Mikleds,
It most definitely makes no sense to expend cash now looking for something the company already has found. The markets have yet to reward HEC for the oil already found in the Bolivar. If you also read the 10K carefully, the company has contractual obligations to continue exploration efforts to hold on to the concessions they already have. They are in the process of talking Colombian government into extending the deadlines on these obligations.
Right now, the goal is to secure financing for the pipeline infrastructure and additional developmental wells on the Bolivar. They need about 25 million for the pipeline and another 25 million to drill additional wells. Currently they are trying to secure the financing from IMF type banking sources. It is much cheaper to do it this way than to borrow from commercial sources, which will probably be pursued if the international agency types don't want to extend the loans. As anyone who has tried to borrow money from banks knows, this can be a long and trying experience, but definitely worth it if it all works out.
It is true oil prices have come up smartly, with every indication they will maintain the current price levels. However, HEC must conserve its cash reserves for future opportunities. Taking the conservative route, we sit on the cash, borrow to develop the properties we already have, and take advantage of acquisitions when they present themselves.
If HEC secures the loans for the pipeline, we can anticipate some cash flow from the sale of the oil produced there and we will see an increase in the proven reserves in Bolivar when the additional wells are brought in. Remember, each well will not only produce additional oil, it will provide more concrete information on the size of the reservoir.
So why hasn't the stock price gone up with the price increase in oil? Simply because the market is still very skittish about how long these prices will be maintained. Naturally, the oil companies with the production flows, proven reserves, etc. will be the first to benefit. Somewhere down the line, as the markets see the oil price increases sticking, the benefits will flow down to the smaller companies and the drillers, etc. HEC still has rich potential, but right now it is only potential as far as the markets are concerned.
Figure the pipeline will handle about 60,000 barrels per day. Assume today's oil price of around 16 with a lifting cost of 5. This leaves 11 per barrel produced, split that in half, leaving, I'm going to say 5 per barrel in gross profit. 300,000 per day in gross profit per day, around 100 million per year gross profit, or about dollar per share.
This could be a very significant contribution to shareholder value. And does not include the increased proven reserves numbers inherent in developing the Bolivar.
Anyone want to guess on when we might get the financing we need to start the ball rolling? That's the same as asking when the share prices will start increasing. So guess what. We have to wait.
Regards,
Jack Simmons |
