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Let me see if I can atone for my obvious sins and play my own devil's advocate and help you get a start on figuring out how to value DF-144. Let's assume the following: 1) DF-144 has an octane of 227 as stated in Arcon's press release and it is the (R+M)/2 variety that is posted at the gasoline pump, 2) The other characteristics of DF-144 that will also affect its value (oxygen content, sulfur content, aromatics content, benzene content, olefins content, boiling point distribution and Reid Vapor Pressure) balance out to have neither a net positive or negative effect on its value (this could be conservative if MTBE and other ethers are banned and DF-144 is the only game in town), 3) DF-144's octane blends linearly with regular unleaded gasoline. OK, what is a gasoline blender/marketer going to be willing to pay for DF-144? Let's try an admittedly crude approach and simple math to get a ballpark estimate. You are selling regular unleaded gasoline with an octane of 87 for $1.00 per gallon. You also sell premium unleaded having an octane of 93 for $1.20 per gallon. You decide to add a little DF-144 to your regular to raise its octane from 87 to 93. How much do you need to add? Lets let a = the wt fraction of DF-144 and b = the wt fraction of regular. Then a + b = 1 and a * 227 + b * 87 = 93. Solving these two equations simultaneously gives you a value of .042857 for a and .957143 for b. So, you only need to add a little over 4% DF-144 and you can sell your regular as premium for 20 cents more. Now, how much can you afford to pay Arcon and still break even on this deal. Lets let X = the price per gallon of DF-144. Then, 0.957143 * $1.00 + .042857 * X = $1.20. Solving for X gives $5.67 per gallon as the break even point. Now, suppose Arcon can make DF-144 for $0.88 per gallon as stated in an earlier post. They decide to give you a break and only charge you $4.88 per gallon. You are happy and Arcon makes $4.00 per gallon. $4 times 100,000 gallons per day (Arcon's 1st small plant) times 365 days per year works out to 146 million bucks per year, PROFIT. That, ladies and gentlemen, is what I call AWESOME! So, are the assumptions I used here reasonable? Convince me they are and I think you can count me in as a new shareholder! I welcome your thoughts. |
