There are two separate issues for PGPM shareholders to be concerned about: First is obtaining equity (fairness, not shares) in the already completed and proposed transactions, and second is the proper valuation of the assets and thus shares, based on what actually exists under the ground on the leases. We lack much of the information needed to determine much of anything about either situation, now.
What we know is that the IMVS/Arcland assets all came from PGPM, some from PGPM directly, and some from PGPM through Lariat (PGPM management) which "bought, borrowed, took" leases from PGPM in exchange for a note... in what appears to be an extraordinarily questionable transaction. Lariat still owes PGPM for those transferred assets, under the terms in a note for some $40 million for the PGPM assets that management transferred to themselves as Lariat... and then transferred again to IMVS. In the exchange with IMVS those assets transferred to Lariat bought close to 70% of IMVS. The acquisition agreement with IMVS had all the PGPM/Lariat assets transferred to IMVS in exchange for all the IMVS shares, allocating some to PGPM, and most to Lariat... but all of the shares were transferred in exchange for all of what were PGPM assets.
"Following the events mentioned above, Pilgrim will announce and declare a buyout program in which Arcland Energy's shares will be distributed to Pilgrim's stockholders of record. The declaration date and ratio of the distribution will be announced during the end of August 2008."
That announcement leaves an open ended question about the nature of the intended "buyout" and the source of the currency to be used in the exchange. There aren't obvious resources which could be used to fund any buyout transactions that don't consist of IMVS shares. PGPM already owns 13,500,000 shares of IMVS from the exchange for PGPM leases ... which can easily be distributed to PGPM shareholders as a dividend, but they can't be used to "buy" the PGPM shares. Only Lariat's IMVS shares or new shares issued by IMVS could be used to buy PGPM shares in an exchange. That still leaves open the question of the terms in any proposed exchange/buy back.
The reason they are working on running the price of IMVS up and the price of PGPM down... is to enable using fewer shares from their IMVS holdings to buy out more of our shares of PGPM.
When PGPM exchanged their leases for 13,500,000 IMVS shares, all the PGPM/Lariat leases bought all the IMVS shares... with the Lariat portion of the leases (valued at $40 million in the note) buying 70% of IMVS. At best, that meant 31,000,000 shares of IMVS, on paper, were worth $40,000,000... or $1.29 a share, in the transaction... during a period in which the shares actually traded between $0.15 to $0.45 per share. Now, they will likely plan to pay off the $40 million note owed to the PGPM shareholders using IMVS shares valued at the inflated price of $3 a share... so the $40 million debt that WAS worth some 31 million IMVS shares initially (or, $1.29 per IMVS share vs the market price of $0.45 or $0.15 per IMVS share) is suddenly claimed to be worth only 13.3 million IMVS shares with IMVS "trading" at $3.
I don't see any way they can justify doing any less or avoid doing AT LEAST that... distributing the 13.5 million IMVS shares already owned by PGPM to the shareholders, while also offering to buy the remaining PGPM shares in exchange for another 13.5 million IMVS shares taken from the Lariat pile to pay off the $40 million note. That, as a worst case bottom line, would have PGPM shareholders getting 27 million of the 44 million IMVS shares... around 60%... with management/Lariat getting the rest, around 40%... in an exchange which really only just barely balances the books... with the exchanges done at the PAST claimed asset values... while paying only for the debt and assets, and paying nothing at all for the PGPM shares.
The PGPM shares ought to be worth something more than nothing in the exchange... and there is an open question about the underlying value of the already transferred assets that, to be fair to PGPM share holders, MUST be addressed with full disclosure of information about the assets prior to the completion of any share purchase transaction.... as share value is STILL based on those assets and their value, and it is clear that not all the players have equal access to information about their value... so, all that still leaves an open question: How much more than 60% of the outstanding IMVS shares should or will end up in the hands of the PGPM shareholders ?
Anything less would be obvious lawsuit material, with a couple different ways you might look at the rest. My own opinion is that it would be fairly easy to justify something very close to 100%, as anything less constitutes a pretty simple and straightforward transfer of PGPM shareholder assets to PGPM management ownership without very much to justify doing that: Since management already works for the shareholders... you can't justify transfers of assets to their control and ownership in order to pay them for "asset management services" conducted outside the company which they are obligated to perform inside the company. The claimed benefit of "liability protection" from the arrangement is laughable. If you stripped out the asset transfers to Lariat as an obviously meaningless intermediary transaction... save perhaps to the degree they appear to constitute a planned or attempted theft... it would be hard for me to honestly justify doing a deal that would leave management holding much more than their own PGPM holdings justified ???
Reality will likely end up being more than 60% and less than 100% and "we will see" what result they deliver and how they attempt to justify it...
I don't see how they could justify buying out PGPM shares for less than $0.027 each... given 13.5 million IMVS shares in PGPM hands now (worth $0.027 per share) that are likely to be distributed... with probably more than another 13.5 million to be used in the purchase needed just to pay off the 40 million debt (worth another $0.027 per share)?
The questions of equity in the set of transactions based on what are or were PGPM shareholders assets... is one set of questions that needs to be answered favorably for PGPM investors.
There is still another open set of questions about the actual CURRENT MARKET values of the PGPM leases that were transferred to Lariat and to IMVS. The only evidence we have on that now consists of: 1. the valuations applied in the IMVS/Lariat transactions, 2. the independent evaluation posted on the company website, along with, 3. the additional and expanded claims made by Pinedo here: http://www.upstreamonline.com/live/article155022.ece
That article, dated on Friday, 16 May, 2008: "Irving, Texas-based Pilgrim Petroleum has filed a drilling permit on its recently acquired Mulloy Estate lease in the Palo Duro natural gas resource basin in Wilbarger County in north Texas.
In a statement, the company terms current levels of production “modest.”
The company says it believes Palo Duro could be one of the largest natural gas deposits in North America, comparing the prospect to the Barnett Shale discovery, which contains some 30 trillion cubic feet of natural gas. Palo Duro is located in the Texas “Panhandle” region, bound to the north by the Amarillo-Wichita Uplift in Oklahoma and to the south by the Matador Arch-Permian Basin in west Texas."
So... Pinedo thought PGPM's leases represented a strong position "in one of the largest natural gas deposits in North America" likely comparable the Barnett Shale in value... before these Lariat and IMVS transactions took place ? If PGPM filed a drilling permit in May... did PGPM also drill a hole and learn more than we have been informed about that would tend to alter the perceptions of value of the leases in transactions ??? If so, why wasn't that information that was owned by PGPM used to benefit PGPM instead of Lariat or IMVS ? Is there any real reason to expect the leases ARE worth as much or more than Barnett Shale leases ???
The only reason you could posit that would allow the IMVS shares to hold the market value reflected in the current run up... and the only reason you could posit that would allow you to expect a PGPM share really COULD be worth $0.30 instead of the current proxy based value of $0.06 each, would be that sort of development... which could convert leases with old stripper wells selling for a couple hundred an acre into a hot natural gas play with the same leases selling for $15,000 an acre or more.
Again, two elements in focus:
First, there is plenty of reason to distrust management... given a track record of much less than optimal business practices... along with the current concern that the present maneuvering is mostly designed to separate PGPM shareholders from some 40% of the value of the PGPM shareholder owned assets... down from a 70% transfer backed by debt.
Second, there is also the reality that they are now engineering a move up market with IMVS while taking on the burden of reporting... that there is an independent evaluation giving a potential value based only on some of the leases, given the value of oil (at $60) only, while discounting the potential for deep gas... and there is a company statement claiming that there is a huge potential for a major deep gas resource that they claim does exist and is the real source of value.
How much of each of those two potentials should be valued in a PGPM or IMVS share right now?
It is not impossible that there might be a resource like that proven. The existence of the tapped out oil field above the claimed occurrence of an unconventional gas resource tends to suggest, at least, that there must have been a nearby source for all that oil that was produced... which might reasonably be seen as containing a Barnett type potential ? It seems there are others in the region who are also working to test or develop information related to a deeper source with potential for gas ?
The key in conducting DD, it seems, is to figure out more about what PGPM and "others" in the same region are doing now... as well as finding out what happened with the drilling permit PGPM had filed for back in May ? Was that a permit for a step out development well, a shallow exploration effort, a deep gas test, or only a permit for reworking an old stripper well ????
I don't see that there is really a lot of potential here for a "middle of the road" result... but that result would consist of the independent analysis being a complete, accurate and well risked assessment of the potential... understated only to the degree additional properties were added to the portfolio, and to the degree that oil is worth more than $60 a barrel. IF the new organizational structure in IMVS proves to allow the same old management to be a bit more capable and effective than they have proved to be in PGPM... the proper development of that potential in the long term should deliver something worth on the order of $0.02 per PGPM share... or $0.66 per IMVS share.
Instead, I expect...
Either management is blowing more smoke than ever before, only thicker and faster than before, and there is really nothing MORE of value here other than the risked potentials that the independent report suggests... paired with a still questionable management that has proven their ability to grossly devalue those assets they do acquire over time through the well fostered lack of ability to trust them... making the current effort just a new circus, only one focused on spinning more wheels simultaneously in an slightly larger tent with three rings instead of one... and given a potential for a larger audience in the larger OTC tent...
Or, the management is working hard to back down to taking only 40% of the PGPM shareholders assets for themselves instead of the 70% they transferred to Lariat, because the assets ARE actually worth something more than the potential contained in a field of old stripper wells with some potential that some pockets might have been missed, or that new technologies will allow stripping them a little more for a little while longer... and they need to do what they are doing "for us" now in order to find the best and most useful way to monetize that holding. That suggests, also, that perhaps there was more real value in the leases that remained with PGPM than they expected when they transferred the others to Lariat?
My market experience suggests that a management you can't trust to hold your wallet will only get worse and worse as the value of what they have to manage goes up... and that sure looks like it could be the case here, given the scale of the transfers to Lariat... only now being paired with a management effort to try to make those transfers to Lariat legit while also generating a better path to developing and monetizing the value in the Lariat holdings... while re-combining them with those still held by PGPM ???
So, I judge that:
Either, the efforts we see are only a new effort to put four new retreads on the old PGPM trading vehicle after running it on bald tires for a long time... meaning the transitions we see are only a new effort to put a shine on the rust while recycling the same old, same old onto a bigger used car lot... making a PGPM share worth about what it is trading for... and an IMVS share worth $0.027... plus whatever premium, if any, it gains for moving the show up market.
Or, the efforts we see are being undertaken because there really is a high potential gas resource under the PGPM lease holdings... making them worth $15,000 an acre instead of the couple hundred an acre PGPM likely paid for them.
I guess the end result is that I don't see that there is a whole lot of downside risk from here... with a lot depending on what sort of disclosure accompanies the announcements of transactions... with more value that depends on the proof of there being real value in leases lands than on any of the terms of the exchanges...
PGPM shares will be converted into IMVS shares... probably at a rate of .02 IMVS shares per PGPM share or better... making them "worth" $0.06 per PGPM share now at the current but wholly fictional market price of the IMVS shares they will be converted into. Of course, it is a total fiction to value PGPM shares based on such an exchange at anything like the current market price of IMVS... with more than half of the IMVS shares expected to suddenly come on the market with new holders anxious to sell them for a profit ??? The rest, as potential, still depends on proving up as real any element of the story that there is a gas resource beneath the IMVS held lease lands...
IF that resource is real... management will expect the PGPM shareholders to dump their new IMVS share holdings and drive IMVS share prices down to roughly equal the current PGPM share price... PGPM now having a market cap of only $1.2 million... where they will buy the IMVS shares back for $0.04 to $0.06 each... and then run them back up to $0.60 to $3 only after they own most of them.
When will they spill the beans on any closely held information about the leases ???? What information that we don't have was used in determining the position outlined in the news release: "The company says it believes Palo Duro could be one of the largest natural gas deposits in North America."
The thing that still matters most in determining a potential value here is the DD related to whether or not there IS a big old gas bubble just sitting there under these leases... or is that all just more smoke and mirrors ??? It appears that management is holding out on shareholders, by not sharing the information they have about that potential, which they ARE using in posturing their own positions in their self interest.
They ARE holding out and not sharing the information, the question still being whether they are doing that because they know there likely is nothing there at all but the smoke and mirrors they are generating and using... or because they know there likely IS something important that really is there... either way, leaving investors guessing only about which way it is that this management is intending to take advantage of them...
That leaves me still thinking, as before, that these shares will likely prove to be worth more than $0.002 soon... are likely in fact worth something like $0.03 to $0.06 or more based on the value of the assets backing them... and soon, based on having moved up market... but getting anything like that or more for them... the claimed $0.30 per PGPM share... will depend on someone other than PGPM/Lariat/IMVS/Arcland management seeing some PROOF of the asset values.
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