Thanks for your Nimin comments Ed.
As I noodle this through my head, I believe NNN must be frustrated with its prior Warrant Holders. NNN was actively encouraging warrant holders to exercise during the 2Q11, hence the large exercise by Commonwealth Bank and management. But the NNN share price shot up to $2.50 and yet the Warrant Holders failed to book a profit and sell their shares. Yes, the share price would have come down with their exercising and selling into the market, but I firmly believe that several additional million dollars could have been raised in 2Q11. Thus, my opinion is NNN has little empathy for extending the exercise period and happy to arrange new financing with Macquarrie/Byron investors. Macquarrie is primarily an Australian based bank, as is Commonwealth Bank, so it's possible that some of same investors that exercised participated in new PP.
In any event, in reviewing my financial model, it is obvious that NNN is in production treadmill for first three years because of WY production decline curve in first 24 months. But as you likely recall, after the first 24-36 months, that WY decline curve really stops declining and production stabilizes around a 30% rate of the IP for the next several YEARS. Thus, it will be much easier for NNN to replace production/get off the production treadmill starting in 2013. These WY wells are long life reserves and if NNN gets payback within first 2 years as projected, then the gravy starts coming in thereafter. By 2013, NNN will likely not have the wild production swings as new wells go into production versus the steep first 24 month WY decline curve. Recently, seems all the new wells come into production near each quarter end to show high exit rate, but then the decline curve sets in on their existing production, for the rest of the quarter.
Would be interested in your comments, but as I noodle this through, it appears NNN investors will need to wait until 2013 to see a more stable production and cash flow profile. |
