Hey Guys,
I've been thinking quite a bit about Sonoro lately, and although I am no MHT, I will certainly offer my opinions. I have watched the presentation with Richard over and over again and feel there are some instances where his facial expressions betray him, there are several instances where he tries in vain to conceal a smile and ends up squinting and smirking which i found both hilarious and encouraging because i feel there is more upside than he is letting on and he knows it.
Anyways, down to the facts. Currently Sonoro has warrants that will expire in January 2012 worth approximately 20 million dollars, this does not include stock options which the management of this company seem quite comfortable to exercise so far. I firmly believe that all of the warrants will be exercised which SHOULD mitigate the need for any excessive financing. Because the management of this company is so heavily invested equity wise in the company I believe that all the major players have built their positions and as richard eluded in the interview, project financing or reserve based financing will be options going forward. Furthermore, I was reading some articles at www.heavyoilinfo.com to try and get a better understanding or the economics and development time lines of these types of projects (nothing can substitute your own DD)and came across EPF (Early Production Facility) which are modular, and be added upon, and can be LEASED. So if each well is producing the predicted 500 bop/d and we get are predicted netback of $19.71 then we are making roughly $30,000 a day AFTER taxes which should cover lease payments until we grow the operation. Furthermore, this is an open question because I'm really reaching and thinking out loud..BUT..if we do put these wells into production in Q3, does that constitute commercialization and fulfill our obligation to carry Berkley? In which case they will have to start paying their fair 30% for our continued operations?
To address the time lines and the perceived tardiness of the drilling contacts I admit, I too was once frustrated, now, after READING about the process of field development, well drilling and the associated complications that can occur I am much more comfortable with our current pace. We must remember that we are drilling a bore hole into essentially muck...now if this muck is heated due to friction it becomes less like muck and more like liquid which can compromise the integrity of the borehole which is why they (as MHT eluded to) will be taking their sweet time drilling, changing bits and ensuring integrity is kept intact because if they screw up these wells this stock will be taken to the woodshed BIG TIME. Second issue they may encounter and for some reason seems overlooked....Sand...yes we are basically pumping sand and its a bit more complicated than pumping water. So we have to be very careful on how these wells are designed. Unfortunately we cannot use any SAGD type recovery methods and as stated in the presentation will be using straight water. Perhaps in time they will consider solvents but I believe starting off they need to maximize the economics so they don't run the risk of disappointing the market on the economics of the project.
I think 2012 will be our year, they will be testing all three "play fairways" as they call them, and what interests me is the big green zone in the middle with 18-22 API and more seismic data then we can shake a stick at. I feel that once Sonoro really gets rolling they will simply drill deeper to the lighter oil we all know is present in Iraq and really blow up, but im sure that is many years out.
I am interested in anyone's opinion regarding share price. In comparison BNK is currently producing 13,000 bop/d in Albania with similar API characteristics and although recently have been brutalized in the markets due to missed targets and under performing wells for a variety of reasons is currently valued at 6 dollars, and as much as the high end of 9 dollars in march before technical issues. They have similar shares outstanding, is it possible one can assume a 3 to 4 dollar price target with 5000 bop/d production in Iraq in conjunction with exploration targets? (I believe BNK is tapped out exploration wise)
Lastly, and this goes back to the financing end of things, if you look at our recent additions to the the board, i think its possible given our banking connections we could have project facility financing for our topping facility, and farm out for royalties some of what I would hope, our less prospective areas and keep the best ones to ourselves!
As always, feel free to punch holes and disagree, its the exercise that counts!
PS. given today (july 11) volume, I think the contracts will be awarded tomorrow (july 12) or wednesday at the latest.
PPS. Does anyone have access to the trading data for today, someone picked up 398k shares at 1130ish in one shot bumping us to .24 cents, usually I'd check the tmx data but didnt notice until i got home from work and it didnt go back that far.
jw
