Hero Technologies Inc (HENC)

[tchauncy]

It has been a very good week for HENC; at least for those who understand basic math. Ten days ago, it appeared that HENC was well on course to ultimately end up with only around 25% of a couple of very large and exciting drilling permits in one of the hottest on-shore relatively shallow (6000'+-) hydrocarbon plays in the World. Then out of nowhere, in a still incomprehensible turn of events through no action of the Company, it ends up they doubling their interest, caveated only by they being required to only fund a few million dollars to perfect this potential billion dollar windfall. A pittance of cash that their majority controlling shareholder and executives who already has some $20 million could "write" out of their their petty cash drawer.

So what did some ignorant (I mean this only in the lack of knowledge context) shareholders do? Almost instantly panic sell the stock down 50% as you can see on the chart below, creating a double opportunity for those less ignorant and appreciate the math. I put this chart up for those who either forgot, or were not involved back in Aug of 2013 when the first well in HENC-TGC partnership was drilled all with TGC money. Notice the stock trading heavy volume peaked just under $.70 at that time. And that was when we all were resigned to having HENC end up with only around 25%. Albeit, Brent crude was trading around $40 per bbl higher at that time, but drilling and completion costs were also some 40% higher than today. And when you consider that the original discoverer of oil in the Cooper Basin, Santos, still has some wells producing for over 40 years now, a one or two year drop in this continuously depleting commodity, paired with much lower drilling costs is much more a positive not a negative for those lucky enough to be starting their exploration and production in this trough. So, now with a double or more in retained interest, there is no logical reason the HENC stock shouldn't exceed the peak it hit in those days while the first well was drilling.

Obviously the following severe decline in stock price was caused by the results of that well being unsuccessful. Why was it unsuccessful? Well, strong rumor has it after a couple of years of after-action research, it appears that the Rookie Operator made a last minute decision to move the drillsite off the original location by a hundred meters or so to an area not so much affected by one of the Cooper basins notorious sand dunes to save a few bucks. If true, a harsh lesson learned by more experience operators who know due to "trapping" mechanisms, that being "off structure" by as little as a meter or two, could put you on the "wrong side of the fault", rather than at the most optimal high point of the reservoir.

To take out as much risk of a repeat as possible, The partners here have done something almost unheard of in the oil patch. They have "reprocessed" the 3D seismic with different evaluators and sciences at least three times over the past year, narrowing down the initial drill sites from several dozen "promising" to a dozen exceptional, to six, supposidly incredible locations. Let me also note that this total original $5 million 3D seismic shoot only covered a couple of percent of the total land owned in PEL444. Leaving the overall potential of the full permit mind boggling.



I might also add here. As mentioned above, the dry hole drilled in 2013 on PEL112, certainly has not taken away the awesome potential of PEL112 as well. In fact, the pure science of the NE, SW trend of the southern nose of the Cooper Basin extensions, paired with the incredibly high prices that were paid by other operators for immediately adjoining permits to 112 (Over $50 million) shows hundred million barrel potential in 112 as well. In fact the ISIS Engineering Report linked on the HENC website showing 100 million barrel potential covers only 32,000 ac or about 6% full permit and refers only to PEL112. Apparently the decision was made to drill the next well on 444 was only due to the subsurface lower risk due to broader reservoir characteristics and perhaps longer life potential in 444 wells due to structure differences.

http://hollomanenergy.com/technical_reports/

Now let me take a moment bringing HENC's junior partner into the mix. Looking at the "perf" or comparison chart, Yahoo finance provided below, my faith in the above average intelligence of HENC's shareholders, not just during the machinations of this past week or so, but going back to the beginning of TGC was warranted. This chart starts around the time TGC came public. Note that in spite of TGC purporting ownership from early on of more than twice HENC, and in spite of HENC early on having more than twice the number of shares outstanding, HENC has always been the best investment. Never more obvious then in this past week. This in spite of TGC's bloviating verbose instance through two PR's compared to none from HENC (though HENC did put out a very powerful but simple two sentence SEC 8K) that TGC shareholders have gained the better position with TGC's managements decision to terminate the Farm-in-Agreement (FIA) in spite of giving up some 30% of their interest back to HENC.

Even more amazing, I have had reported to me from more than one TGC shareholder that in email responses to shareholder question, that TGC's management seems to be convinced and gives evidence by referencing HENC's latest 10K balance sheet, that HENC will not be able to come up with any money to cover their costs, so it in their opinion it is likely that HENC will end up with nothing as TGC and its nepotunistic partner, Percival will take over HENC's position. Short of these Canadians smoking too much "BC Bud", it is incredulous to think that any public company Management would bet their shareholders investment capital on such a bizarre gamble. My only comment to this is "Wish in one had and spit in the other. See which fills up first".




Now re. my thoughts about what HENC and its Parent Holloman Corp (HC) might have up their sleeve. Well, knowing the integrity of the duel management of both Companies, my week ago speculation that HC would likely fund HENC with a stock purchase as low as $.20 is now not likely due to the rise in HENC's price. Historically with stock prices in recent years, when HENC needed some funding, HC management seemed to take stock at no lower a price then 15% discount to market. In the likely scenario that they will fund with stock, though there is a chance they might just decide to lend HENC the money for a couple of wells to start, dilution potential becomes less and less as the stock price rises. But under the worst of circumstances, less than 20% to gain 100+% interest. A great deal by anyone's calculations.

Since all parties seem to agree on one thing, and that is everything is now ready for drilling to begin, and assuming TGC's only "hole card" is the folly that HC will not fund HENC, then, as I mentioned in last weeks post that is up here as a "sticky", drilling should be ready to commence in a month or two at the latest.

IMO, the silence from HENC/HC should not be looked at as indecision as what needs to be done to protect HENC's share of this project, only HENC's Management's thoughtful and measured response to the pleasantly surprising actions of a week ago. Ie. "could they really be so stupid to just hand us the 'golden goose', or do they have other tricks up their sleeve." While there is a slight chance we might hear from HENC this week, my guess is we are a couple of weeks away from HENC's response. But two things for sure; HENC is and will remain by far the biggest beneficiary of TGC's $15 million plus investment to date; and whatever we hear from HENC's management, you can bet was intelligently thought out.

JMHO