Annual Report notesI have been following LFD for a few years and finally got in. Got 100,000+ shares and would like to get another 200,000 or so; however, today I went over the Annual Report for the Financial year ending Dec 31, 2010 and I saw a few things that made me concerned:
Page 17, Section 9. Commitments and Contingencies
Concern #1 ...”the company amended the payment schedule of the second tranche of capacity building payments under the PSC, which became due during the third and fourth quarters of 2010 and remain payable and are past due at December 31, 2010”.......LFD owns KRG $25 million (5 monthly payments x $5 million = $25 million and it was due in August, 2010).
Q. How big of a problem is this?....especially now when Iraqis are reviewing and validating the PSCs. Could they lose their license because of this?
Concern #2 “Longford has agreed to carry the 20% working interest held by Petoil for the first US $25 million of gross costs”.
Q. Why would LFD do this for? ....because Petoil doesn’t have enough money to cover their share? Also, don’t forget that the JV partners are responsible for the Government’s 20% net participating interest, which means LFD is responsible for 72% of the drilling cost...if my math is right (LFD’s 40% + Petoil 20% + KRG’s 12% = 72%).
Concern #3 we are in the second sub-period of the exploration period (1st was seismic, studies, mapping, etc.), which includes drilling two exploration wells for a minimum of $20 million.
Q. Does anybody know how much will it cost to drill? I know that these are shallow wells, but still, I wouldn’t be surprised if it was around $10-15 million each.....especially if they ran into some kind of a drilling problem. Nothing in the report on this. Btw, two wells must be drilled by June 11, 2012.
Concern #4 All LFD insiders and large shareholders incl. RBC Capital, Soros Fund, Fidelity Invest., got in at
.3+/share.
Q. Why didn’t any of these guys participated in the last financing? It’s not like LFD was raising $100 million +. Some of these guys spend more than $7.5 million on coffee a year...well, including sandwiches. And the whole financing issue – first at
.25/sh, then cancelled and the news announcement that made everybody scratch their heads, and now $7.5 million at 20 cents.......I guess it takes years to develop the qualities that differentiate men from boys .
So, the financial summary as I see it:
- Capacity building payment to KRG ($25 million) - overdue
- Drilling Cost (72% to LFD) ($20 million) – estimate
- Cash as of Dec 31, 2010
.865 million – probably spent it by now
- Cash from recent financing $7 million ($7.5 million – 6% fee)
- Deficit ($38 million) approximate
I hope this doesn’t come across as too negative. I really believe there is oil and LFD is in the good position to find it, but they will need a lot of money to do that and the execution is a real concern to me. I would appreciate your comments, corrections, etc......I could have misinterpreted and/or missed something when I read this report. Thanks.