Cujo - I have suspect for a long time what you are saying may be true, for the simple reason that if they all got into production now there would be 1/2 a billion cubic feet of production per day with no customers or supply chain infrastructure in place to consume it. Even the 100mcf quoted by Kar for the well in Browse basin would struggle to get to market at the moment without massive infrastructure investment.
Who is going to make that investment and when? Do the Current producers already have some of the infrastructure needed in place nearby? Does this give these O&G producers the jump on the rest and limit the value of other resources held by other O&G players until they actually need more resources to meet their customers needs in years to come?
Perhaps this is one of the reasons that some of the larger O&G explorers are talking about the need for our government to invest much more in infrastructure? KAR and COP would have to invest $multi-billions to get any of their gas to market at commercial quantities. So perhaps they will just sell the resource off to the the larger producers and move on like KAR usually does - when the time comes.
Looking at KAR's business model it is plain to see they do not plan to actually produce any oil or gas, they are an exploration company that plans to on sell "proven resources" in the ground (hopefully at a profit) to fund their operations and create value for the owners of the company. But in the end it all comes down to what the current producers are willing to pay COP and KAR for their proven resource and whether the cost of production including the cost of the infrastructure is viable given the demand for the product?
If the demand is there it may well be worth COP investing in the building of a floating refinery so that they can safeguard the value of their resources and actually produce gas from them cheaply. It would tend to ensure a higher price for all their resources should they opt to sell to another producer. Due to the simple fact that they could extract value inexpensively from the resource without selling it.
KAR Price at posting:
$5.17 Sentiment: Hold Disclosure: Held
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