I have to agree with midtieroil on GC and rig prices also.
Not that I want to agree with him. I would much, much prefer Grandur make a deal for a ROO as soon as he possibly could at whatever the cost but that is ONLY because it would benefit the near term and short term outlook for ERHE stock price and me personally.
I feel there are some posters on here that are missing a few points to the full argument.
1) Technically, the AA is under contract and should eventually show up in the JDZ. Currently the consortium is not likely going to miss the JDZ timeline of the first well drilled in 2010 (or something like that). Let's play out a possible delayed scenario for a second.... The AA was originally signed under contract with the expected delivery in early 2008 (if I recall correctly). Under circumstances beyond Addax, ERHE, or Sinopec's control, they have not hit their time table target. Now let’s say we get to early 2010 and the AA get's another 6 month delay or something like that. Does anyone here really think the JDZ, STP or Nigeria will get another company to drill any faster by relinquishing the rights under the PSC contract and rebidding it and then getting another PSC signed? Get real! Besides making the JDZ or JMC look like fools for not recognizing the INDUSTRY ISSUE of a shortage for deep water drill ships, they would likely delay the drilling by another 4 to 5 years (look at the history - when did this originally go out to bid?). It shouldn't take too many finance consultants to let the JDZ people know that it would be more prudent to allow an extension if needed and it may only need to be for 6 months to a year.
2) The current or short term market cap for EHRE should have absolutely no place in the calculations of whether it makes economic sense for Addax to pay a higher price to get a rig of opportunity in 6 months before the AA.
3) The really large elephant in the room (pun intended) is that even regardless of the potential savings of $15 million per well or $100 million for multiple wells (speculated by someone here for which I won't dispute), the real financial analysis that would need to be included would be the estimated difference in the price per oil as it went to market at the delayed time versus the current cost of money for that time period (that the different cash flow stream would create for bringing the same oil up earlier). My point here is better understood with an example: Let's say scenario 1) Addax contracts a ROO which eventually brings the oil up 1 year earlier with a projected starting price per barrel at $100. Scenario 2) Addax waits for the AA or gets a ROO one year later than scenario 1 and there is a 1 year delay on the stream of money that comes from the production of the same amount of oil but the price per barrel starts at $120.
With everything I have read over the past 9 years that I have invested in ERHE, everything points to the of oil going UP over the long term simply due to supply and demand. I would say the likely hood of scenario 2 above (with a 20% increase in the value of the same asset) is higher than the likelihood of the cost of funds being a greater percent (in this case the oil companies/shareholders cost of funds would have to be greater than 20%). This all assumes that the cost of the ROO would be the same as the AA will be.
The reality of this situation is this: Most shareholders in ERHE speculate that the share price for ERHE will skyrocket from this lowly .12 range (once we have proven oil) anywhere from $1 to $10 in fairly short order. For us, YES, we would all want to get to that proven oil sooner rather than later because we are talking about 1000%’s increases in our investment that we would like to have now. Count me in. I want it all now!
But the long term financial analysis for a business is very different and they are the one’s making the decisions.
One day our ship will come in. We just need to wait a little bit longer.....
GLTA
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