Hi Knick, Buying out juniors, with metrics like we're seeing...

Hi Knick,

Buying out juniors, with metrics like we're seeing with PVD, certainly seems to make sense on paper but in fact rarely, if ever, happens at this stage of the exploration cycle for the permit. While majors have $Bs, they all have a process of managing exploration risk especially in frontier basins/regions. In this regard they actually encourage the junior sector to take on this additional risk and 'reward' them accordingly as the 'trail blazer'. The majors are all about booking 2P reserves...growing their asset base; not their exploration portfolio.

Most majors tend to move on their junior's interest post the initial appraisal program and in the past, they have tended to go for the asset and not the company as the majors hate having a public stouch (T/O) with a junior. They prefer such transactions to be succinct and known. Yet there has been a new element emerging in the last few years which is turning the majors to consider full M&A strategies; the issue of transaction tax collection by the host country who now want to be able to get their share of any profit from permit trading. Fair enough. But it slows up the process incredibly when you have to get approval not only from the Energy ministry but also from the tax/finance dept. This can take 6, 9, 12++ months and should only be attempted when there is a large time window (a minimum of 18 months) in a permits commitments otherwise the host country can use these against the process.

Also FM will have their partner on the $ hook post initial exploration so, another reason not to go prior to appraisal

And besides, right now, exploration drilling is not adding substantive equity premium to juniors (FAR, KAR, CVN etc) so no urgency or financial justification for a major to pull an acquisition trigger in this market.

It'd be good though.

Cheers,