Some observations on IOC’s sell-off

We don’t see reasons for panicking, in fact, quite the contrary..

Yes, it was pretty ugly. But there is a saying that argues that every crisis is an opportunity. First, what hapened? Three candidates:

  1. DST’s not going so well
  2. A short engineered sell-off
  3. Debenture holders selling

After asking around a little, we’re now convinced that it’s mostly 3, those debenture holders. Some of them cannot even own the stock, for instance. That is not to say it’s the only reason, but it’s the main one, although not one we were expecting.

The worst thing that can happen to the DST’s is that they show there is no commercial oil leg in Antelope1.  We don’t need to remind people that earlier flow tests showed 382MMcf/d gas flow rates (and 5000bbs/d condensates), believed to be a world record. Add to that the extremely large pay zone and good average porosity, and you really have a world class well.

So it really cannot be argued that Antelope1 is a bad well. In fact, there are very few wells like Antelope1 in the world even if it can’t produce oil.

However, if, as we believe, there will be no PR tomorrow, we can conclude we know nothing about the upcoming DST’s yet, so there might still be a commercial oil leg in Antelope1.

We have no indication of a deliberate bear run by the shorts, we wouldn’t put it past them, but we think it’s highly unlikely. They would risk really a lot on that if in a couple of days news would be good.

We think that for the medium to long-term, this stock is a no brainer. There is enough gas to base an LNG facility on and the economics of getting that gas out is very good, much better than competing projects like the Exxon/OilSearch one or any Australian coal seam gas, which needs to drill, treat, and man thousands of wells to get similar amounts of gas as Elk/Antelope can produce with three wells, and all that in a high-cost environment.

This is reality. It cannot be altered. It has already been established. It produces excellent opportunities for commercialization, which will be a big driver for the share price. We therefore think that any sell-off will be temporary and buying into it will provide ample rewards.

5 thoughts on “Some observations on IOC’s sell-off”

  1. On a side note, I think management might have made the wrong decision on this one in regards to hanging out at Antelope 1 for the past 3 months trying to find oil.

    If they would have packed up the rig right after the flaring of Antelope 1 and started drilling Antelope 2, which, according to rumour, is supposed to be a no brainer in finding oil and at least the same size in natural gas, we would almost be the top of the Antelople 2 formation right now.

    They then would have further defined the reef structure, most likely have hit oil and be in a better position to agree to off take deals. At which point we could have gone back to Antelope 1 to get that oil when we had a second rig.

    I understand that there are a lot of assumptions to my above statements, foremost being the ability to drill the Antelope 2 hole in 3 months and that hindsight is 20 20, but at this point in the game it appears to me as a small mistake.

    Does this change my incredibly out of control pps forecast in 5 years……….only by 3 more months 😉

    Luck to all, but after Antelope 1 luck is irrelevent!

  2. That’s actually an interesting point of view, Darcy. On the other hand, today’s sell-off provides some new opportunity for those who missed the boat…

  3. Thanks STP , Nice to know there is a place where we can count on some honest and wise dialogue . Thanks to Jim and Darcy as well.

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