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Gold/Mining/Energy : Canadian Oil & Gas Companies -- Ignore unavailable to you. Want to Upgrade?

To: Richard Saunders who wrote (5249)	7/21/1998 10:31:00 PM
From: Mark Orgren	Read Replies (2) \| Respond to of 24905

Sorry for the breach of thread etiquette. One question though. Why would a guy who buys oil and gas stocks assume that a person selling an oil and gas asset is "flogging?"

To: Richard Saunders who wrote (5249)	7/21/1998 11:05:00 PM
From: Mark Orgren	Read Replies (2) \| Respond to of 24905

<< re: general rules-of-thumb for asset sales>> Richard, In response to your question about valuation of oil and gas production here are a few thoughts to go by. When one oil company buys production from another oil company they usually pay between 3 to 5 years of the projected net proceeds from the production. Here in Oklahoma, if you want a "ballpark" idea of how much it would cost to buy some oil production you multiply $10,000 by the daily oil production number. For example if you wanted to buy 200 BOPD production, it's probably going to cost around $2,000,000. It's pretty surprising how close this number will come to the answer you'll get by figuring it out the hard way. Here's how to do it the hard way. First you need to project the monthly production decline for the next five to ten years. Then you estimate the product price over that period of time. Multiply the two and you have the gross proceeds from the well. To arrive at the net number, you must subtract the royalties paid to the mineral owner and others (typically 20%). You must also subtract the wellhead taxes and operating expenses. Income taxes are generally not figured into the equation. Operating expenses are an extremely critical part of the equation because they typically stay constant while the production declines. You sure don't want to have a negative cash flow situation before your purchase pays out. Likewise, you want a positive cash flow for a long time after payout so that you'll make a hefty profit over time. Hope this is of some help. I probably won't be checking this thread often, so if you have a question feel free to send me an e-mail and I'll come back for a chat. April Orgren, Geoloist (Mark's wife) April@orgren.org