RE:RE:Geological COS and chance of development risk Saved this post for myself to read when a small doubt is starting to build up in my head.
Elephants wrote:
A couple things on this that have been discussed before. The key issue is the limited amount of data the Sproule identifies and is not in dispute. Because they have limited information Sproule must use more conservative numbers. Once the first well is drilled there will be a better sense on the play and, if correct, the price will sky rocket. If incorrect, there may still be commercial O&G but not to the level expected or possibly nothing worth exploring.
If Sproule's numbers suggested what Jarvie thinks, this stock would already be trading in the high double digits.
Looking at what we do know, ST-1 (which is not in the Kavango) shows source rock of 400feet. The aeromag suggests this layer thickens to up to 6000meters and extends into the Kavango. ST1 wasn't commercial because it didn't have the right temp/pressure. If it extends into Kavango and is as deep as aeromag suggests, then there will be a zone of the right temp/pressure. Sproule assumed it did not thicken whereas Jarvie assumed thickening.
In addition, to ST1/aeromag there is the shell play that is producing and appears to share geology with Kavango.
Also, Sproule only looked at unconventional whereas Jarvie looked at both. The cost and risk in unconventional is much much higher. Recovery is vastly different as well.
Lastly Sproule discounted for a lot of risks, some of which may or may not be an issue.
This is a risky investment and putting your entire life savings in any single investment is silly. But is it reasonably to hold a piece of it? I would suggest it is and I do hold some.
We won’t know anything until those first wells are drilled and there is some seismic. It may even take a few more wells to really start to understand it.
But if that first well goes through 6000meters of source rock with 600-700 feet in the pay zone as Jarvie thinks - I'm buying a Lamborghini - I assume other investors will too. If it looks more like Sproule’s assumptions, I'm still buying a Lamborghini. If it doesn't show great results, they will likely drill a few more spots and hopefully find a better spot. only need one decent conventional well and this is still worth several dollars. A grand slam home run is possible and it will be worth an obscene amount.
The results could be the sp is $0 or Sproule's low case 10-15 bagger - midcase 50 - 100 bagger. Sproule's best case is a 150 bagger. If Jarvie is right, it could be 200-300 or possibly a 1000 bagger. We won't know until drilling results are in.
I think there's a good chance it will be $3-4 when drilling starts and then we will see what comes of it. At $3 Recon will have $30million more to drill with. It was $.90 before the financing when there was financing and timeline risk. Now that that is gone and we know 3 wells will be drilled with seismic - it's worth at least double that. The geology points to a promising play and as we get closer to drilling more will want a piece of it. Every geologist I have spoken to thinks it is very promising.