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- bartgrenier on Quick Calculations On ATLS Barnett Shale Acquisition Your analysis is directionally correct. A coupl...

## Quick Calculations On ATLS Barnett Shale Acquisition 1 comment

Assume $1.9 Billion USD of capital expenditures is required to extract (actually produce) 1 Tcf of proved reserves. I am taking this data point based on Peyto in Canada, which publishes a number of $1.8B of capex per Tcf. Peyto is one of the most efficient producers in North America. If someone has a better number please give that.

Assume variable extraction costs for 1 Tcf of $400M. I lack a good reference number for this and I would appreciate some data points from others.

Together that gives $2.3B of total costs required to extract 1 Tcf of gas. Figure $2.3 of all-in costs - variable plus capex - for each MCF of gas.

Assume selling price of gas is $3 long term. That gives $3B of revenue versus $2.3B of costs, or $700M net cash out. Now take a 20 year net present value of $700M with a 10% discount rate. That gives NPV-10 of $297M, versus our effective payment for the resource of $690M.

I'll save you some calculating: I worked out that the payment of $690M assumes a long term gas price of $3.92 to just break even.

Now here is where it gets a little shaky for me: notice I did not add the price we paid of $690M 1 Tcf equivalent to the total all-in cost. The reason for this is that the acquisition includes 198 producing wells. So my assumption is that we have already paid for some of the capex in the form of those wells. Figure $2M per well or about $396M of capex in place. The rest would be a payment for reserves. The trick is how much more capex do they need to spend to fully exploit the resource, and that's not clear.

It does not strike me as any kind of sure thing. It looks like the market is valuing the deal based on just the increased distributions.

Bottom line is that if we were buying pure reserves we would want them at a substantial discount to $297M assuming a $3 long term spot price for dry natural gas. It is not clear how much useful capex we got (these wells could be marginal). At $690M, it's not an obvious steal.

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