profile, BPZ Energy (BZP) -- I can't resist budding in here, you asked a lot of good questions that deserve serious attention. Items in italics are excerpts from your post.
the reverse merger to obtain listing in the markets
Doing a reverse merger with a publicly traded shell is a common way of going public. BPZ had some accounting problems with their reverse merger transaction but those are all far behind them.
the possible risk of investing in Peru and Ecuador
This has been covered here previously, I tried to find the discussion without success. Check out the discussion of this issue on the Jefferies and Morgan Keegan reports, which can be downloaded from the Energy Sector Investing page on Yahoo Groups (let me know if you would like a link to this, I don't have it right at hand but can find it again).
Assuming they deliver it, 2k bpd or 12 mcf of gas that is the equivalent of 2k bpd * $70/bpd or $140k/day or approx. $51.1 million in revenues per year.
The company's market cap is about 6-7 times that much and who knows what the cash flows will ultimately be once costs stabilize after the ramp up?
First of all your price for their realized oil price is way too high, they will get a substantial discount to the WTI price due to quality and transportation issues. I am using $50/bbl for my calcs., based on a WTI price of $70. Second of all, your use of the production rate that is required in order to trigger the management bonus as an estimate of current potential cash flows is absurd, given that they have tested a well that produced about triple that amount on test. If they had set the bonus trigger at only 500 barrels a day, then using your logic the stock would even be more overvalued, which is absurd.
As with many international E&P companies that are in the relatively early stage of their development, its way too early to try to be thinking about "potential cash flows once costs stabilize". This is the beauty of these kinds of investments, that sort of mundane analysis is not all that relevant.
They have eaten up lots of cash ($12 million+) and plowed it into platforms just this quarter alone, but how much more will they eat before they further dilute shareholders is the question in my mind?
I believe they have enough cash to complete this 14D well and drill 1 more, before they need to raise more cash. We will get a better understanding of their cash situation when the 2Q 10Q gets filed, which is due a week from Friday I believe. I believe this gives them plenty of time to accomplish most if not all of the goals they have laid out for this year, which are shown in a slide in their latest presentation on their web site. If they accomplish these goals, it would seem likely that the stock price would be significantly higher than it is presently such that the next stock issuance would not be dilutive to someone buying at the current quote.
Their debt is nearly nil -- why when financing has been so cheap?
Debt financing obviously would not be available to a company such as BPZ up to this point since it has no steady stream of cash flow. This will change once they bring in this 14D well with a gas test of > 20 mmcfd. At that point they will have production tested the requisite 3 wells capable of producing 20 mmcfd in order to be able to get their debt financing from IFC. So about a month from now the company should finally be in a position to get debt financing.
Will they turn cash flow neutral or even positive?
I fully expect them to be cash flow positive starting in 1Q '08, just based on getting the 21XD well into oil production.
Are they headed by a stock promoter who will extract lots of value prior to leaving shareholders with the bag?
No they are headed by the former head of Exxon Peru and his son, both Peruvians who have never had anything to do with stock promotion.
With the stock tanking so severely recently, it has caused me to wonder whether I may have made a mistake about this company, and missed something. So far I haven't been able to come up with any clues as to what I may have missed about this company. I have made the above response to your questions in the hopes that you or someone else can help me understand what I could be missing here.
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