Here's the red flag in bhg's post:
They see a company with 2 billion dollars in saleable assets, with only 35mm shares outstanding. That gives a per share value of over US$57.
That's hype.
Now, let's look at the company's own optimistic (some would say overly optimistic) projections:
If successful, and I think that we will be, these wells will have a tremendous impact on the income to Westfort. While we do not expect to produce the wells at 2000 barrels per day, because we do not want to damage the formation, I believe that they will be produced at around 1000 barrels per day with over 1,000,000 cubic feet of gas per day. The income stream, even at today's prices will be in the neighborhood of $300,000 U.S. per month for each well, and we have the possibility of fourteen such wells on the drawing board.
Income stream is not the same thing as bottom line, net income which results in earnings per share. Net income is after financing costs, administration costs, losses in other aspects of operations (like exploration), and taxes. But let's pretend that none of those will affect WT's bottom line.
We have one well being drilled. US$300,000 profit/month is US$3.6 million over a year. That's about US$0.10/sh. (Irving Oil, step aside.)
And remember, this is an optimistic projection.
Now let's consider a real world where there are exploration costs to replace depletion, administration costs, financing costs, and yes, even taxes. And a world where (or so I've heard) reality sometimes falls short of a company's best projections. The result, lots of firms have operating profits but net losses. Any reason to think that WT won't be one of these?
On their first well, maybe they'll make net 0.01/sh, maybe they'll lose net 0.01/sh, or maybe the hole will be dry and there'll be no first well, who knows?
Before they can show what they can do with one well, isn't it a little premature to suggest that we have a US$2 billion company here? And here all along I thought it was only a speculative penny stock. Silly me.
Mike |
