Let have some fun.
It's a slow day and I know there will be many naysayers, but let's run some hypothetical numbers.
At this time we all assume that the JDZ will be produced through a joint venture type production field due to the economics of producing many smaller fields in deep water rather than one large field. Right or worng let's start with that assumption.
If we look at the posted ownership that ERHC has in the JDZ (I know that block 4 is still in question, but for now let's go with the 26.7%) in all 6 blocks (2,3,4,5,6 & 9) then the average ownership position for ERHC is 18.12%. I know that it would be better to weigh blocks 2 and 4 a bit heavier since they are assumed to be better prospects, but for ease in analysis let's leave them all weighted equally.
After these assumptions (of course we all know what assuming does, but remember slow day and just for fun), let's make a few more based on factors of 3 Billion. I am using 3 Billion as a starting point for no appparent reason other than that seems like a reasonable reference point.
If we assume that after drilling in 2008 it is proven that all of the JDZ has 3 Billion in recoverable oil (not including oil equivalents..gas and condensate) and ERHC has approximately 18.11% of that then our next exercise is to put a value on that approximately 543MM barrels of proven oil owned by ERHC. Historically proven reserves (in reservoir) would be valued in the $4 to 5 dollar range depending on where they were and the economics of recovering them. Due to the fact that the JDZ is in very deep water I would have to go on the historical low side of closer to $4/Bbl. But ERHC has no cost oil so that should raise their value by atleast $1.50 to $2.00 per Bbl. (Again these are arbitrary but I am basing these numbers on the current value of a 20 year production cost cycle and I am estimating that cost at between 6 and 7 billion dollars). Additionally, when the industry pegged proven reserves at 4 to 5 dollars per barrel market prices were ranging between 40 and 50 dollars a barrel. At today's price range of 70 to 80 dollars per barrel if we extrapolate then our new price for proven reserves should be about $ 6.50 per barrel then add the 'ERHC no-cost kicker' our reserve barrel price should be $8.00/Bbl.
Now the fun, based on our previous pie in the sky number of 543,000,000 barrels for ERHC's ownership then immediately upon proven, ERHC adds $4,344,000,000 to our balance sheet.
The net effect is $6.00 to our share price.
So lets look at this using multiples of 3 Billion:
3 Billion in Proven Recoverable Reserves = $ 6.00/sp
6 Billion in Proven Recoverable Reserves = $12.00/sp
9 Billion in Proven Recoverable Reserves = $18.00/sp
12 Billion in Proven Recoverable Reserves = $24.00/sp
15 Billion in Proven Recoverable Reserves = $30.00/sp
18 Billion in Proven Recoverable Reserves = $36.00/sp
Now obviously I would NOT post this as my Masters Thesis as this was just for fun and I have used many more hypotheticals than would be suggested for a serious study. But, what this shows is that if the consortium of oil company's come out late next year and announced a specific level of proven and economic reserves our share price should move immediately in relation (somewhat) to the numbers presented above.
As we move into production in years 2011 to 2012 (and based on today's oil price) then you could just about triple those share prices based on the same proven recoverable reserves. We can all see that if there truly s a significant amount of Oil in the JDZ, albeit in many smaller pools, then our share price should move exponentially over the 1 to 5 years.
One final thought it makes you wonder about what an appropriate buy price would be if a major decides to swallow up our little minnow.
Hey this was all in fun, so don't blast me (too much), but if you have any econmics or better numbers to add to this please do so.
IMO
BayFisher
