<<<An independent geological evaluation of the property estimates 50-100 billion cubic feet of natural gas--- valued at $30-80
million--- could be produced from the property. Spacing allowances would permit the joint venture to drill eight or more new wells.>>>>
Let me just say this, also, N. The numbers reflect a wide variance and a relatively small amount of reserve of the kind normally pursued in the area by two to three individual investors. IF someone were to extract all the gas, which is highly, highly unlikely it could take as long as 30 years production.
<<<<The terms of the joint venture call for M3 to sell the property to CO&G in return for an undisclosed amount of Coconino common
stock (Restricted under SEC Rule 144). M3 will also receive an overriding royalty interest and carried working interest in the first
well to be drilled on the prospect. Thereafter, M3 will pay a pro rata share of costs for any additional well sites that may be drilled
on the property. The joint venture agreement is planned to be finalized by January 1, 1998.>>>>>>>
It appears that M3 will get royalty from the first well, the cost of which will be paid by CSMA alone. In other words, M3 has no risk in the first well, but, does share in the reward, if any. There after, M3 will pay a pro rata share of costs (pro rata of what?) and still share the reward, if any. Looks like M3 leveraged their position very well while minimizing their own exposure to risk of loss. They will not incur drilling costs until a first well is productive, at which time it will generate funds for them to invest in future wells. Wonder if they will have to invest in future wells, if the first well is not productive? They may have the option of choosing not to invest in the cost of future wells. This whole gas well business is designed to reap rewards at someone else's risk and in this case the risk is with the investors in CSMA. |
