Bakken Energy Corp. (BKEN)

[fawd]

APPRAISAL REPORT ANALYSIS!! MUST READ!!


The Appraisal Report Bear posted is actually VERY interesting for us investors IN A GOOD WAY. Lots of great information in here. Let's keep in mind a couple things before we dive in:


1) This appraisal was conducted in March-June 2006. Oil prices in this time ranged between $50-60. Oil now sits above $100. That's a 100% increase guys!! It's safe to say you can take these valuations and basically double them based off this!

2) It's noted throughout that this appraisal is very conservative.

3) Take into account that this valuation is in 2006 dollars. The US dollar had OVER DOUBLE the purchasing power in 2006 than toady!! (sad isn't it?) Therefore, we could again double the valuations listed in the appraisal... But for arguments sake, let's be CONSERVATIVE and just double once.

4) I don't know where some investors are getting their information from. The reason why the plant 'is not capable' of refining is because the refinery 'RENDERED THE EQUIPMENT' inoperative. NOT that the equipment doesn't work or is non-existent. INFACT, this appraisal deducted the necessary capital expenditures needed to continue operation from the valuation.




Okay, so with all that in mind... This appraisal goes through three different types of valuations. The PR, potential investors, and longs have been referencing the COST APPROACH appraisal specifically. So I'll focus on that (although, I'll recap the others at the end too). I'd like to also note that the COST APPROACH is the most conservative of the three. Before we get into the results, here are the five things that go into developing a refinery's value based on COST APPROACH (as per the appraisal document):

Reproduction Cost New: First step of the cost approach. Defined as the 'estimated amount required to REPRODUCE OR CREATE A REPLICA OF THE ENTIRE PROPERTY at one time with current market prices. Includes materials, labor, manufactured equipment, contractors, overhead, fees, engineering fees, architectural fees, and does not include overtime, bonuses for labor, or premiums for material equipment. (So often times, this is a 'perfect world' construction scenario. Very often undervalued).

Physical Deterioration: Defined as the loss in value resulting from wear and tear in operation and exposure to the elements. Result of past service, experience, and maintenance practice. Also includes exposure to the natural elements of the production area.

Economic Obsolescence: This is a form of depreciation accounted for in the Cost Approach. Defined as an incurable loss in value caused by unfavorable conditions. Can also be caused by reduced demand for the product, overcapacity in the industry, etc.

Functional Obsolescence Due to Excess Operating Costs: Penalty that the existent property incurs if the subject property has higher operating costs than would be necessary in the modern plant. Measured by the present value of the excess operating costs from continued operation of the existing property compared to a brand-new refinery.

Necessary Capital Expenditures: This represents the costs that would be required by a buyer or seller to keep the subject property operating into the future.

Land Value: Self explanatory.



RESULTS:
Reproduction Cost New: Based on the analysis, the cost to build a similar refinery as brand new, the cost is concluded to be $65,100,000. WOW, this is HUGE GUYS!!! Keep in mind the price of oil has DOUBLED since this appraisal. The analysis also notes that the use of new technology will result in higher production yields and reduced labor requirements. (But not much in the grand scheme of things, we'll get to that).

Physical Deterioration: The analysis says that a refinery of similar size, in a similar condition as our own WITH NO UPGRADES would be fairly valued at $27,342,000 in 2006.

Economic Obsolescence: The appraisal notes that upon review of the Green River Refinery, there is NO LOSS IN VALUE based on wear and tear, exposure to elements, or poor maintenance. OUR REFINERY IS IN WORKING CONDITION!

Excess Operating Costs: Again, this is a comparison to a BRAND NEW refining facility. Also, this estimate is not yearly, but rather for the REMAINING LIFE OF THE PROPERTY. So, over the MANY, MANY years of operation, our factory would only produce $9,000,000 less income than a brand new STATE OF THE ART facility. BUT, with the next point, that number would be much less:

Necessary Capital Expenditures: THIS IS HUGE GUYS. The report notes that only $600,000 is necessary for upgrading the technology and equipment at the refinery. This will keep our property running WELL into the future and produce HIGHER YIELDS!!!!



OTHER TIDBITS:
1) There is NO capital expenditures necessary to continue operation as required by a government agency. The refinery is GOVERNMENT APPROVED TO CONTINUE OPERATION.

2) That $16,500,000 number is the value of the refinery, AFTER SUBTRACTING THE COST TO UPGRADE THE TECHNOLOGY AND EQUIPMENT. It's noted that this value is very conservative. Also keep in mind the cost of oil has DOUBLED and the current value of the USD!

3) Land value in the document is very undervalued. A quick search shows land values in this area have increased exponentially. Therefore, our refinery is worth more than listed. (Sits on 35.19 Acres)

4) Using an Income Approach, this appraisal says our refinery without any upgrades is valued at $51,000,000.00 as of 2006 (Income Approach is a reflection of actual investor expectations of the refining industry and reflects the financial rewards of ownership). Again, HUGE given the cost of oil is SIGNIFICANTLY higher.


MY CONCLUSION:
This is BIG STUFF guys. According to this appraisal, the refinery is in good condition and doesn't require many upgrades to get it running @ full power. Taking into account the higher cost of oil AND the purchasing power of the dollar... THE PR IS 100% CORRECT. With upgrades (only around $500,000) our refinery could absolutely be worth upwards of $70,000,000 today. So this, coupled with the company going current on Friday.... name change.... dividend... the ORFG's PPS COULD NOT BE MORE UNDERVALUED!!!


I'd like to point out one last thing. This document was 100 pages and is only a single refinery. I've talked with Michael numerous times about why we haven't seen valuations for the land property Nations has acquired. THIS STUFF TAKES TIME GUYS. MONTHS, in fact. We're not working with an MJ stock here. Fortunately, we should be seeing land valuations soon as we're nearing the time window outlined by Michael on my calls :)


And in case anyone wants some light reading materials or doesn't trust me... I basically just copied and pasted everything above.. Here you go: http://www.salvex.com/media/document/GR%20Appraisal%20Report.pdf










FOR NEW INVESTORS, HERE IS SOME MORE DD TO REVIEW: (Thank you Tufan123 for this DD)

CORRECT GREEN REFINERY INFORMATION:

Ecodomaine Refining, Inc before actually completing the purchase of Green River Refinery, spent past 1 year refurbishing the Green River Refinery.

Take a look at this paragraph from this article which was published in Nov 2006:

“Bigelow, a Green River native who intends to return to Utah, said EcoDomaine has spent the past year refurbishing the plant that shut down at least eight years ago. There are still a couple of tanks to build, he said.”

http://www.deseretnews.com/article/650203618/Another-refinery-in-works-for-Utah.html?pg=all

http://www.riversimulator.org/Resources/farcountry/OilGas/GreenRiverRefinery/ExisitingGreenRiverRefineryPhotos.pdf

http://www.loopnet.com/Listing/17970085/4210-Industrial-East-Rd-Green-River-UT/



Gulfstream Management – was the company that was contracted by EcoDomaine Refining for remediation of Green River Site:
Here take a look at their website and look under “Turnarounds – Refineries”. You will see the following:


“EcoDomaine Refining – Green River Site & Jacintoport Tank Terminal (JTTI) - Demolition and Site Remediation ($2.8M)”
After refurbishing Green River Refinery in 2006, Green River Oil Refinery was valued at over $16,500,000 in 2006.

http://powergenerationservicesincorporated.webs.com/


Later in 2010, assets of EcoDomaine Refining were auctioned off to “Private Capital

Group, Inc. as agent for those individuals/entities listed on the
Exhibit "A" of the deed of trust, ("Beneficiary"), whose mailing
address is c/o Private Capital Group, 160 W. Canyon Crest Road,
Alpine, UT 84004,”

This Private Group is one that’s managing the LOI with ORFG and they are :
GREEN RIVER LENDERS LLC

Entity Number: 7879685-0160
Company Type: LLC - Domestic
Address: 160 W Canyon Crest Road Alpine, UT 84004
State of Origin:
Registered Agent: Private Capital Group Inc
Registered Agent Address:
160 W Canyon Crest Road
Alpine, UT 8400
https://secure.utah.gov/bes/action/details?entity=7879685-0160

Green River Refinery was listed for sale - $3,500,000
Link here:

http://marketing.naiutahsouth.com/marketing/sale/industrial/6780/files/assets/seo/page3.html
on Page 4