Fwd: Your question of pricing

"Paul Rowan"
"Hunter 1/7/14"
2014-03-21 00:43
Thanks again for dinner - have a great time in SC. Please send me your home address. ttyl pal

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Begin forwarded message:

From: Richard Preis <>
Date: March 18, 2014 at 7:57:40 PM EDT
To: paul rowan <>, Dan McHale <>
Subject: Fwd: Your question of pricing

Richard Preis
2254130712 cell
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Begin forwarded message:

From: Bill Miller <>
Date: March 18, 2014 at 6:42:34 PM CDT
To: Richard Preis <>
Subject: Your question of pricing


Thanks for the call. In answer to your question about how we priced the offering:

In public companies, proved undeveloped oil and gas reserves are priced from 25% of the engineering projected value to 100% of the value.  We have proposed valuing the Proved Undeveloped Reserves in the DOR Engineering report ($300 million) at 50% of the projected engineering value ($150 million - $15 million equals 10% of the company).  There are many factors that we considered, including:

First, the oil and gas leases that we own (20,000 acres) have 65 producing shallow gas wells. While these have been producing for 50 years, the shallow reserves still have many years of remaining life.  This fact was considered because first, the shallow reserves have a value that we did not consider and, more important, the shallow gas reserves maintain the existence of the leases without further drilling obligations. Consequently, we are under no strain to start developing the Barnett Shale reserves.

Second, the exceptional richness of the Barnett Shale reserves adds value to the Proved Undeveloped reserves because lower gas prices are more than offset by the much higher value of the liquids in the gas.

Third, the fact that the shallow gas field (which we own and is part of the company) was the largest gas field in the Fort Worth basin before the development of the Barnett Shale adds value in two ways:

  1. Since all of the shallow gas originally came from the underlying Barnett Shale, it indicates that the Barnett Shale under the leases will have exceptional reserve potential.
  2. The gas pipeline infrastructure is already in place.
Additionally, because of the location of the field, there is an opportunity to add value through the construction and operation of a regional gathering system.. This has proved to be very profitable in the area.

There are a number of other good reasons for the valuation that we have used, but I believe the above reflects the validity of our valuation.  

Since the $15 million will be the first new money in, I also felt that the $150 million valuation, at 50% of the engineering projected value, was fair to both sides.

I will be glad to discuss at your convenience.

Best regards,

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