<sigh>....this company does not even know the difference between gross and net....sad....
from today's press release, it states: "The well, located in Alabama’s historic Little Cedar Creek Field, contains gross reserves totaling 816,000 barrels of oil and 760,512 million cubic feet of natural gas. That adds up to future net revenues of nearly $80 million."
First, recognize that "gross reserves" does not equate to "commercially or technically viable net producable reserves" - the number that can be actually recovered economically and produced will always be a number less than the gross reserves estimated to be in the ground.
Setting that aside for the moment, the company boasts that the "net" revenues will be nearly $80 million. This in fact is a complete lie - even taking into account the current value for the gross reserves being somewhere in this neighborhood, you must first SUBRTACT the operating costs, depreciation, time value of money, eventual plug and abandonment costs, taxes, overhead, G&A, cost of borrowed capital, etc to arrive at a NET Revenue. After you arrive at this number, then multiply times your Net Revenue Interest in the well. According to FTTN filings, their working interest in this well is a paltry 1%!!.
Furthermore, at the current production rate, even without the natural decline that ALL wells exhibit, the payout to produce 816,000 bbls at a rate of 223 bbls per day will be 10 years. Factor in the decline rate, and you are looking at likely well in excess of 30-40 years (assuming you could economically and technically produce 100% of the gross reserves.
So let's take the example that they produce 223 bbls per day constant over the next year (ignoring the most recent 44% decline rate) - at current oil prices, that would equate to about 81,000 bbls valued at about $7.3 million. However, since FTTN's interest in the well is only 1%, that would only be $730k. This would not even cover FTTN's most recent G&A costs ($945k) - this is before contributing their share of drilling and operating costs for the well! In fact, the company does not have cash to support any operations without having an obscene amount of dilution occurring - they currently have only $1,359 in cash in the piggy bank!
