Repost: Zeev, I made a mistake on the seismic market numbers re SFD
I just went through some of my notes and the seismic market in 1997 was $3.5 billion, not $3.7 billion. As purely a mental exercise I assumed the SFD could grab 1% of the market the first year, 2% the next, 3% the next, etc... up to 10 years, then assumed they threw the SFD technology in the garbage (zero residual value), discounted that back using 15% and it comes out to between $50-60 a share. Of course that is just if this device was being used merely as a service company like the seismic companies are today, and, AND assumes Pinnacle is just another service company getting paid time and materials. Instead, Pinnacle is getting a very large percentage of the fields they find. Therefore, one can not value Pinnacle like that because we have no idea what they are going to find. If one likes junior plays this is the ultimate junior play because if you believe what Encal, Renaissance,and CamWest are saying, then you have a very good chance of major finds and historic success rates.
For example, Shoal Point is theorized to contain about 200 million barrels of oil. If you assume only a long term oil price of $15 a barrel, that is $3 billion worth of oil. How many Shoal Points are left in Canada? My guess is that with 3 airplanes, flying full time, Pinnacle could map out the whole of Canada in 18-24 months. At 150 miles per hour times only 5 hours of flying per day, 5 days week, 50 weeks a year, times three airplanes comes out to 1 million linear miles of survey in 24 months. Figure 1/2 mile wide passes, skipping much of Canada that does not contain hydrocarbons and focusing on the key areas of the Yukon, NW Terr, Albera, Sasch, and Eastern Canada. I figure 24 months and you have a treasure map of the whole of Canada. What is that worth? I am willing to bet more that the current market cap and then some. Assume by the end of this year Pinnacle becomes the lead partner going forward as they state in their business plan. How many Shoal Points does it take to make the company's current market capitalization of $280 million? I am not an oil expert but if Shoal Point is 200 million barrels, figure that is worth... what... $1 billion in the ground? Maybe someone could guess better than me. For the sake of argument let me have the $1 billion number, well, that is $71 a share in PSFD's stock if one were to assume PSFD had been the lead partner and there was no one else in the project. They found Shoal Point flying around AntiCosti Is. over two weeks in terrible storms last year that limited their flight time considerably. After all the structures they found in the area were predicted to be dry by the SFD they were about to go home when the weather cleared and by chance they headed over to SHoal POint and the SFD lit up like a beacon. Just give me 2-3 Shoal Points a year and I will be a very happy camper. The asset accumulation potential with the SFD, in my humble, yet oh so biased opinion, could make Pinnacle Oil one of the fastest growing oil companies we will have ever seen. These guys can find prospects faster than anyone can even drill them. Looking down the road they could have a whole bunch of partners drilling so many prospects on their behalf that it makes one's head spin.
The key is not to get caught up valuing this thing as a seismic company because there is a huge difference. Seismic companies are basically working off of time and materials. Pinnacle Oil is being paid a monsterous share of the hydrocarbons. I have never heard of a service company that gets paid in that manner. Correct me if I am wrong.
-Dilution
Disclaimer: Consider everything I write to be biased and potentially wrong. The information contained herein is based upon sources believed to be reliable but is neither all inclusive or guaranteed. This is not a report and does not purport to be a complete statement of all data relevant an investment decision in any security mentioned. Certain opinions reflect my judgement at this time and are subject to change without notice. This document is not deemed to be a solicitation to buy or sell any securities, instead consider it to be for entertainment purposes only. I may from time to time have either a long or short position in any security mentioned and will not update my postition.
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