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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Ed Ajootian who wrote (76607)	12/23/2006 9:21:22 AM
From: Ed Ajootian	Read Replies (1) \| Respond to of 206212

BPZ Energy (BPZI) -- Finally had a chance to circle back to the Morgan Keegan report and reconcile the latest drilling news with that. The logs in this well about to be tested, the CX11-21XD, indicate 900 feet of potential pay. This is almost triple the amount of pay found in the well that found the highest amount of pay in this field that had been drilled prior to this well. That well was the CX13-17X well, drilled in 1983 by Belco, which found 331 ft. of gas pay. That well was never production tested because Belco was looking for oil, not gas. The only well in the field that got production tested, the CX11-16X well, showed 269 ft. of potential pay on the logs, and based on the production test the petroleum engineers ("PE's") credited it with 85 ft. of producible pay, which was the extent of pay that actually was subject to the drill stem tests. This 85 ft. of pay in this well translated into 108 BCF of proved reserves, per the PE's. So, dare we extraplolate and analogize the above data to the 21XD well? Let's do that, if only for illustration's sake (heck, I'm up at my ski house in northern N.E. looking at the raindrops falling, with no inclination to get out on the ski slopes anyway). BPZ says they plan to perforate 300 feet of pay, in four separate tests. Having the benefit of 20 years of technology advances vs. what Belco had when Belco tested the 16X well, BPZ has not used such heavy drilling muds as what Belco used, which likely has better preserved the permeability of the reservoir. Also, BPZ will use more powerful perforation guns, which can do 5 shots per foot, vs. the 2 shots per foot that Belco was able to do in 1982. These facts would suggest that for every given foot of pay being perf'ed, BPZ should be able to get a better flow rate than Belco and thus ultimately be able to book more reserves than Belco, per foot of pay perf'd. But let's be conservative and assume that the relationship of successfully perf'd pay to the amount of reserves that can be booked, for Belco's wells drilled > 20 years ago vs. BPZ's well being completed now, is merely linear. Since BPZ is testing about triple the amount of pay that Belco did, this would infer that BPZ is taking a shot at proving up triple the amount of reserves that Belco did, i.e. 300 BCF of gas. So let's say this 21XD well hits the jackpot, all 4 DST's are successful, and it proves up 300 BCF of gas, giving BPZ 400 BCF of proven reserves total. Using $1/mcf for the value of this gas in the ground (see prior posts), this would make the company worth $400 M ignoring all of the massive potential in the company's other areas. Using 54 M shares out, proforma for the latest IFC financing, this generates a stock price of $7.40/share, about double the current quote. Given that the news of BPZ having found 900 ft. of pay has been out for several days now, with relatively little effect on the stock price, one could (& should) ask why this is the case, if the above analysis is even close to being on target. I believe the stock price is being temporarily held down for 3 reasons. First & foremost, cheap stock is hitting the market as a result of the recent S-1 registration statement (see prior posts). Second, the company has yet to get off the pink sheets. This is the kind of stock that would appeal greatly to institutional investors, yet many institutions have policies that prohibit them from investing in stocks that trade on the pink sheets. Many individuals categorically dismiss consideration of stocks that are trading on the pink sheets. Last but not least, many folks were on vacation or in any event not paying close attention to the investing news last week, especially toward the end of the week. I believe much of the overhang from the latest S-1 registration statement has been chewed through already, and I believe the company will announce a listing on the Amex sometime in the first week of January. Thus, within a few short weeks, all of the above impairments to the stock price will no longer be present. This is why I am pounding the table on this stock now more than ever.