Just My OpinionThe numbers of this latest press release do tell an (ugly) story for sure. A seemingly pittance for 35% of the block. However, 3 years ago FEC paid approximately $17M for 33% WI and now they paid $129M for 35% WI (roughly 7x more). Result, appreciation of value over the past 3 years. Positive.
Could it have been more? Sure. Can we go back and change it? No. Just remember that I think the most important factor in this deal was the weakness that we were dealing from, which in large part was due to the incompetent management. Can we change it? No. Reality is we were in too tight a spot to get a Major to buy in. The reasons could include;
1. the Major’s pre-allocated budgets- Where are they going to find the $2 billion we expect them to pay in the middle of the budget year? Good news is, that I presume the Majors have taken a hard look at the data room and know what is there and they can now budget accordingly on doing an acquisition upon WEI results
2. Operatorship – Would you invest $2B and let CGX/FEC run with it? I hardly see any major farming into a deep water offshore well when they can not get the operatorship and I believe CGX already had the well design when they did their presentation in May.
3. IMO the biggest factor leading to our situation was the threat of either bankruptcy/being taken out for pennies on the dollar with no upside or being shut out of the hole. Step back and look at the facts; $75mil in debt with no revenue and no tradable asset other than percentage points on C block while considering Kawa is still inconclusive and will take another appraisal hole or two to really know what we have. I really thought bankruptcy was not out of the question and our investment would have been NIL. Alternatively, FEC could have taken us out for probably less money than they committed for this deal. Look at the trading price that last 10 trading days. They could very well have offered a premium of 30% for $1.30 and who knows if that would have gotten through the minority shareholders. For all we know, DeAlba’s friends own millions of shares and could vote for it. Then we lose all our upside. According to Taal, they could have just manipulated it down to 50c and offered 75c. Finally, they could have just shut CGX out of the Wei drill completely which would have been a disaster. These contracts as you might know have provisions for companies that can not pay allowing the company who is paying to take over that percentage. If CGX has $0 to pay, guess what percentage of the potential 500mil barrels in Wei that gives us? 0%. Then where are we?
So, am I thrilled with the deal? No Am I relieved my large investment still has a chance? Yes.
Lets look at the positives of the deal;
a. We get to live another day and participate in a well with a high probability of success with no further cash injection.
b. Balance sheet is clean with no debt.
c. Cash available to finish the port (I think) and finally bring in revenues so further support share price. Developing a series of positive cash flows will facilitate the ability to generate more conventional financing with financial institutions and secondary lenders, thus helping avoid giving up future value.
d. Significant lessons and knowledge learned from Kawa drill to help further the chance of successs for WEI.
e. Better positioning ourselves to obtain a higher dollar value from a Major upon successful drilling of the well.
f. Others claim that FEC and its affiliates are keeping share price down so they can grab more shares. That is a great sign, considering if FEC wins so do we.
Finally, I get the fact that shorters/bashers are here to talk negatively about the Company to chase down cheap shares. What I do not get is why people with money in this investment would continue to bash the Company for what it has done in the past. By doing this, are you not indirectly hurting your own investment? We cannot change the past and the future looks bright. Look forward not backwards.
GLTA.