GEOI Merger: An Example of How Not to Operate an Oil and Gas Company
Acquisition is Costly to Current GEOI Shareholders

The merger announced today is a bad deal for current GEOI shareholders.

Here's why:

Prior to merger GEOI had about 3.767 million shares outstanding with proved reserves of 2.812 million bbls oil and 232K BOE gas.

Valuation is as follows:
$60 (per Bbl oil) X 2.812 million bbls oil = $168.72 million
$36(per BOE gas*) X 232 thousand BOE gas = $8.352 million

*(6Mcfe = 1 BOE)

Total value of GEOI proved reserves prior to merger = $177.0 million.
Total shares outstanding prior to merger = 3.767 million shares
Value per share proved reserves = $47.00

............Post Merger....................
8.1 million BOE proved reserves. (Lets assume that every BOE is oil.)

8.1 million X $60 = $486 million in value.

Total shares outstanding =3.767mm (pre-merger) + 8,263mm (Southern Bay) + 1,931mm (Chandler) = 13.961 mm shares outstanding.

$486 million (value proved reserves)/ 13.961 million shares = $34.81

Value per share proved reserves = $34.81

What can we conclude?

GEOI shareholders have lost 25% of their proved reserves asset value ($47 to $34.81) overnight. GEOI Shares should be selling off sharply instead of rising. Investors are too quick to associate the word "acquisition" to the phrase,"good for shareholders." This is an acquisition that dilutes proved reserves per share. In other words, the underlying asset value per share has decreased sharply overnight. One should also keep in mind that the figures in the above computation assumed the best case scenario for current GEOI shareholders in that all 8.1 million BOE were 'assumed' to be oil. We all know that is most certainly not the case.

Expect GEOI shares to decline in value to the $4 to $5 range based on a reduction in proved reserves asset value of over 25%.