Raisinkane, under PSFD's contract with Encal, PSFD has the right to chose two options on any SFD qualified prospect (the whole prospect, not just one well) that Encal elects to drill or participate in. Those two options are 1) 8% gross override which means 8% off the top, no money invested, no risk, and 2) a 45% working interest which means Pinnacle pays 45% of the costs to earn 45% ownership, obviously this has risk.
So in this case Pinnacle elected to take the 8% off the top risk free. Why? Because at least in this stage of PSFD's life, you don't blow all your cash on one well. Shoal Point well was to cost about $12 million.
As regards the opportunity, Shoal Point, looks good according to the SFD. However, we won't know until someone actually drills the primary zone of interest. I was stunned to find out they never got there. Encal appears to be so excited by the potential of Shoal Point that Encal was willing to pay 37% to earn 25% in the project, not to mention having to pay PSFD 8% off the top for the SFD work. Not only that, I believe Encal had to farm into Anticosti Island in order to get to play in Shoal Point. The SFD showed Anitcosti Island to be dry so any money spent there was a waste and yet Encal did it anyway to get at Shoal Point. As an aside, PSFD under their contract, had the right to take 8% of Encal's share of Anticosti Island, with no risk. PSFD refused saying they were so confident it was dry that they were not even going to accept the free lottery ticket. The SFD was right, Anticosti Island was dry.
You are right when you say the SFD is not right every time. However, it appears to me that it misses on the small things. I am not interested in having small stuff drilled anyway so who cares. Also, the sensor is sensitive and it easily gets jiggled into a sleep mode. The point is, and this is just something that hit me as I type this, when it misses, it tends to be missed opportunities not wrong calls. That is fine with me. Missed opportunities don't cost you hard cash.
Unfortunately neither Encal nor PSFD had a say in where the exploratory hole was drilled on Shoal Point. Pan Canadian was the operator. Encal just farmed in based on the SFD and the seismic work. That is the oil business as they say. It nice to be the operator. The SFD and seismic both picked the same sweet spot and the exploratory hole was no where close. Money issue.
In the future, I see the partners being more and more the lead operators, and eventually PSFD itself. When PSFD starts acquiring their own land, the fun begins.
Refer to my post here for more info:
Message 9643809
-Dilution |
