The Anxiety Effect: This is really important to take note of:
Both of the other two stocks I have compared EOG to have had major runs in the past week (African oil corp and CGX Energy). Both have been in the process of drilling wells and speculation are in high gear as to what a discovery will mean. AOI had a discovery in Kenya but no indication that the discovery will be economic/commercial but that has not stop the stock from gaining almost half a billion dollar in value the past week. Rumours will be flying about CGX Energy as their drilling approaches total depth and has/will cause the stock to gain big value without an announcement. AOI is now valued at $920 million, CGX now valued at $460 million. All of the excitement is due to their Prospective Resources Reports that show them have billions of barrel of oil potential - it's not the current drilling, the current drilling is only an indication that things are close to becoming known. EOG has more Prospective Resources than both and Chariot drilling that will start in 2 weeks or less will help to bring some excitement to EOG and others in the area.
In the early days these stocks were touted for their billion barrel potential and were valued at well over $100 million even before they raised any money to drill a well. Now consider EOG is only valued at $58 million with more resources than both and this should give you an idea of what type of upside EOG could get before spudding their own well. The biggest reason EOG is at $58 million is due to lack of exposure to the investment community (not many people know of them and no analyst currently covers the stock).
The low valuation of EOG will change in a hurry due to the anxiety effect and shrewd move by management. Here's what I mean:
1. With Chariot spud expected in 2 weeks or less, attention given to offshore Namibia goes up lifting all explorers offshore Namibia
2. As total depth approaches by end of May, rumours/speculation will lift the value of Chariot by a lot (just see the London discussion board), similar to what's happening with CGX Energy now and the other explorers in the region will benefit from this as well.
3. Shrewd move by Management - to get NI 51-101 resource reports out before Chariot reaches total depth. With the increased attention that comes to the region when drilling has started having these resource reports already done is key to players looking at the region - it puts you at the top of the list for take outs especially if the reports are good.
4. If Chariot finds oil, big players will get anxious to get in the basin really quick before things explode into a boom and EOG will be one of the companies at the top of the list to be taken out due to their large potential recoverable resources. This means EOG could get taken out before year end (before others make a discovery with all the other scheduled wells for 2012 and causes their value to go up even more) but many are unaware of the string of events about to take place. A take out could net EOG over $1 billion considering UNX Energy got $730 million. Just imagine what big oil companies will do if Chariot makes a discovery and given the 40 billion plus barrels estimated oil offshore Namibia - no one is going to want to be left out and EOG has the second most offshore acres plus they could have over 10 billion barrels of recoverable oil net to them after GUY (they already have 9 billion gross and 6.3 billion net). Big companies have anxiety too so don't be surprised to see some of them pulling the trigger early and buying well before year end.
This is not a post trying to pump, it's what is happening with CGX Energy and AOI, both having less resources than EOG - reality is that when Chariot spuds their well, anxiety will come to the basin and rumours/speculation will begin as to what the results could mean, Chariot stock will go up and others in the region will benefit as well.