By the end of the year I think that 50-60,000 boe/d out of the Miss is achievable.
MIssissippian Asset value on a flowing BOE basis $100,000 x 55,000 boed = $5.5 billion
GOM Asset value on flowing BOE basis $50,000 x 30,000 boed = $1.5 billion
Together thats $7 billion.
Using $100,000/ flowing barrel for the Mississippian because of all the associated PUDs the purchaser is getting.
Using $50,000/ flowing barrel in the gulf to be conservative bc i'm not sure what the PUD, PDNP situation is.
Water disposal infrastructure = $500 million (conservative)
Ball park numbers but does anyone think this isn't reasonable? 7.5 billion worth of assets by the end of the year.
I like your data, I will add a wildcard consideration here and that is this: I think the more time that passes, the more application conversions we see that either add NGas or eliminate altogether, the use of other fossil fuels in order to adopt 100% Ngas.
To add another dimension here, exporting of LNG is no longer a notion, it is less than 24 months away.
Given the above, I think NGas reserves will gain a high goodwill premium purely based on known and expected usage of NGas.
I can't compute this premium and it is hopeful speculation on my part BUT....the more time that passes, the more clear the future usage/demand for NGas becomes.
All IMHO of course!
Sentiment: Strong Buy
SD will probably be back up to 100K flowing boed by EOY with a heavy NG component. I figure its worth around 60K per flowing boed say 6 Billion - including WTO. That is just what I think the production is worth and not the PUD's.
Nikon, its interesting that we both came up with similar valuations though attacked it from different angles. Always appreciate your posts.
See my Pieces of The Puzzle Post for more details.
Let's look at the individual well economics. Wall street is using the current type curve of 369 mboe so lets examine it.
Initial 30 day avg. = 140 bopd = 4,200 barrels of oil
The well declines from initial rate 76% by year end. this is quite steep but normal for
horizontal plays like this. So by year end the average well is making about 30 barrels per day.
Conservatively, The type curve shows that each well will make about 25,000 barrels of crude in its first year.
The slides indicate that SD makes 80% of cash flows come from its oil in the Miss. So 25,000x$60/barrel (after royalties and lease operating costs) = $1.5 million
If that is 80% of cash flow for a well then the entire well will cash flow $1.9 million in the first year.
Extrapolate to year 2 assuming an average of 25 bopd during that year. 25x365=9125 barrels
so 9125x60=$547500 and so if thats 80% cash for the year then $684,375.
So in the initial 2 years, according to the type curve, we will have made about $2.6 million net to SD.
Not quite paid the well out yet, but close. Now assume that between ESP and drilling in sweet spots we get those numbers up to about 40,000 barrels oil in the initial 2 years. Then we have $3 million and pay out.
Everything after that is gravy. We need to get that payout closer to 1.5 years and we will have something great. Nat gas prices coming back up will help. ESP will help. NGL contract will help.
i think that's a bit too hopeful. getting up to $7 would be all the prep there would need to be for a sale at $9. i think it's worth $7, but it is going to take a couple of quarters and a winter to get it up to that level.
Not every BOE is created equal. As SD's production is gassy there is no way that the market would see it as worth $100k per flowing barrel. Not until NG prices rise significantly and sustain that rise for a good period of time. then Wall St may actually start to value NG assets again.