A rare opportunity IMHO It is my feeling that the only reason we are able to buy at these levels is simply because of the irrationality and capitulation we are seeing in the markets at present. Most of the institutional players are acting like kids and running scared. I mean the big play at present is to short the resource plays... Why short the resource plays when they are already decimated? This capitulation is possibly the sign of a bottom.
I have been a DEI holder since the CPP days and IMHO - they just had terrible luck with their last Bigstone well. 1 out of 10 wells in the region does not work from a technical point of view - you also have to keep in mind that DEI did not perform the completion -I don't recall who was hired for the frac but they are very competent - just the luck of the draw. It also points out the risks of owning smaller companies.. One well can send the share price off the cliff. Couple the bad luck on that well with the market malaise for the gassy plays and then it makes sense why DEI (AKA the Brook) has been decimated.
Now with Dee Cee Kay, Donnycreek, hereinafter the Creek - we have a different story. Firstoff I believe that the creek was Malcolm and Murray's first foray into public markets as they had done private transactions in the past. Furthermore they started with a bit of a pig with CPP - not a tightly structured deal to begin with so this time around with the creek they were able to start with a tightly held and properly structured vehicle.
My analysis is simple. I simply divide the overall numbers by 3 to get a more realistic value on these wells because of both the rapid drop off in the production profile (big at first which pays for the well quickly!) and because of the gassy component and the terribly depressed gas prices in NA at present. So I take the 2500ish barrels, divide by 3 and get about an 850 barrel well which I value at $50 mil per 1000 boe or $50,000 per flowing boe/d - same either way. This is a $42 million well which probably translates into about $15 mil for the creek since they will have more than 25% after payout. But seeing as they will have 50% of all future wells - this translates into each future well being worth at about $20 mil to the creek.
So if we do the math on 8 wells per section times 16 sections times $20mil per well attributable to the Creek - this is a jaw dropper at worst, and a get rich quick scheme at best. We are talking over $2 billion in potential. Lets just cut that in half again to be conservative but it really is quite the unbelievable opportunity. Now there are 3 major factors going forward as I see it that will cut deeply into what we might eventually receive:
-They will not drill all of the wells, probably about 10 and then put the company up for sale. The good news here is that with the huge insider position, it would be nearly impossible for any entity to take a run at these guys so any takeover would have to be friendly.
-Who is to say that all the wells will be as juicy and lucrative as the first. That said a fair amount of risk has been mitigated because of the success of our neighbors, the first wells success and what the seismics are saying.
-the third and most important factor is how Malcolm and Murray stickhandle the markets and dilute the stock as they go forward. If they allow some buzzards to take down a round at these levels with warrants attached - they we have been let down big time by management. Whoever takes down the next round simply has to pay for more than the one well. If they allow us any premium for our 8 net sections then the next round should be at over $1.00 and hopefully it is only a minimal round allowing the creek enough funds to pay for their share of drilling and completion costs on the next well and allowing them to pay for their share of tie in costs so as to quickly generate some cash flow. cash flow is key since it will greatly reduce the need for future dilution.
All I can say is these guys have a once in a lifetime opportunity, so we all have to hope that they handle the vulture investment bankers properly and deal from a postion of strength. Again - if anyone wants to finance them at present, if they wont allow a premium for the 127 remaining drill targets - tell em to hit the road. If I were management I would be in Toronto and New York over the next few weeks giving presentations and their pitch to as many fund managers and brokers who will listen. With only 17 mil shares os (I have 100k and they are tucked away and I will also be buying more) and such a tightly held deal - a monkey should be able to get this thing up to higher levels.
Good luck to all longs...
Jandd
Off Topic - I know we all know of too many bargains out there - and for sure the creek is one of the best. I received a newsletter from Cannacord whereby they were pointing out deals that were trading below the value of cash on hand. They did not mention the sickest deal that I have come accross - Independence Gold, V.IGO. Get this - they have an $8 mil market cap with $15 mil in the kitty - and they own a 600,000 oz gold equivalent project in BC plus about half of the white gold district in the Yukon. It's the spin-off from the former Silverquest that was the subject of recent takeover by New Gold. (New Gold only took 2 of the BC properties) And the former pres of Silverquest Randy Turner is still in charge. Again - seeing a deal trading at almost 50 cents on the dollar cash on hand plus a portfolio of world class projects is a sign to me of complete irrationality and capitulation, and that we might be near a bottom.