Hi Ronraine,For my two bob I'd add something around the...

Hi Ronraine,

For my two bob I'd add something around the management ownership of the company and how acquired. Does management own 1, 10 or 80% of the company. I like out of the money options with a good target. I don't like gifts of fully paid shares.

Management & admin costs may differentiate those companies who provide a lifestyle for their management and those that provide alignment between management and investors.

Timing and prospect maturity is a key distinction noting the disparate increases in value for each stage. Permit acquisition, regulatory approval, funding, seismic, funding and partnerships, drilling, development finance, initial production, ongoing production and sales ending with abandonment and its associated costs.

Portfolio depth... does the company have 1, 10 or 20 prospects? Does the success of one prospect increase the probability of some or all of the remaining prospects?

On a subjective note I look at management quality as cliché as it sounds. For this I look at a track record of delivery, a clear value proposition and a strategy to achieve it, the ability to sell the story, tight corporate governance and the all important ability to raise funds and close deals.

Country risk is kind of in the middle of the road between objective and subjective. Questions I ask are: has oil been found in the country? Is there rule of law allowing the operator to produce and recoup investment? Is there infrastructure to service, transport and consume the product? What is the government take in terms of royalty and tax? Is there a track record of foreign companies making money in the business? How long does it take from concept to production? How much of that is the approval time of regulatory agencies?

IMO, oil and gas is a risk management game. High risk and high reward. A key factor is the ability to manage and mitigate those risks. I'm interested in companies who come up with unique strategies for common perceptions. It may be outside the realm of geology such as a change in the underlying oil and gas law, de-nationalizing exploration permits, throwing out non-performing operators, international agreements on resource sharing etc.

Finally I look at the potential leverage. If the company achieves its objectives will it grow by 10, 100 or 1000% ? This all leads to an investment target and exit strategy for each play. Any disparity between the target and the actual share price is an opportunity to test my assumptions and make new decisions to sell or accumulate.

Thanks for your question. It’s an opportunity for me to crystallize my thoughts about this exciting game we play and I’d be interested on other opinions and strategies that the HC community has on the subject.


Regards,
OPT