Disclosure: I am neither long nor short NCEYQ and just wanted to take a look at the potential value of the underlying NCEYQ assets while it is in Chapter 11 bankruptcy proceedings to see if any shareholder equity will survive. NCEYQ has four major asset fields, two in natural gas and one in the oil patch and undeveloped lease areas of both oil and gas potential.
NCEY acquired a 93.75% working interest in 10 oil wells and one gas well and a 70.31% working interest in one additional oil well, as well as revenue interests of 72.19% in 9 of the wells and 41.01% and 70.80% in the other two wells, (collectively “Mustang Creek Assets”) for $33,000,000 (funded by Laurus Master Fund) on the effective date of December 1, 2005 (closure on April 28, 2006). Mustang Creek Field accounted for 87% of their net oil production in 2007 (127,738 out or total of 146,579 barrels) and 91% of net oil production in 2006 (173,097 out of a total of 190,846) . At the time a barrel of oil was approximately $60 – $65. At current a barrel of oil is at $118 so the underlying asset has appreciated approximately 90% in that time frame. I am assuming that the value of the 1.3 million proved barrels of oil (if known) will be in the same ratio as today with just a difference in the underlying asset value. Therefore, 33,000,000 x 1.9 = 62.7 million in current value of Mustang Creek field. At a sale at auction in bankruptcy I am sure there would be a discount to this factor, but I am unsure how much to apply.
The other producing oil fields include Prado, San Miquel and Tenna, respectively. 50% of Prado was acquired In June 2004. Prado Field comprises 1,280 acres in Jim Hogg County, Texas with four (4) active wells on this lease and twenty (20) inactive well bores. In September of 2006, the Company re-purchased the remaining 50% for a cash payment of $300,000. The Company now owns 100% of the working interest in the Prado Field production. Prado produced 2,083 barrels of oil in 2007. The San Miguel Creek Field is located in north central McMullen County, Texas. The Company currently owns and operates the 200-acre Herrera Lease and the 40-acre Wheeler #2 lease in this field (240 acres total). The Company now controls 100% of the working interest on these leases and wells which produced 11,344 barrels of oil in 2007 and 9,938 in 2006. Tenna Field in Wharton Co, TX was acquired with 100% of the working interest in three (3) wells in the Tenna Field in July 2003. Tenna Field produced 5,414 barels of oil in 2007 and 7,811 in 2006. I couldn’t find the price paid by NCEY for these last two oil properties currently producing.
The two operating Natural Gas properties include: Sargent South Field in Matagorda Co, TX. NCEY acquired 100% of the working interest in the Sargent South Field from Calpine Natural Gas (NYSE) and its partner, ("Calpine") in January 2004. The Sargent South Field is located onshore in Matagorda County, Texas, east of Matagorda Bay. The leasehold is approximately 3,645 acres. Currently, there are two (2) producing wells on the Hamill Lease; Hamill #2 and Hamill #17, with daily production in excess of approximately 1,600 MCF of gas per day. Sargent South produced 180,220 MCF in 2007 and 318,229 MCF in 2006 and 164,965 MCF in 2005.
The other Natural Gas property is non-operated the Wishbone Field – Lindholm Hanson Gas Unit. As of January 3, 2006, the Company owns a 15.20% non-operated working interest with a 12.214% net revenue interest in the Wishbone Field in McMullen County, Texas, which is operated by U.S. Enercorp, LTD, headquartered in San Antonio, Texas. The Company acquired its interest in the Wishbone Field through three (3) separate transactions. In June of 2005, it acquired a 6.2% working interest and 5.464% net revenue interest. In September of 2005, it acquired a 7.25% working interest and 5.4375% net revenue interest. The total combined interest now owned by the Company is a 15.20% working interest and 12.214% net revenue interest. In January of 2006, it acquired a 1.75% working interest and 1.3125% net revenue interest for $1,890,000. Wishbone field produced 272,301 MCF of natural gas in 2007, 715,624 in 2006 and 1,374,755 in 2005. Therefore, if we extrapolate the value of their last purchase to the total percent of interest owned it would equate to a value of approx $1,890,000 X ( 12.214% /1.3125%) or $17,588,000 at 2006 prices with Natural gas at around $6.00 per MCF, whereas it runs $8.50 MCF today.
Conclusion: NCEY essentially owes Laurus Master Fund $68 million + 30% default rate for a total of about $88.4 million. I don’t know if there will be any other major creditors or vendors, etc will try to claim any NCEY asset value. The key value for me is the value of the Mustang Creek Assets. If they can get a value of at least $50 –55 million then close to $20 million each for their Natural Gas Fields then there maybe some shareholder equity preserved. They could be left with their non-developed lease property and their (3) smaller oil field producing properties possibly. Odds are probably still against any shareholder value remaining , but I’m sure the stock price will be volatile as it will take many months to sort this bankruptcy out. Comments and constructive criticism welcomed on my method of valuation of NEYQ assets or anything else (sorry for the length of my analysis).
AI
