RE: 100 different scenarios....“”but my point is that this company is not a "one hole wonder" or "one shot deal". They may or may not be successful, but they have several chances to succeed and the means/financing for probably a few wells.”
Agreed. I never said this is a one shot wonder. People are putting words in my mouth. What I said is they have 2 options to minimize dilution. If you have a success then it’s up to CGX to either sell after their free ride from the farm-in wells are over or they can dilute at a higher SP and continue on drilling and testing.
But if they miss on those covered farm-out wells. Then what? The SP falls to where it started. Are you going to dilute at $1 to drill more wells, when they cost US$80-90 mm each. One well would almost double the share structure of the company. You would probably have to go the JV route again and do the dance again and wait again. If these wells cost say US$10 mm/each that’s one thing, but they don’t. You could do it. Sure. But the dilution would be enormous. And every time you dilute that hard it really kills the total upside/share.
”When the sp was trading at $4.50, Kerry said that CGX was "very undervalued".”
Tell me the name of one CEO that doesn’t say that their company is undervalued. Its part of their job to do so.
”I remember reading your posts TO1 from the oilexco boards, so you know very well the potential CGX has. All the same could be said before Oilexco started drilling in the north sea, and they were very successful until they lost their line of credit in the market crunch. I personally think CGX has way more potential than Oilexco did if they do find oil.
I don't see any reasons why not to invest in CGX right now, only upside. I believe anyone can buy now and sell long before they reach TD and make a good return.”
I completely agree. Where did I ever say this was a bad play? I’m calling for $2.36 before drilling which is 181% higher than where it is today. If you take the $4.50 it went to in the past and place the 20% dilution on it and drop the $15/bo to $10/bo b/c of today’s metrics (not at $147 oil today) - $4.50/1.2/1.5 = $2.50, which is 6% off my target of $2.36. Big Deal! – close enough.
I’m talking about multiple 600 mmbo (gross) targets on their concessions. Oilexco’s biggest was Huntington (estimated at 400 mmbo in 2 zones).
The upside is there. No one in their right mind can dispute that.
But at the same time Oilexco had $10 mm wells to drill and if they hit nat gas the infrastructure and the UK market was there to bring on that gas at a great price. They were also drilling targets with proven deposits all around them which lowered their exploration risk as well. So its 2 completely different cases.
There is greater upside in CGX. No doubt, but also more downside risks vs any N. Sea company.
Everyone always wants to talk about the upside, but never the downside. And that’s a huge mistake when statistically most wildcat exploratory wells don’t work.
There is no downside until they drill and it will run up, unless for some reason the farm-out doesn’t happen in the first place. But I think there’s a very small chance of that happening.
The closer you get to drilling expect to hear from Pescod and the likes at that time going crazy on their newsletters. At that time there is no risk at all b/c spec $ will be flowing in and you can sell at a higher price if you want to. The risk is if you hold and it doesn’t work out. Then the SP drops to where it started its run from. This is textbook on these plays. It happened to ENG. It happened to HOC in Uganda on their 1st ever well drilled (large gas find) 4-5 years back, it happened to BUK in the N. Sea on their 600 mmbo target dud 1.5 years ago, it happened to AEN when they drilled their big dud in Australia 5 years back, so far its happening right now to WZR (gas find - Iraq)…etc. At least WZR still has a lower reservoir to target in their current well, but the 1st reservoir was not good – lots of nat gas.
At the time they were all tiny companies with next to no CF and huge upside targets that didn’t pan out. Their SPs did the same thing on the way up as they shot up hard. And they all acted the same on the way down as they went right back to where they started from.
So the short-term upside to drilling is excellent. Maybe not the 5 baggers some are praying for, but still excellent. But the risks rise drastically as soon as they drill. At that point its they hit and your off to the races or they don’t and your left holding the bag. That’s the choice you take on these plays when holding after the drill starts to turn.