General Thoughts, page-9058

My view is that

In normal situation, in a virgin exporation area a very good farm-out process would be an incoming partner taking a 51%+ stake in the asset to carry the rest for a 3D seismic and then pay for either 50% of their first well cost or a full carry for a first well. This scenario, the incoming major takes ALL the risk -- is the new region/basin even prospective (given we assume a virgin exploration area)

Namibia is now proven as very prospective and Orange Basin in particular. So exploration risk is much lower. In such instance, we have seen within the Basin, the norm is -- incoming partner takes up 51% - 80% in lie of paying for 1) 3D seismic + 1 Well Carry. So roughly a spend of $30-50mn on 3D + $70-100mm on Well = $100-$150mn spent on 100% Gross basis.

Now PCL has a 3D seismic worth $35-40 mn. So incoming partner doesnt need to spend on that. It can evaluate the 3D seismic, so it doesnt need to take complete blind exploration risk.

In this scenario, I think the best PCL can get at this stage is -- 1 Well Cost Carry + Retaining maybe 24% (Incoming partner will demand minimum 51%) + some upfront cash payment in lie of seismic, say 24% of $40 mn = ~$10mn.

PCL doesnt have many chips on the table, they are set to loose the license in 8 months. In this scenario -- 24% interest + $10 mn cash + 1 Well Carry is a pretty good deal IMO.

Counter point could be the Total's terms on Block 3B/4B in the Orange Basin included -- 2 Well Carry + $50 mn cash (amongst all parties) to acquire a 57% stake. Now the previous 3B/4B JV already had a 3D seismic across 11,000 sq km of the area, which will probably worth $80 mn in today's price. So /lets just say Total paid for their share of the seismic cost (57% x ~$80 mn) = $40-45 mn + an additional $5-10 mn upfront cash. This deal then starts to look comparable except that I think PCL will get a 1 deal carry, while 3B/4B partners got a 2 deal carry. Its note worthy to add that the prior 3B/4B JV had commissioned two separate independent resource report both of which seems to suggest the block is highly prospective from independent agencies. PCL doesn't have one such report.

Another counter point could be -- the east of Outer High now has a 100% success rate across 7 wells, while the West of Outer High has a success rate of just 24% with 17 Wells. That could throw in an extra well carry for PCL, although I doubt anyone will pay for 2 wells.

Will PCL even get a deal done? That's another question and anyone is free to make an opinion. But if there is a deal, I think its 1 well carry + $10 mn cash + 24% retained interest. 2 wells will be much better and an immediate massive rerate of the stock, but I don't think these are bad terms either.