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Strategies & Market Trends : YEEHAW CANDIDATES -- Ignore unavailable to you. Want to Upgrade?

To: Sergio H who wrote (746)	12/22/2002 10:10:16 PM
From: Ed Ajootian	Read Replies (1) \| Respond to of 23958

Godot, Dan Rice is one of my favorites! I own a small amount of this mutual fund for the sole purpose of getting to see his portolio a coupla times a year! (Are mutual fund portfolios available anywhere on the internet now?). Good luck with OEI. Don't follow them (way too big for me), but it should treat you very well in the current market. On ATP's Helvellyn well, they should get more (maybe significantly more) production than the earlier well, since this one is horizontal vs. the original one was vertical. On a horizontal well, you are trying to drill right through the sweet spot of the gas reservoir, so that more of the well bore goes through the pay zone. Their press release unfortunately did not give us any specifics other than the fact that the well logs confirmed the expected hydrocarbons. So for now let's assume the well just produces at 30 mmcfd, or 15 mmcfd net to ATP. I'm not certain about this but I coulda sworn that I heard at one time that there is no royalty due on the UK production. So let's assume that. Now, the question is, what is the right amount to use for netback, or sale revenues less LOE (lease operating expenses, or sometimes referred to as lifting costs). Not absolutely sure what UK gas prices are but I note that the CIBC analyst used $3.30/mcf for an average price for the year. Then, for LOE he used the same LOE rate that ATP has been incurring for its US production, about $.60/mcfe I believe. But I think he's being too generous on both counts, so let's just use a netback of $2/mcf, shall we? So you take your 15 mmcfe X $2 and you find out that this nice little investment will generate cash at the rate of $30K per day, or about $11 million per year if it didn't decline. But all wells decline from the moment you put them on production, some faster than others. Horizontal ones decline faster than vertical ones, of course. So they will not generate $11 million for the first year, something less. How much less I don't know, but a reasonable guess would be, say, $9 million. Considering their total costs in this project (after farmout) would only be about $7 M, this means the well will payout in far less than a year -- a very good project.