLC may 2010.
(Note: The 241 page pricing model is quite interesting and makes a lot of assumptions to arrive at their conclusion (pg. 8-10). eagleford.com )
Lucas Energy strikes Eagle Ford deal with Marathon
bizjournals.com
From the article:"...Marathon Oil has acquired 50 percent of Lucas’ leasehold interest rights in Wilson County, which represents about 1,000 net acres below the base of the Austin Chalk formation. Marathon will manage drilling operations for the joint venture as the operator, but Lucas will still own the rights above the Eagle Ford geologic formation...".
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I assumed that this was a "NET Carry" contract where Marathon incurs all the well development costs for the 1,000 acre field and shares in 50% of the Oil & NG produced over the life of the field.
Based on 130 acre spacing for each well, the proposed development should require aprox 7.6 net new wells.
Eagleford Energy's Matthew Lease - A Case Study
eagleford.com
From the RPS Report:"...According to the RPS Report the reservoir quality of Eagleford Energy’s Matthews Lease is “comparable” to Petrohawk’s Redhawk field located six miles to the northeast. RPS reported the leasehold has an Eagle Ford Shale oil resource potential of 4 million barrels based on reported parameters from EOG (130 acre spacing unit) and Petrohawk (200,000 barrel oil recovery per well)...."
CONCLUSION FROM THE RPS REPORT: "...The 5-acre full development plus pilot is expected to recover 6,843.5 Mbbls oil and generate a US $24,599 M NPV at a 10% discount rate. The BTAX ROR for the expansion plus pilot project is approximately 15%. ..."
Therefore, the expected 5 acre full development return s/b $24.6K/5 acre. For the full 1000 acres then should equal 1000/5 x $24.6K) $4.92 M.
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LEI has 16.6 Million shares outstanding so $4.92M represent about $0.30/share. This model used $80.00/barrel when calculated the NPV.
I continue to hold my shares. If this was indeed a Net Carry JV, the oil field development would be at no cost to LEI. The only future downside would be if MRO kills the project in the middle of it's development.
My biggest concern reading the announcement was where would LEI get their share of the capital to develop the field. If it is not a Net Carry JV then it means a 30%-35% "future" share dilution to raise the $9.5M (50% 0f 7.5 Net Well @ $2.5M/well) to develop the 1,000 acre field.
Maybe MRO will eventual buy out LEI's interests in a tax free stock deal using MRO shares which LEI would then distribute to shareholders.
EKS |
