Paul, there is always the possibility that they find an elephant. As you know, I am in Arakis, and they have a mini elephant so far with a potential (according to the same Strain Report) of between 5 to 13 billions. Of course they own only 25% (the pitfalls of financing), and now they are finding it extremely difficult to find $200 MM to finance their part of the pipeline. So an elephant might not be enough, they may have to bring in deep pocket JV which may treat them as well as Arakis has been treated. Since the floorless will be the first to know, you will see a sizeable price recovery (I do not know to where, maybe even a new high around 8) started by their short covering and continued by the leaking information. But guess what, once the initial rally peters out, the floorless will be back there, saying "thank you very much" for providing us with another opportunity to recoup our investment (for the third, fourth time? who knows).
Remember that it took Atlantic Richfield few years to recognize the Elephant (and their estimate was half the real size), so unless we get four, five wells in a row each spurting at 25,000 BOPD or there about, rallies will be shallow, and each discovery will bring a rally just under the last top.
It would be better for the shareholders if HEC found a 50% partners that will shoulder completely the financing of the venture including repayment of these dreaded floorless. Otherwise, the floorless may end up with 50% of the company anyway, and no funding be present.
Zeev |
