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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: Elizabeth Andrews who wrote (2235)	3/8/2002 6:50:27 AM
From: TheBusDriver	Read Replies (1) \| Respond to of 39344

<<A lot of the merger activity in the oil patch is driven by companies who can combine interests in the same property owned by a competitor>> Huummmm....you mean two companies merge together to takeover a property owned by another? or are you talking a JV here? A lot of division of properties and sharing of resources in the patch this is true. I have even seen it to the extend that one company has production from one zone while another company gets production from another zone in the SAME well. This is more a JV than merger to take out a third party's resources. <<There are many fractional interests in oil deals unlike gold deals>> I would say JV's as above are more prevalent in the patch than mining, but mining has a fair number of JV's also. <<It's a totally different business model as well due to the fact that the resource calculation and production profile of reservoirs is fraught with risks>> This is becoming less true by the day. Especially with the advent of 3D seismic modeling and advances in reservoir software and logging tools. Today I don't see oil exploration any more risky that gold exploration. Big risks involved in both. This is why majors will be buying jr. golds with proven reserves. The risks are moderated. Same in the oil business. <<The capex requirements of oil companies are also a problem as the company has to keep drilling to maintain its production base or cash flow collapses>> Maybe I am missing something? This seems to be the very thing Russ has been talking about for some time. Major miners are not replacing reserves and cash flow will collapse in the coming years if they do not move to increase their reserves. They don't want the capex risk so they takeover. Oils do the same. <<The mergers are driven by this as well as it's always cheaper to buy oil reserves >> Yes it is always cheaper to buy than explore. We agree here. This is absolutely true for miners as well. Exactly my point. <<as finding costs are relatively uniform in the industry>> Only in proven fields, which is not exploration. True exploration is just as risky for oils as it is for miners and costs are all over the map. Majors are selling off drilled resources all the time because they have found hydrocarbons but not enough. So they farm out to a mid-tier with lower operating costs. I do see a direct correlation between oils and miners. I accept that they are not identical but don't see the business models being that different, nor the drive to buy resources instead of risking the capital themselves exploring for additional resources. JMO. Thanks for the debate! Wayne