RE:RE:RE:RE:RE:RE:Target price on success: $ 24/share to $ 5,760/share That is a challenging question as there is no cookie cutter agreement with farm out deals. Much of how an agreement plays out is done through negotiation and lawyer-work. It will depend on how much competition there are between the majors to get in on the play. If they feel they have leverage, Recon could objectively be a minority holder on the play - something they would have to accept if it's not as lucrative as we all hope. Such leverage would be reflective in the terms of the royalties. But even in that situation the stock goes up from where it is now. The ultimate risk in this play is all the unknowns, it can more easily be zero than 42 as it stands right now because there's not enough science to back things up.
A hostile takeover is definitely a possibility, especially these days. There is huge consolidation within the energy industry, and buying out a small cap company by aggressively offering shareholders an irresistable number happens (see Husky and MEG a few years back). This would be instant gratification for all of us as we would be offered some ridiculous number like 20-50 dollars a share if someone really wanted the basin that bad. It would goto a vote if that were the case and it wouldn't surprise me if we all voted yes - something we may regret long term.
I don't know (maybe someone could provide me the info) what the company's take on C.O.S. (chance of success) is with this play, but being that we have no info on logging, seismic, or cores, it's low right now. And we are all getting ahead of ourselves because I can count a 10-20 variables that will be answered soon that can change my point of view on the matter. For anyone that wants homework, google the following things to give a rough idea of what's required to trust the basin.
1st Year: Logging Analysis
- gamma results
- density logs
- porosity logs
- resistivity logs
- %H20 Saturation
Second Year: Source/Reservoir Rock
- What is the Porosity
- What is the Permeability
- How deep is it
- How hot is it
- How old is it
- How big is the "trap"
Third Year: Reservoir Engineering Analysis
- OOIP, RRo, OGIP, RRg
- CO2 content, H2S Content, API gravity of the oil
- Bo, Bg, Bubble point
- Formation Volume Factor
- Volume adjustments at atmosphere
Fourth Year: Economics
- What will capital expenditures be (rigs, production facilities, pipelines)
- What will operational expenditures be (distribution, royalties, labor, etc)
- What are payback periods for the investment? Oil and Gas requires a quick payback to be economic
- If the work is financed, what is the ROI, DROI, NPV, etc?
All these things, and emotions, will play into what leverage ReconAfrica will have, how desirable the asset will be, and if we can go it alone without a farm-in deal, something I'm confident this leadership can manage if we go the slow and steady route.