Buying Opportunity or Not? I would note to others that STO under $4.6 is likely a good entry point. Simply put, the management of PRY and STO will have to find a way to get STO back to close to $5 by voting day, otherwise why would STO shareholders take the following risks:
a) be acquired in an all stock deal. No cash, just stock from an E&P whose shares have languished in comparison to Spartan and others (see RMP, TOL, MEI as examples)
b) allow their future shares to be consolidated 3:1 (consolidation is usually unhealthy for the wallet). Yes, a few more investors might come in, but Spartan will be over $5 on its own on a consistent basis very soon.
c) let the owners of STO and PRY vest their options/warrants/rights and lessen their skin in the game. This is not immediate, but these corporate owners can then dump all the shares they want anonymously into the market, further holding down the PRY share price for months and even quarters.
d) go from a growth E&P, whose shares have increased by 40% in the past year, to a dividend payer like CPG. Well, CPG are one of the best no doubt. But while paying out 7% or so in dividends in the past year, CPG shares have fallen the same amount. In essence, investors in CPG are invested in dead money. Meanwhile, Spartan shareholders have seen their shares go up 40% in the same time. And by the way, what have PRY shareholders enjoyed? Well, they have enjoyed about a 22% loss on their money.
e) allow increased risk for asset growth. While PRY's waterflood is promising, it is early stage. It might be prudent to see a couple more quarters of this before Spartan shareholders can be convinced of the numbers being touted by Pinecrest. As well, Pinecrest cannot drill in the summer like Spartan can, so summer money is dead money.
Meanwhile, Spartan (after they spend $10-20M to increase their battery capacity), can drill at will. At 6 well spacing, Spartan have about another 240 wells to drill (300 - 60 to date). Let's say that only 80% of these are sucessful (190 wells). At about $3M NPV per well, this leaves Spartan shareholders with at least another $570M to the bottom line. Current diluted share count is 91.4M. Cut this any way you want, Spartan shares will only go up, and at a faster clip than a CPG like dividend clipper.
f) change the management. While Pinecrest management may be good, are they as good as Spartan's management? Why not have Spartan run the new company?
Thanks for reading.
Larsen6