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Estimating HMGP Current Value--Conservative Approach?
I finally put pencil to napkin last night because of a request from a fellow shareholder in Hemi. The request was to come up with a conservative estimate of the value of a share of HMGP stock based on known information and conservative estimates of the unknowns.
My napkin started out with a few knowns:
2,150,000 BBL Oil Proven Reserves on original Woodson County Leases, Shallow, Low Cost/High Rate of Success Drilling * $15.00 = $32.25 million
3,100,000 BBL Oil Probable Reserves on original Woodson County Leases, Shallow, Low Cost/High Rate of Success Drilling * $6.00 = $18.6 million
To estimate oil under the new leases (remember, I'm being conservative) I took ONLY the Proven reserve number and multiplied it by ONLY 5x the original acreage (some people have said we have 20-40 square miles under lease...I took a low end). To estimate risk of unknown I used only $2.50 per Barrel instead of $15.00 (proven) or $6.00 (probable)--even more conservative. 2,150,000 BBL x 5 Lease Acreage increase x $2.50 = $26.875 million
For production I used a somewhat middle of the road number 100BBL per day x 30 days x 12 months x $50 net revenue = $1.8 million per year (Since this is a snapshot, I only used one year and not projected production, nor did I deduct from reserves)
To estimate the gas reserves, I tried to remain conservative. Even though the reserves are said to be prolific and virgin or near virgin...I decided to go with the more conservative figures from the known flows in Montgomery County. 350 mcf/day x 30 days x 12 months/year x 10 years x $2.50 per mcf(representing probable reserves until proven) x 100 gas wells (could be much more) = $105.0 million
To stay conservative...I have completely ignored the oil and gas being produced in Montgomery County, our leases in Texas, New Mexico, Wyoming and North Dakota.
With all that said.... these conservative figures total $184,525,000
When divided by current O/S = $3.63 per share If you are concerned about dilution, when divided by current A/S = $1.84
As oil and/or gas is moved from probable reserves to proven the numbers increase dramatically. As oil and/or gas move from proven to production, they also increase the value to the company.
Current stock price: $0.21 -- a very nice discount to a conservative current value.
I know...I KNOW there are many other opinions on how to value these assets and estimate the unknown quantities of gas and oil on our yet to be announced increased acreage (square mileage) of our new leases. This is mine...I tried to be conservative at every juncture without assigning a value of $0 to the new leases. This is a starting point (for me) and as production numbers, and or independent reserve reports are released, gas and oil prices increase...I will revisit my figures. But for now, I think HMGP represents great value even with my conservative numbers.
HMGP represents even greater value when you assign even conservative values to our leases in other states, production growth, and less conservative estimates for the prospects of our newly leased Woodson County properties. However, even ignoring these omissions, HMGP is already an obvious "BUY" so I don't wish to risk being labeled as being irrationally exuberant. LOL
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