Have to disagree with you...Just look at Tower Resource's...

Have to disagree with you...

Just look at Tower Resource's (TRP:L) for example
It was trading 1.2p Oct 13 and multi bagged to 7.25p 2 weeks ago and is currently trading at 5.7p pre-drill which is expected mid April.

TPT Multi-bagger in the making


"Pre-Drill Multi-Bagging Hypothesis"
The article below can also be applied to TPT in my opinion

Seekingalpha -- January 5, 2014 -- Editors' Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

The purpose of this article is to explain and apply a phenomenon known as "Pre-Drill Multi-Bagging Hypothesis" to Taipan Resources that is currently entering into the pre-drill time frame (where this phenomenon typically begins to very significantly impact the share price upward).

Introduction to the Pre-Drill Multi-Bagging Hypothesis

Small cap exploration companies approaching their first big drilling event can experience exponential share price growth even before the risky drilling process begins. We will be taking a look at the theory behind this phenomenon, the criteria needed for it to happen, some past and current examples of how it impacted the pre-drill share price and how Taipan Resources is the next stand-out candidate to experience this phenomenon in the West African exploration region in 2014.

The theory behind the surge in a small cap resource stock before its first big drilling event is that the market begins to price the chances of an oil discovery into the share price. Although 'wildcat' drilling by small cap resource stocks is risky, the market does not want to miss out on a discovery if one occurs. So in the two to six months preceding the drilling, the share price begins to reflect a "Risked" element of a discovery, that is, the chance of an oil discovery multiplied by the oil volumetric potential. A basic Risked NPV for the upcoming drilling can be estimated as follows:

RNPV = S x NPVb x GCoS

This is really a much simpler formula than it looks.
Let's explain the four components:

1. RNPV = The Risked Net Present Value of the Prospect
2. S = The Size of the Prospect
3. NPVb = The Net Present Value per recoverable barrel of oil
4. GCoS = Geological Chance of Success

Now let's take a look at some of the inputs to the above.

But first a little on "oil finding" geology

Figuring out the mean resource size on a drill prospect can be a tricky exercise undertaken by the company geology team. World class experts such as Sproule World Wide Consultants can often be engaged to also acquire an independent estimate. It requires some good seismic data on the prospect and often complex simulation software such as Monte Carlo or GeoX is used to calculate GCoS. The all important seismic data will show the general size of the prospect and hopefully some good shale-sand intervals, traps, faults, four-way closures, bounding faults etc. Inputs to the GCoS estimate include source, reservoir and trap. As the old Amoco adage goes:

"It's all about source rock, the rest is just details."

Source can be evidenced perhaps by oil seeps, nearby oil or gas shows in previous wells or a big 'outcrop' visible at surface showing big shale-sand intervals. Traps or seals are typically formed where a big non-porous shale rock overlies a porous sandstone reservoir. They can also be created by faulting, where, after some tectonic shifting, the non-porous shale section in the fault lies alongside the porous oil bearing reservoir, thus preventing further migration or 'breaching' of the reservoir. Other factors such as known porosity or permeability from previous wells in the area might indicate the potential rate of oil recovery in the event of a discovery. Primary recovery factors around 15-20% would be seen as normal in a conventional well but certain stimulation techniques such as gas or CO2 injection can improve the prospect economics in the event of developing a discovery.

In terms of chance of success for 'wildcat' wells, nothing more than 30% is ever really credible amongst the geologist community, unless there's an outstanding prospect with multiple stacked horizons and proof of source rock. The more different aged horizons and traps in your drill, the higher your chance of success.

Taipan has already fully mitigated the pre-drill funding risk

The first risk that small caps need to avoid is that they do not default due to lack of cash before drilling which often happens. As was indicated in the first article, Taipan is fully carried for its entire well drilling program on their Block 2B and only have a 20% contribution for the drill that will take place on their Block 1.

Once the risk of default is eliminated and it's established that they will get their shot at the big time, then fulfilling the following three crucial criteria ensures the share price can begin to reflect the risked net present value (RNPV) of the prospect:

1) Big credible partners

The small cap exploration company must entice some big credible drilling partner (known as a farminee). They must convince their farminee that the geological argument for their play-type is sound. Having a big well respected exploration company farm into the prospect provides equity investment firms such as BlackRock, JPMorgan, Henderson Global, with the "third party (put your money where your mouth is) validation" they need to invest in the small cap explorer's stock pre-drilling. This institutional interest is one of the drivers of the Pre-Drilling Multi-Bagger Hypothesis.

2) Well funded

The small cap exploration company needs to have plenty of cash on hand, enough to fund the drill and ideally the big partners they have convinced to join them in the block are paying for it by 'carrying' the small company through drilling costs. Such is the case with Taipan Resources as discussed in the previous article.

3) Prolific acreage with big prospect size

Big prospects on prolific or 'new idea' prospective acreage is what drives big companies to farm into acreage with a small company. The country might have had a few recent oil discoveries or the new idea might be that the country's oil play-type might be analogous to oil discoveries in a similar geological setting (such as the idea that Offshore Namibia could yield similar discoveries to Offshore Brazil as they were both once part of the Pangea super-continent).

Some Examples of the Pre-Drill Multi-Bagger Hypothesis

Let's examine some past and present examples and their key success factors in causing this multi-bagging of their share price to occur:

1) Africa Oil Corporation (AOI.V)

Block 10BB - 50% 'Ngamia' Drill Onshore Kenya

•Share price rise: $1.18 CAD Aug '11 to $1.97 Feb '12 (~67%)
•Big Partner: Tullow Oil Plc (TLW.L)
•Funding: Tullow Oil were carrying Africa Oil for drilling Ngamia.
•Prolific acreage or credible idea: The Albertine Basin in Uganda was a similar aged East African Tertiary aged rift basin, where Tullow Oil and Heritage Oil struck oil along the basin bounding fault. The same play type was to be applied in the successful Ngamia-1 in the Kenyan Lokichar basin.

NOTE: Africa Oil's share price is currently $9.26

2) Pancontinental Oil and Gas (PCL.AX)

Block L8 - 15% 'Mbawa' Offshore Kenya
•Share price rise: $0.07AUD Dec '11 to $0.22 Aug 12 (~200%)
•Big Partner: Apache Oil Corp. (APA), Origin Energy Ltd. (ORG.ASE) and Tullow Oil (TLW.L)
•Funding: Tullow Oil were paying for PCL's drilling to a cap of $60million gross.
•Prolific acreage or credible idea: Big gas discoveries were made to the South in Tanzania and Mozambique while Kenya Onshore had produced its first oil discovery (Ngamia-1).

3) Tower Resources Plc (TRP.L)

30% 'Welwitschia' Offshore Namibia (spudding Mar 2014)
•Share price rise (to date): 1.22p Oct 13 to 4.8p Dec 13 (~300%)
•Big Partner: Repsol (OTCQX:REPYY)
•Funding: 2 fund raisings totaling $18 million in 2013, plus 10% further farm down on the way.
•Prolific acreage or credible idea: The credible idea is that Namibia was once linked to Brazil and big offshore Brazil oil discoveries can be repeated on the Namibian side of the Atlantic. The recent HRT (HRTP3:BZ) Wingat-1 well encountered two encouraging oil generating source rocks in blocks South of Tower's block. Huge net risked recoverable resource of 496 mmboe, net to Tower, in 4 way dip closures. The huge risked NPV of 'Welwitschia' means the share price could well have a lot more upside in the next 2 months pre-drilling, assuming they secure their farm out.

There are many more examples of big rises in share price for small cap resource stocks approaching their first drilling catalyst. A recent Goldman Sachs E&P 50 report showed how in 2010 the capital markets priced in this first drill event up to ten months before drilling but by 2012/2013 this price-in period had shortened to two months prior to 'spud'. We would expand on this by adding the shrewd investor should begin to take their position within six months before drilling in anticipation of the share price rise, depending on the particular play involved.

Read more at...

http://m.seekingalpha.com/article/1928631