DD,
Yes that's true, ROH didn't have to pay any promote to get into the Miradores Contract!
In order to understand this we need to recall some of the background...
HEC had a hard time getting anyone to farm into the Alcaravan after they drilled that first dry hole there in early '96. So when they got to talking to ROH and PKC, and HEC showed them the 2D seismic that had been done on the Palo Blanco prospect, ROH and PKC were interested but it looked like about a third of the structure identified by the seismic was off the then existing boundary of the Alcaravan Contract. Actually, it was on what was the original Alcaravan Contract, which was awarded in '92, but Harken had chosen those acres to forfeit as part of their deal (ie, after a free ride for a few years you gotta either drill or give back some acreage).
From what I could glean from several conversations, the parties had a "gentleman's agreement" that if HEC were ever successful in getting back that acreage, they would give both ROH and PKC a shot at a 25% unpromoted (at least in the case of ROH) interest in that acreage. Now, once they hit the Estero #1 folks were wondering whether Mikel would have a lapse of memory and say "what agreement?" and not let his Canadian partners in on it. But to his credit he let them in.
As a practical matter he had to. The oil business is a small tightly knit community and if you screw your partners on one deal it is very likely that you ain't gonna get any partners on the next.
Now, just what is the impact of the new acreage? I couldn't get a good answer on this. There appears to be a general feeling that until they do the 3-D shoot you can't really even venture a guess as to what's over there.
But I still bought some more stock today, increasing the # of shares in my position by about 9%. I feel the likelihood of them finding 50 mmbo field is now extremely high, and remember, 50 mmbo = $3 a share, a 50% gain from here.
Not sure what all the fuss is about the timing of the news and the dual trading. These are peripheral issues to the guts of what's going on IMO. Believe me, when they announce a 10,000 bod flow rate a couple of weeks from now you guys aren't going to care if this turkey is trading on FIVE exchanges at once, and they can put the damn news out on a SUNDAY for all I care.
That being said, I actually like the way the news came out. Whether it was by accident or design, I feel that this timing was perfect for the long-term health of this stock's chart. And I'm in this thing for the long term, so I couldn't give a hoot where the stock closed today, or where its gonna close tommorrow, or even the day after.
Here's why I feel this was good timing. Go back to March '97 and see the idiotic trading that occurred when this company put out good news. This is what happens when you have only retail investors as your base of investors. The institutions don't act this nutty. They tend to buy and hold, even through the good news.
So we need to find a way to get a base of institutional support underpinning this stock. One great way would be to put out any good news at such time as ROH did, therefore avoiding the retail-sponsored runup that could have occurred if they put the news out early the next week. This way the stock stays immensely undervalued, so when you go to New York next week and start talking to the big boys, you can tell them that the stock has not been hyped and as a result they are buying a "pure" undervalued stock. Institutions hate buying hyped stocks and love to buy stocks that are fundamentally sound and yet are still "pure".
Thus this is a phenomenal buying opportunity for ROH shareholders. Now you can buy knowing that all the pegs have been put in place to generate a solid institutional underpinning for this company, and it won't be a "one-day wonder" any more.
When they passed the 18 month long-term capital gain holding period here in the US recently, I figured I'd _never generate an LTCG since I never hold stocks that long. But I tell you, I am seriously considering it in the case of both my ROH and PKC positions. This new acreage will keep them busy well into '99, slowly but surely drilling it all out. And at the end of the period there is an excellent chance I will be looking at a stock that has quintupled.
And it will all be at very little risk. Let the wild & crazy guys go drill high-risk wildcat wells hunting for billion barrel targets in the Middle Magdalena Valley. I'm perfectly content to own a tiny company that just boringly goes about its business developing out these relatively shitty little oil fields in the boring Llanos Basin.
Remember, as Strain points out in his ROH report, another operator in this part of the Llanos, "Kelt Energy, has been able to develop these fields with no dry holes by using 3D seismic technology following a discovery". So ROH is just fitting into this already-proven model. |
