gulf south, page-34

As effecive as ignore is, conversations can stir an interest to have a look....

okay lets go with "giving way profits for no valid reason"

To obtain these profits would require capital that could be used to expand organisational resources, leases, rigs, workforce etc doing other things. ie opportunity cost. completing contract drilling in 2012 was a good example.

What they have weighed up is that the reduction of profit versus the availability of capital plus cashflow from residual WI, when invested in expanding high impact drilling program it is likely to deliver a better ROI and/or lower risk profile over time.

This deal expands available capital through monetising lower value oil in ground to a higher value out of the ground without the need to dilute value of shareholders and instead increase the value of their holding.

This is spelt out in detail in their company announcement in October 2012. Note value of oil in ground as measured by market cap at time of annoucement has gone down. So he increase in value of oil extracted is greater now than at the time of the announcement.

We know that the high impact program has cost money so far (we had planned to spend some as part of existing strategy even without Gulf South) so some of that will be related to the increase in activity with this strategy (eg additional rigs, expanded drilling plan and permiting etc). We also have income from oil produced so far. The program has also delivered a "potential new discovery" and will deliver increased reserves.

As long as the costs of the high impact program (including forgone profits via Gulf South deal) are exceeded by income and value of increased reserves then nothing has been given away. On the contrary we will have reduced opportunity cost (what could have been) involved in retaining 100% of capital cost and profit of fairway wells.

It's called business development and increasing return for shareholders.