MHT - thank you for your insightful post.
In your comments, you noted that the contract with the driller may be vertically integrated. You went on to say that 'vertically integrated' effectively means that Sonoro could pay the drilling contractor with oil instead of 100% cash. Presumably, this could be a mix of oil and cash.
Given the information that Sonoro has provided in the presentations and news releases, it seems that it should be rather difficult to drill beside the historic 1935 well without striking the oil that was found at that same location in 1935.
By mid-summer Sonoro apparently had about $7 million cash available. My understanding of the current Q3 drilling program is as follows:
- Build about 4 km of road to the drill site.
- Drill 2 wells, with a possible third well to follow.
I would hazard a guess that Sonoro ought to have something like $5 million left. At some point earlier this year there was some information that a single well would cost something like $1-$2 million.
If this is the case, I would think that Sonoro could pay cash to drill one well beside the old 1935 well and build 4 km of road for, lets say, $2.5 million. I can't imagine how it would cost more than $500,000 to build 4 km of dirt road in the desert....
Assuming Sonoro continues with the current burn rate, this might leave them with little to no money by year end. But, with an oil strike at the 1935 well site they should be able to pay the driller with oil in order to do the 2nd well, and possibly the third.
After all, if the estimated flow rate for well one is close to the 500 barrels per day that they have talked about, the drilling could be raking $35,000 a day (assuming $70 oil price). At that rate it should take the driller about 3 months to earn $3 million - a tidy profit/risk premium for drilling the second well and payment via oil.
What do you think? Is my idea as discussed plausible?
Admittedly, I am a new to oil & gas so please poke any and all holes into my idea.
Thanks in advance....
