Thoughts on ZN Communication with Investors & Units Program
First, some background that shapes my opinion: The initial pumping of my first well produced X barrels oil per day (BPOD) and almost no water, where X was a very big number for these parts. In exuberance, I called the primary investor to share the good news. The next day production dropped to X/10 BOPD with significant water (a cost issue). After acid stimulation, the well settled in at X/5 BOPD with manageable water and was a typical well in these parts. Yet the relationship with the investor was never the same as he now had an expectation of X BOPD and wondered if we knew what we were doing (and rightfully so). I should have waited until testing was complete before stating a BOPD number.
ZN is in a similar circumstance. Good shows (continuing increase of gas), but production can not be confirmed until TD is reached and testing is complete. If they express their exuberance now they can be setting themselves up for failure, even if it's a decent well. I'm actually amazed that they provide the level of details they do every couple of weeks or so while drilling from various sources (CEO, President, Chief Geologist, Founder). And based on the details they have provided, I am quite optimistic of a major find. They didn't tell me that, I came to my own conclusion and am responsible for it.
But, I'm not happy with everything ZN is doing. I think they are shooting themselves in the foot and hurting their current shareholders by offering warrants with strikes less than the current market price. They will need to offer future Units Programs to raise capital for completion and drilling additional wells. I hope they've learned the lesson and offer warrants with a high strike like $10 so that arbitration to lower share price is mitigated and yet profit by warrant holders would be made when oil is struck.
