From the Tri-Valley Raging Bull board (three posts made into one):
By: financeguy
Reply To: None Thursday, 23 Sep 1999 at 12:59 AM EDT
Post # of 1076
Visit to headquarters! Part I - This will be a lengthy post, so I apologize in advance. I'll have to break it up into 5 parts to fit it in the Raging bull post limits.
On Monday at 3:00 P.M. I was able to stop in to the Montclair St. headquarters in Bakersfield as it is within a block of a branch office I visit as a regional manager, for my company. I got to speak with Mr. Blystone, Tom Cunningham and Joe Kandle together for about 25 minutes. Scattered over tables were various geological maps and, on the walls, area maps obscured by pull down sheets. I suspect that they pinpointed the exact locations of future wells, but I was obviously not privy to seeing them. I had a few specific questions I hoped to get answered while there and got thru my list, and then some. While there were no bombshell revelations during the visit (Which would probably have been illegal anyway) I did come away impressed once more with the quality of men running our company. I am not an oilman, but I think I know numbers and a little about human nature. I believe you've got to meet management, to look into their eyes, hear their responses, and peer beyond the spoken word to get a more complete sense of what's going on. I came away confident my investment, and the investments of my friends and family in Tri-Valley, is a sound one. Mr. Blystone is clearly a veteran with 36 years in the business, as is Mr Kandle. Tom Cunningham is a likeable CFO who seems genuinely pleased with Tril's current financial position.
I asked Joe about the previous drills. He confirmed that there were, in fact, oil and gas shows in all three. While stopping short there, he did have a clear twinkle in his eyes that suggested to me he'd love to elaborate. He ticked off a quick list of technological advances since 1974 which included the ability to perforate, the speed of drilling today, horizontal techniques and many others which I couldn't follow quickly enough. I asked him if, in his opinion, this drill was a low geological risk and he smiled broadly and said "That's why we're gonna drill!" He and Mr. Blystone indicated that they believe the geological evidence for EKHO is more compelling than was ELH and that the potential target is much larger. In fact, so large that it could, if proven up, support literally hundreds of wells. He reiterated that the immense amount of data acquired from Bellevue should help Tril avoid many of their mistakes.
When asked about rigs, Mr. Blystone had no comment, however, he did say that you must have cash to negotiate, which suggested to me that contracts for a deep drill rig were delayed till the money was in. He did not say that, but I inferred it from the tone of the follow up comments. I told them I had voted for October 6th as the spud date and got the impression that I might be too early. He did add that the project would now move inexorably forward and well number one will begin drilling soon. He indicated, too, that the Canadians were already raising the money for the second drill and in some cases may already have done so. He had no comment on a specific spud date.
I asked Tom Cunningham if Tril would still be reimbursed for the last 2 years of project Ekho costs and he indicated that that was realized in this third quarter and would be recognized in the 3rd Q 10Q. He said it with a big enough smile that I inferred the amount was significant and will give us a nice bump to 3rd Q earnings, which I believe, with the further cost cutting they've done, will be in the black.
This point alone is a significant argument for devoting some of the risk capital portion of your portfolio to tril. Tril is a real reporting company with existing revenues and a significant stake in EKHO. It is covering costs and every dollar earned now will flow to the bottom line. At this point it appears to have no dilution risk. It, and we, get EKHO essentially for free.
To give you a sense of the possible impact of EKHO to the stock price, follow these numbers: Bellevue will produce at 50 MCFD. That is $125,000 a day. (50,000 X's $2.50) $125K X's 365 days = $45,625,000 a year X's Trils 25% = $11,406,250 divided by 19,000,000 shares = 60 cents a share X's a PE of 25 = $15 share price.
A second well adds another $15. By the third the market will add a premium given the increased certainty of future successes. So call it $50 - $60 a share after success #3. Yes it's risky, that's why we plunk down our risk capital on it. But to have a potential of 60x's your investment in one year is pretty good. A $20,000 investment now could make you a millionaire in one year. How many stocks can you say that about today? I ran these numbers by Mr. Blystone to test if I had miscalculated or missed something industry specific. He agreed these numbers and calculations sounded correct. I asked about Tril's current hedging strategy. If you recall, their last 10K mentioned they had sold their total 1999 gas production forward. These contracts are up for renewal in November. Given the current gas prices, we should see a significant bump up in revenues based on new contracts now at higher prices.
We should see higher stock prices, too, as a function of the tremendous stock promotion we can expect from the Canadians. We ain't seen nothing yet. I understand they are producing video's and CD's in three languages for starters. They are masters at getting the word out. I believe they have established an initial $1 million dollar budget for stock promotion. I watched Insignia Software go from 5/8ths to over $11 last year as a function of a similar promotion.
So, bottom line, count me in. I went back to my Bakersfield branch so enthused, my manager there bought 2500 shares. I held off making this post for a few days so I could add significantly to my own position. I encourage anyone to call Tril if you have questions. I think you'll come away confident that your investment in Tril in a sound one. As an aside, I drove by the Tril office at 6:00 P.M. and the lights were all on and several people were all working late. I took this as a very good sign!
BTW: I'm sure that a post this long is full of things to seize upon, be critical of, or call naive or polyanna. I just wanted to share my visit and findings with everyone. It is going to be an exciting next few months!
(Voluntary Disclosure: Position- Long; ST Rating- Strong Buy; LT Rating- Strong Buy)
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