It is becoming abundantly clear that DYOR is a term that is often bandied around, but is a process that is seldomly conducted. IMO, Research is not a reaction to a single data point. Research is not believing the word of an anonymous poster on HC. Research is a process of collecting various data points, validating the source, searching for alternate data that contradicts or supports the data you have gathered and then drawing a conclusion on a possible investment. Analyst reports ( from house brokers), articles in "The Next....", and company announcements are valid sources, BUT are largely aligned with management. So for me, that meant that I needed to try and understand the technicalities of the project myself ( a challenge for a non- technical person, that I am) and I needed to get a sense of the bona vides of the key proponents here (Wall, Basinski, Staley in particular).
My research has led me to the following understanding:
- We are a junior explorer and our drivers of value are the ability to accumulate prospective resource and then place them on the path to cost effective and timely appraisal to reserve status.
- As a junior explorer, we realize our ultimate value with a buyout/takeover by an established producer and that the journey to this point can take up to 5 years from initial identification of prospective resource.
- Oil and gas exploration is inherently risky and is often quite binary in outcome - success or failure.
- Conventional oil is much harder to find (i.e. Higher risk), though one found is relatively easier to extract. Hence the risk with conventional is heavily loaded towards the discovery stage with frequent occurrences of 'dusters' despite the continuing improvements in seismics etc.
- Conversely, unconventional oil is much easier to find, but relatively harder to extract. So the risk is lower in terms of identifying Oil in Place within shale, but is higher in terms of extractability (geologically and commercially).
- Comparing 88e's risk profile in the unconventional HRZ play with the risk profile of Tangiers's conventional Moroccan play is fundamentally irrelevant.
- We have a great triumvirate leading the Icewine charge in: the proven Maverick petro geologist Basinski who has form in the Eagle Gord and his own resources invested via BEX; the calm, methodical, commercially astute and connected executive manager Wall; and the 'been there done that' Staley on the Board. Their records are there for all to see.
- The prosecution of the Icewine opportunity has been methodical. Go back to the earliest presentations and re-read them with what you now know. It is amazing how much they have stayed to plan, only altering where pragmatically required to either lower risk, reduce expenditure or improve potential outcome.
- IW1 was of profound importance as it identified all the key attributes required to substantially derisk an unconventional shake play AND identified a massive prospective resource ( i.e. Goal one of a junior explorer). Differences between IRR and internal estimates were only of scale, not of discovery or risk.
- IW2 will be consequentially equally profound as it seeks to validate the commercial extractability of the Oil in Place determined by IW1. The company's recent change of tactics on IW2 has changed a lot of dynamics which have spooked some and further reassured others. While I still have some questions to resolve, I am closer to the latter camp. IW2 is lower cost, easier to execute and designed to provide far more points of information and categories of insight that a single lateral well - albeit one of the insights may be less conclusive than would have been the case with a single lateral well.
- The seismic analysis being currently analyses for interpretation will likely be.......well, seismic!! While taking longer than led to believe, it is also demonstrably more detailed and insightful than expected. Within weeks, it is likely to give us insight into the quality of the HRZ prospective resource within the acreage as well as on additional prospective conventional resource within the shallower Brookian sequence.
- Various conventional reserves have been proven (and extracted) on the North Slope by a number of producers. A neighbor to our west recently had a 16/16 success rate in wildcat (i.e. Not seismically targeted) drilling.
- Our northern neighbors, Great Bear, have conducted extensive 3D seismic and are embarking on conventional drilling (3-4 holes over next 6-8 months) close to our border.
- We are not in this alone - GB's efforts are informing and derisking our acreage, and likewise our efforts are derisking theirs. The possible synergies are positive for shareholder value.
- The triumvirate are making themselves available for many hours to a large group of retail investors on Friday 9th in London. Frankly, this level of access is not something I am used to and speaks highly to me of their character and intent.
- Things do change in the voyage of discovery. That is the nature of discovery. Those equipped to invest in an explorer do not jump overboard at a change in direction - unless and until they are confirmed in their belief that the change of direction is wrong. Often a change of direction is just a tack to seek the best winds to fill your sails. To me, that is what the revised IW2 is.
IMO, the announcement of the other day has improved the quality of my investment. It has reduced the risk of the next appraisal stage. It has ensured that the execution of this stage will not be dilutive on shareholders. It has ensured that the redesigned process adds more in insight to be gained than it loses. It retains the well for later targeted lateral testing. It teases on the possible insights to be gained on fuller seismic interpretation.
The project risk remains a 50/50, but the upside is looking more varied and more substantial.
All IMO and DYOR. GLTA.
(20min delay)