Freedom offers some numbers, just not the ones investors really want to see
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Freedom Oil and Gas is betting that 20 large banks are in the right with their substantially higher oil price forecasts for the next four years.
The US oil company (ASX:FDM) rejigged its reserves in the prolific Eagle Ford shale and based the valuations on average price forecast of 20 of the “largest banks”.
Those banks are betting the US oil price, WTI, will rise to an average of $US67.07 in 2019 and up to $US67.52 by 2022.
Right now, WTI is sitting at $US54.47.
New reserve numbers
At the end of 2018, Freedom had proved reserves of 17.2 million barrels of oil equivalent — that’s oil and gas.
‘Reserves’ refer to oil or gas discoveries that are commercially recoverable using existing technology while a resource is an initial, untested estimate. A 2P means it’s proven and probable, while a 3P includes ‘possible’.
Freedom’s reserves were valued using a 10 per cent discount rate at $US158m. 2P or proved and probable reserves were valued at $US340.4m.
The company has nine producing wells and they plan to add another six wells to the line-up by June.
The latest three to be drilled were in October but are still not producing to their full capacity — these are the numbers investors want to see.
Dubbed the ‘Vega’ wells, they haven’t yet achieved an IP 30-day production rate. This means they haven’t managed to produce oil consistently for 30 days.
Freedom says they now expect the wells to have a lower IP30 rate to what they initially reported, but hasn’t yet offered public flow rate figures — the volume at which oil or gas can be released from a well.
Freedom shares were down 4 per cent to 11c.
The oil price risk
Global oil prices, both the US benchmark WTI and the North Sea’s Brent, began to run upwards in early 2017 once OPEC limits on production began to make themselves felt around the world.
This run caught the attention of US President Donald Trump in early 2018 who used it as leverage to force Saudi Arabia and its allies to produce more oil to bring prices down, as well as to support the re-imposition of sanctions on Iran.
Oil prices continued to run until October when they went into freefall, bottoming out in December.
The fall prompted renewed speculation about whether US frackers, like Freedom would be able to survive another round of lower-for-longer prices.
The ASX’s US frackers told Stockhead they’d be fine, with Freedoms’ company secretary Andrew Crawford saying they aimed for break-even at an oil price of $US33-35.