Hi Mike,

The point I liked the most in your post was the rule of thumb that oil companies have a market cap of 1/3 of the reserves in the ground. This is an easy valuation method that we could use for QEC. The part that needs a bit of work is on the calculation. One of the places that many people go astray is in the use of BOE (barrel of Oil Equivalent) numbers. Companies that produce both oil (barrels) and NG (cubic feet) combine the two into something easier for the general investor to read, a single number in BOE. This helps the investor at a glance understand whether reserves and production have increased or gone down over the quarter. The problem is that they have two completely different selling prices, as well as production costs.

The energy value in 1 Barrel of Oil = energy value in 6000 scf of NG or 6mcf

1 Barrel of Oil = about $80

1000 cf (1mcf) NG = $5

6000 cf or 6mcf or 1 BOE (assuming it's entirely made up of NG) = $30

Using our $3.50/mcf costs, that means that QEC would make about $1.50 * 6 = $9/BOE profit. I've heard in the past that Suncor's costs were about $39 / barrel of oil, so they pull in about $41/BOE profit. I've also read somewhere that the Saudi's costs are around $8 (scarry isn't it).

As you can see there is a sizable difference in what the companies make based on BOE numbers.

Having said all that, if we can call the 5 TCF of recoverable NG "reserves", and there are a lot of people BTW that would never accept shale gas as reserves, but lets do it anyway... I'll forget about the 4.25% royalty since you didn't use it in your calculations either.

4.28 TCF * 1/3 reserves = 1.43 TCF (1.43 Billion mcf)

1.43B mcf * $5 = $7.15 Billion

7.15 Billion / 200M shares = $35.75 / share

So while it's not the $81 you came up with it's still a nice $35 / share, well above where we are right now. Even if we value the NG in the ground based on it's profit after extraction...

$1.43B * $1.5 / 200M shares = $10.73 / share

Cheers,

Brym