A bit over 1/3 of COGC's current market cap is what COGC owes DBRM following summary judgment...
I wonder how the "discussions with COGC to determine how the summary judgment will be satisfied" are going...
With 20/20 hindsight it looks like COGC should have done more to try to settle this however they could while the markets were a lot more favorable to the value elements able to be applied in the effort... rather than fighting it all the way to the bottom of the market, then still having to settle the bill in fixed dollar values, that were set in a much frothier oil market, when producing assets and prospects were worth a bit more than now.
Perhaps John has a great track record in finding oil and gas, as do the DBRM principals, but DBRM's management team, coming from Marathon and Houston Oil and Gas, have a vastly better sense of how to manage risk and time the market cycle... and you really need all of that, good finding skills, quality properties AND experienced, skillful executive leadership... to make a successful company.
At a minimum, the summary judgment seems it ups the ante in current performance on the operational side... although I have no idea how timing, or operational results vs. the time it takes to produce them, might influence the eventual outcome. It looks like the whole company is on the line on the COGC side of the table, where they are all in... and then some. It seems the only chips they have left to play with now are the two in California:
First, a still unmet "right to earn" a 12 1/2% interest in the Kern County leases. COGC's deal to earn the participation in the current effort still requires a few more wells to be drilled AFTER the 4 in the current effort, which are needed to secure the Chevron lands for the JV participation.
The other is a held 50% interest in the Tulare County leases, or the "northern" portion of the AMI.
COGC also has other debt and share obligations they've recently taken on to fund the first 4 wells in the East Slopes development effort. I don't know precisely in all detail how all of those obligations are structured, what the limits of them are, or how they will influence the result of the current discussions.
Given the situation, I don't see how COGC gets the funding to continue the East Slopes development beyond the first 4 holes without first resolving the issues with DBRM. I also don't see the collateral value, or the potential for some other quid pro quo that would allow that to happen, but, John has pulled rabbits out of hats before... and my guess is that rather than think about the obvious, he will again try to hold out in an effort to pull another rabbit out of a hat. The recent history here seems to show that patience has been rewarding for DBRM... although there has to be a limit at which continued patience only starts to put the remaining value at risk... and I doubt DBRM is going to be likely to allow that to happen.
I expect the time limits tied into the JV effort are also "do not exceed" time limits on the ability of DBRM to continue being patient... likely meaning that the end of January is a reasonable time frame in which to expect a result. Otherwise, pushing up against the JV deadlines again without any resolution puts not just the value of anything to be recovered from COGC, but also the DBRM interests in Chevron lands, at growing risk...
The operational issues on the third hole that required a delay and re-entry aren't great news for anyone in the JV, but for DBRM they are a source of a minor delay, a meaningful if not atypical operational cost item, and a bit of an annoyance. For COGC, the equipment failure and loss, and the added cost of having to suspend and re-enter, might not be within the limits of the plan and the budget... but they have also already extended the effort past new debt limits, requiring additional forbearance on the part of their lenders.
Some of this might help explain some of the reluctance on the part of some of the JV participants to report out timely news on results... in what seems now in hindsight to be fairly routine, cut and dried issues... a dry hole, and problems with a mechanical failure in a well bore... neither one related to any rational need for keeping operational secrets that might be useful in creating any sort of competitive advantage...
It seems to be getting closer to the end game... Even a positive result from the first hole wouldn't seem to provide answers for COGC... who need to have nine holes drilled before the first one is theirs to deal ?
It looks like they are due for filing the quarterly in the next few days... and perhaps that will provide some additional resolution on how things look from their side... ???
From their 10Q in October...
"With the exception of the 50% working interest (reduced to 25% through the farm-in by Chevron) recently acquired in 320 acres of leases in the Dyer Creek area, our company does not currently own any interest in this Eastern Slopes project. We have previously entered into a farm-in agreement with our current partners that gives us the ability to earn an interest. Under this agreement, and following final interpretation of the seismic data derived from the High Definition 3-D Exploration Seismic Survey, we will have the option to earn a 12.5% interest (including recovery of 200% of costs) in the seismic area leases and wells by paying 25% of the cost of three wells in each of the three prospect areas covered by the seismic survey. We have elected to exercise the option and plan to participate in the program. Following the earning phase, our capital requirements would be to a 12.5% working interest.
"We anticipate that we will spend approximately $2 million to earn and maintain our interest in the East Slopes project over the next 12 months."
