Yes Adam, of course the NPV already include the capital outlay, but the company needs to have access to that capital so it may unlock the NPV. The Atlas deal allows EQU to unlock this value without adding to its debt load.
The problem with EQU is that the company continues to fail in providing a vision for the future, will they become a true growth company? if so what are their production goals now that we have this deal? how big do they want to get in 3 years? how will they fund this growth?. We get bits and pieces of answers here and there, but largely the company has been unable to articulate a vision.
Based on my experience with this management team, the best they can achieve is to manage a simple, slow growth dividend paying company, this is why the trust model is appropriate for them.
Actually the required capital investment is already taken into account in the "Type Well Economics". Take a look at Slide 12 from the Investor Presentation. The $1.5M NPV per well is already taking into account the $3.5M per well of estimated Finding and Development costs.
But the time delay factor is certainly not taken into account; i.e., those 90 well locations are not going to be drilled instantaneously. And of course the NPV10 is probably lower now due to natural gas prices. Having said all that, however, it seems like ARP got a very good deal.
My projection is that each well produces about 200 barrels Bpd on average the first 12 months; this would generate about $2m in cash flow net to Equal. The ultimate EUR in each well is around 400K (using a number between SD and EQU projections), this means 90 locations would unlock 18m barrels in reserves net to EQU (50% crude approximately). SD put each well NPV at $5m, EQU puts it at under $2m, if we were to use $3.5m, the NPV for the 90 wells stand at $160m net to EQU.
Just the next 10 wells will generate $20m in additional cash flow, increase production by 10%, and add $18m in NPV net to EQU. This will increase our total cash flow to about $85m (from $65m) and reduce D/CF to 2.5 from 2.7.
All this and the stock is flat on the news; the company really needs to go ahead and adopt the proposed dividend trust model, if the market refuses to pay for this value, I will be glad to collect it in dividends.
I think your estimates are a bit on the optimistic side. If these estimates were accurate, it would mean that EQU's Mississippian land has an NPV of $315M and that they just sold half of it for $18M; in other words, EQU just sold the 50% working interest at an 89% discount to fair value!
Where are you getting the number 90 for potential well locations? I don't see that anywhere in the Investor Presentation. Also, the presentation says EQU estimates the NPV per location to be $1.5M, not $2M.
Thanks for your reply. $160 mil additional NPV translates to an additional $4+ per share. Quite significant. I wouldn't be surprised, if the Mississipian drilling is as successful as adjacent properties indicate, that EQU will be taken over, not by a Canadian entity who have little knowledge of the US properties, but by a US entity. Too much unrecognized value here.