RE:RE:RE:RE:RE:RE:Slow trainI don't mean to be too Pollyanna-ish in my earlier post. There are definitely negatives due to being at Day 44 for the Well 4 drill effort (instead of the initially projected 10-day drill effort), such as:
1. The company is clearly off the well completion plan earlier this year.
2. The company's cash position, though still quite substantial, probably won't allow the company to accomplish as much as previously planned/budgeted without waiting for revenues from early wells or raising additional capital. What compromises will be made in a revised plan?
3. With the problems apparently encountered with this well effort, (a) will it be a viable production well, (b) is this an indicator that the geology will make many other wells more expensive to drill than previously estimated, or (c) does contracted drill rig company have sufficient skil/ability/equipment to support the company's drilling plan in AZ (an earlier commenter commented on some perceived "sloppiness" in the personnel's activities), and if so are there other drill rig company that might be more capable? (Remember this is Arizona, not Texas or the Bakken - I'm guessing there aren't too many options.)
Aside from the drilling, I continue to be concerned about the company's recent stock option award practices (aside from my previously stated (and seeming now moot) concern about the timing of the recent option grant). From SEDI filing information, it appears that currently outstanding stock options include:
1. Robert Rolfing (CEO/Board Chair): 1,462,500 options (225,000 new on 6/2 @ $4.25/share)
2. Don Mosher (President/Director): 712,500 options (175,000 new on 6/30 @ $4.25/share)
3. Jim Cronoble (VP of Exploration/Director) - 500,000 options (100,000 new on 6/3 @ $4.25/share)
4. Jenaya Rohlfing (Director) - 425,000 options (100,000 new on 6/1 @$4.25/share)2.
5. Kelli Ward (Director) - 400,000 options (100,000 new on 6/3 @ $4.25/share; 200,000 new on 6/3 @$2.70/share)
6. Scott Davis (CFO) - 390,000 options (50,000 new on 6/3 @ $4.25/share)
7. Soren Christiansen (Director) - 350,000 options (100,000 new on 6/3 @ $4.25/share)
8. Frances Murphy (unknown - perhaps the rig operations manager referenced in PR?) - 90,000 options (50,000 new on 6/2 @ $4.25/share)
9. Edward Schiller (Former Director) - 50,375 options
Bios for most of these folks are here: https://desertmountainenergy.com/about/
First, I expect and want management to have strong incentive tied to the value of the stock, so I fully support the option awards and levels for Robert and others whose operational business execution will be so critical for us through the rest of the year. I similarly suport strong awards for Mosher, Cronoble and Jenaya.
However, such large option awards to persons who are purely directors (not officers with any real operational involvement) is concerning. In particular, the awards to Kelli Ward seem expecially suspect. She is a medical doctor who has been a director for only a few months, has no drilling, energy or natural resource experience of any kind. Yes, she is currently the head of the Arizona Republican Party, but I firmly reject that this helps in any way with permitting: (1) I don't see the commission as having been anything but supportive and swift with respect to any drilling application the company has actually filed, and (2) the commission is an administrative body that would not likely react well if Ms. Ward actually tried apply any influence (especially in light of her current role as the head of the Arizona Republican Party). I also reject the suggestion that she can help in any way with well 3 and the associated dispute with the city of Flagstaff. This dispute is now in the courts, and there is nothing that she can do to affect that judicial process. I also highly doubt she would be effective in brokering any sort of negotiated settlement with the city of Flagstaff, which is certainly on the liberal side of the political spectrum within the state of Arizona. As the head of the Arizona Republican Party (and as a person that is clearly characterized by Democrats in Arizona as being relatively extreme), I don't think Flagstaff city leaders would want to have anything to do with her or companies in which she is associated. Being from a smaller community in rural Arizona (though far from the Holbrook basin), perhaps she could be help in certain matters that might arise with respect to the small rural communities in which DME production is planned to take place. However, I can't envision what such issues of significance could actually arise, or how much value she could really provide in such situations. I just don't see how someone in her limited role (only a director) and relevant experience (none) merits that type of compensation. I certainly hope the company at least has some helpful vesting provisions built into her stock options (are are not 100% vested at grant), but the company really should communicate what value she is providing to stockholders if she receives such a large stock option position.
Also, a portion of her recent stock options (on June 3) appear to have been granted at $2.75/share instead of $4.25/share like the rest. This would have been substantially below the traded stock price - I don't see how the company could do this without created all sorts of legal and tax issues for itself.
Perhaps I am missunderstanding the SEDI information that I'm seeing (if so, please correct me), but overall the company's stock option award practices (especially with respect to Kelli Ward) are highly concerning (at least to me).
Robert doesn't need to come out and answer these (and other questions) right this moment, but personally I think he must do so relatively soon as the answers become available. These questions must be answered even if Well 4 results are as good or better than Wells 1 and 2. I'm not trying to critical, but simply identify what answers the company should endeavor to answer in order for the market to re-value the company at higher levels. I'd love it if they held another Zoom meeting with stockholders (though I would want Robert to be cautious in setting expectations about the future), but I don't see that happening at this point.
It's easy to buy into Robert's confidence in the the geological assets based on early and historical well data. But keep in mind this company (aside from drilling a few wells that are still not actually producing anything today) is really only: 1. some still-specualtive geological assets, 2. a very compelling business plan, and 3. a small group of experienced people that constitute management. That is not what most investors define as a real "operating" business. Certainly, investors have at times rewarded mere "business plans" with high valuations, but generally the market waits until a business plan has actually matured into a business that produces profits (or at least some revenue) before the market really takes notice. There is still have a lot of work to do to get there - even though I continue to believe we will get there and it will be with the wait.
Strangly, in many ways there are many more questions and there is much more uncertainty at this moment (aside from the cash now in the bank, which really is a bit deal) than we had early in the year. I am very hopeful that we will soon look back at this time as a small bump on the road to very fruitful outcome. I remain optimistic that the company will work through its growing pains and deliver a great outcome for stockholders - even if it's not the "ideal" outcome when we all run the "business plan" math right now and even if it takes a bit longer than the company previously forecasted.