Southern Pacific Resource Corp STPJF

RE:RE:STP Debs vs. The Rest

[monzie]

"There is real value at STP-Mackay and Senlac.  The question is will current equity holders realize any of it?  Likely very little.  It seems clear that success with the big bet on the ICDs will only buy STP the ability to raise additional funds (equity or debt with warrants likely), both of which which would be seriously dilutive to current equity."

For starters do you really think the stock price would remain at 6.5 cents if the ICD's are deemed a success and positive cash flow is achieved?  I imagine it would be much higher when news breaks out that it has been achieved.  Not to mention that if they do raise funds through debt with warrants let's say 100 million warrants, chances are the warrants would be priced significantly higher than what the stock price happens to be at the time.  So let's say STP gets the good ICD news they're hoping for and the stock moves up to 30 cents a share, the warrants would most likely be priced at over 60 cents and there would obviously be no dillution until then - and let's be honest how many people here wouldn't sell before it ever got to 60 cents a share.  

And if they decide to go the equity route and announce a private placement for say 400 million shares at 30 cents a share for 120 million dollars, sure that would be extremely dillutive but chances are it would ensure overall survival of the company as they'd have the money for the drilling of the additional wells as well as Senlac, resulting in let's say 7- 8000 bbl/d from Mckay and 3000 from Senlac, which would be roughly 3- 5000 bbl/d profit (assuming that 6000 - 7000 is break even for the company).  And what would the market cap be worth then?  Certainly not zero. 

Not to mention the fact that you've left out the possibility of obtaining a higher 1st lien debt to buyout the Credit Suisse one (akin to the revolving credit that was bought out by the CS loan), or an increase to the Credit Suisse loan itself - if Credit Suisse lent 150 million based on 2000 bbl/d from McKay I don't think it's too far out there to think that they might lend more based on 3000 to 4000 bbl/d output with a potential of 7-8000 bbl/d- sure interest rates will probably be higher but so will production after the drilliing. 

So there are alot of other possibilities out there that would result in the equity not going down to zero. But of course it all comes down to the ICD results, and we won't see anything really until November or so. I assume the first of the 4 new ICD's have been installed already and that well is up and running so maybe Lutes and company will be nice enough to tell us the production rates on it at the end of the month CC so we can get some sort of idea.