LFD Risk Assessment
Positives
- Sitting on a discovered oil resources with huge upside
- Field considered 63% probability of hitting oil by independent D&M
- Field is on land and not offshore
- Target formation is shallow (less than 2400m)
- Field has extensive historical data to minimize hitting water & dry hole
- Environmental risk is low since drilling on land (not like BP or other offshore drilling)
- Since reservoir target is shallow, drilling risk associated with deeper formations is low and the cost of drilling, testing & completions is therefore lower than deeper wells
- Lessons learned so far from the executions of other KRG juniors like VST, WZR, Sterling, Gulf, are invaluable
-Potential for very huge resources in billion barrels!
- Early cashflow
- Huge capital injection of atleast $65 million in warrants exercise if company does well before August 2011
-If we discover oil, LFD would be a potential target for takeover as there are so many MAJORS with eyes in KRG who had missed the boat due to their concerns ininvesting in KRG. Cash rich Companies like SINOPEC (ADDAX), OMV, DNO, NIKO, TALISMAN, DANA, Marathon, Heritage Oil would easily make an offer to LFD if we hit oil.
- Note that big time players like Shell, BP, EXXON, Chevron are all sitting on the sideline watching KRG! Once there is clarity on the oil laws, they will start a buying frenzy in the KRG region.
Negatives
- Political risk is medium (improving in Iraq )
- KRG Oil law PSC not approved (this one is also not likely but it remains a risk until there is clarity on the issue)
- Financing risk (normal with most juniors - As drilling of the first well is expected to cost less than $15 million plus the future warrants of the table, I expect minimum dilution from financinig)
-Hitting water or a dry well (this is very low as the field has been drilled and the resource flank and formation types vs depth is fairly understood.)
General
The positives outweights the negatives. Only time will tell.