Ann: Buffalo Farmout and Redevelopment, page-225

My point is it helps to understand the macro picture of the industry you are investing in. I said before that there is a lot of production which could easily and cheaply be turn back on, but it is not being. I clarified that I was not talking about US shale. I have further clarified that. I have also given an indication of how unimportant B10 is in the grand scheme of things. To go a little further the whole of B10 1C is equivalent to less than 4 hours global production. If you want 2C, which by definition only has a 50% chance of being achieved, assuming there is anything commercial there in the first place, then it is less than 8 hours.

It also helps to understand how investment markets work, especially when your own investee is is totally reliant on them for success, not having any cash generation of its own to fall back on. A Warren Buffett line is a good company could see the financial markets close for 5 years and be unaffected. Whilst that won't happen, the risk appetite of the market has been changing and that change has accelerated due to COVID. Would you invest in an airline? Would you invest in an airplane manufacturer? The oil industry has been badly impacted by an over supply situation even before COVID and COVID has made it worse. All that drives caution into the financial markets that need to provide the CAPEX for developments like B10. Whilst there maybe be nothing unusual about B10 as a project given the early stage it is at and without much doubt it would have found sound funding partners in the days of $100 oil, we are far from that world now. It is all about risk reward balance, especially when, not unusually at this stage, many of the risks are unquantifiable, it is the perception of risk that matters. Given how long CVN has been touting for a farm in partner, why is the only one it could find a bombed out AIM uber dog?

When it comes to reward then it is worth being able to calculate Net Present Values - it is the standard valuation technique proper investors use. NPV relies on assumptions because it is all about when and how much cash flows in and out in the future. The cash flow in and out of a project is different to the cash flow in and out of a JV partner. Thus it is a different investment prospect depending on which investment partner you are investing in. The whole point of a farm out is to transfer risk and costs to the farm out partner, having already accumulated a certain amount of sunk cost without them.

Most proper investors already understand all the above concepts. I find it is generally a good idea when somebody comes up with a concept I don't understand to do a bit of research myself and then politely ask for clarification. Simply denying and rubbishing things you don't understand is being an ostrich with your head in the sand. If you do that than don't be surprised when you get taken up the arse.