first star energy FST on the ASE Message Board

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Gold/Mining/Energy : first star energy FST on the ASE

FST 10.18

+0.3%

Aug 25 5:00 PM EST

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To: Diamond Daze who wrote (568)	7/18/1998 3:38:00 AM
From: grayhairs	of 754

Hi Chris, Thought I'd give you something to ponder on the weekend. Suppose that Apache et al announce that their next deep well will be drilled on Option Block #4. How should investors interpret this? In particular, should we conclude that Option Blocks 1, 2 and 3 do not warrant drilling and should be written off? Unless investors know the precise terms of the farmout agreement, it would be difficult to conclude that Option Blocks 1 to 3 do not warrant drilling simply because Apache et al announce that their next location will be on Block 4. For example, it is possible that the farmout agreement refers to the various Blocks numerically only for purposes of identification. Perhaps Apache's option is to drill and earn ANY block of its choice. That is, perhaps there is no current obligation to drill block 1 before block 2 and so on. So, if Apache elects to drill Block 4, should investors be concerned? Has the agreement been amended? Should we write off the potential of blocks 1 to 3? Consider another scenario where all 4 option blocks may have equal reserve potential (in the eyes of Apache). Also assume that block 4 offsets the largest parcel (or the most prospective parcel, or the only parcel) of lands available for acquisition at a future sale. Would it be reasonable to conclude that Blocks 1 to 3 do not warrant drilling just because Apache may spud a well on Block 4 to better evaluate the prime offset lands? For further thought, what can we reasonably conclude if Apache drills a shallow twin to the 3-22 well?? And, what might we conclude if they do not twin 3-22 but drill a stepout shallow well instead?? Later, grayhairs

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