The trouble with trying to follow the news is that it inevitably changes; it wouldn’t be news if there were no change! Even the dates at which we are told to expect news releases is unreliable. If there is a sufficient news gap then some investors see an opportunity to take their gains elsewhere and get back in before the anticipation of news starts to drive the share price up again.
88e must be expected to be a highly volatile stock. There are very high gains but there are significant risks. Most of us but perhaps not newcomers know we are looking at 30p to 40p and Dave Wall didn’t say “get real mate” to much higher numbers, even as high as £1. But Dave is a pretty straight guy and he doesn’t hesitate to remind us that oil exploration is inherently a risky business. So we are looking at very high gains 10 to 20 times from our current 2.2p tempered with some risk.
So it’s a complex dynamic situation for numerous reasons and very difficult to make decisions about trading points.
At the end of June Dave was presenting on Interactive Investors, talking about Icewine 2H, two seismic releases and an updated IRR in late October. The presentation released prior to our London Presentation last week showed a big change to a Vertical Icewine #2 well and no mention on the update to the IRR was shown but it was talked about on the day.
What was enthusiastically mentioned, as we saw on Friday, was the prospect for a Farm Out. Dave explained the balance between a farm out and another share placing; both are dilutive, we either sell some of the oil in place or we sell some more shares. If the market price is low then raising funds from the market will be more dilutive than a farm out particularly if the farmee sees greater value for the oil in the ground than the market does. A farmee is much more likely to understand the value than the stock market. Ultimately what is better for 88e shareholders, what is more “accretive” to our share price is the decision Dave is looking at. We saw on Friday that he understands this process very well because he explained it so well. So I gained more confidence in his abilities. You just can’t get that from reading a power point presentation on your laptop.
So what is really interesting to me, whilst we can be a bit disappointed we might not see an update to our Independent Resource Review(IRR), is the potential for a very high vote of confidence in our Resource which comes with a Farm Out agreement. The Farmee recognises the potential we have and is prepared to put his money on the table. That is much better for us than say D&M being paid to write an update to their IRR when they don’t really understand the innovative technology; they can only use their expertise based on previous exploration results. Unlike to wider market for 88e shares, the Farmee is likely to be given access to all the commercially sensitive seismic, scientific and geological analysis to persuade them that the oil is recoverable. What’s more the Farmee will have the expertise to understand the technology and recognise the value. Sure there is going to be some serious negotiation about what percentage of our acreage they receive in return for the cash but we the Investors have taken on the risk of funding Icewine #2 and so the level of risk the farmee faces is much reduced. That is the key here. So we can expect a good deal negotiated by Dave.
When are we going to see the Farmout agreement? We simply don’t know when and we probably won’t until after it’s signed. What we can say is it will definitely give our share price a boost much more than an update IRR. Are they going to wait for Icewine #2 results before committing to an agreement? Dave has clearly got himself in the driving seat.
Paul Basinski is very close to all the major players on the North Slope, he is very confident about our prospects. He talks about under promising and over delivering. He is a world expert intimately involved in the Eagle Ford discovery. We all know that.
Stephen Staley has a clear track record of success and expertise at Cove Energy. He showed us his excitement about the seismic results on Friday. This was the first time we have seen him present, we met him in April before and my confidence in him was high then.
We are now all closely involved in a fascinating story. We have met and got to know the personalities involved and we have a much better understanding of 88e. It is quite simply tantalising.
50:50? You have to make your own minds up about that one.
Thanks for you messages. Video out soon.
Good luck, Tim
(20min delay)