Sometimes cream turns to curdle. But we aren't there yet.
The attempts to "cream the curve" have meant that each time the BoD have raised funds they have only attempted to raise enough for the next milestone event plus some contingency. With a view to the next raise being at higher SP and hence lower dilution. But of course, that strategy needs periodic drilling success (in the eyes of a retail shareholder). Something that we have not seen since early 2016. So we have been raising at lower prices and at more dilution. An unavoidable necessity given the aforementioned drilling track record and the forward plan of potential reserves to be unlocked. The money for exploration can only come from either equity or asset sale(FO)...and equity is required to build an asset available for sale(FO).
So perhaps we are a couple or more billion shares more than we could have been if IW2 had not found that our HRZ kerogens on the edge of the fairway had degraded to bitumen or that Winx had not found excessive clay impairing hydrocarbon motility. (Caveat: my depictions of my interpretations as a layperson). This shouldn't change the success scenario picture too much...for the
end game (all conventional
and HRZ monetised), but the 'end game' is likely a timeframe that most current investors do not have the stomach to currently contemplate. Probably still the best part of 5 drilling seasons, IMO, unless a low ball offer to be taken out is given and accepted. Low ball in terms of potential end game , but not low ball compared to today's prices...so anything may happen in the next couple of years. But all that not withstanding...the end game is still potentially a long way ahead. Hence dilution does materially affect the upside potential of various intermediate, individual investor determined, exit points.
For instance, the forthcoming Charlie drill in early 2020. We have a potential 420 mm bbls being qualified, across 7 distinct horizons encompassing 3 plays (Schrader Topset, Seebee Fan, and Torok Fan). Intersecting 4 of these 7 horizons are essentially for appraisal purposes as they are claimed (but untested) discoveries from a 1991 BP drill (Malguk-1). Hence the chance of success (CoS) is likely to be higher than, for example, Winx's 25-30%. At least to my mind. Regardless....the drill (C-1V) if successful, should reclassify some of that 420 mm bbls potential into actual reserves. How many? I don't know. Almost certainly only a minority, hence the predetermined likely need for a C-1H drill from the same bore in early 2021.
Below is a simple matrix showing the 'percent 1P' (out of the 420 mm bbls total) against various prices from the implied PMO farmout rate (2.8c aussie) up to the lower and upper ends of the OSH transaction for nearby Nanushuk....and a few random points in between. For those looking at this event (be that C-1V or a later C-1H, the lucrative values are only in the event that a minimum of 50-75% of the target is classified P1(PUD)
and that the market believes an OSH type transaction for them is plausible and imminent. At this point, we don't know...at least I don't...but this helps me tether my expectations to some quantifiable metrics that can be tested and monitored. I'd humbly suggest that each of us needs to 'punt' with some sort of reference framework. This one is one of mine.
So, while bottom right would be frightfully spiffing, it is also IMO highly unlikely, especially after only the first vertical drill (C-1V). Somewhere mid table on both axis is more plausible, as a potential post C-1V
upside, in my reckoning. Which is not a particularly attractive exit point for me, unless I was well and truly over the whole thing.
So what to do? Wait for the next piece of the puzzle (Rest of Area A; Area's B & C; HRZ FO, HRZ appraisal and delineation; YG FO, YG appraisal; Winx whatever) to hopefully get unlocked or exit stage right? Or trade in and out over the next few years/cycles? Cross that bridge when we get to it....but Charlie is only the next step.
All IMO
(20min delay)