Rodman & Renshaw took a conservative view of the new oil fields, just as NEP itself has, with respect to future income. Of course, there are uncertainties, because oil exploration is involved, but ...
1) NEP removed the single major long term negative weighing on prospects; that being, limited and diminishing production capacity
2) Reserves are now dramatically improved; how much will become clear over time, but some hints were provided:
a) 24 year lease, renewable, at favorable rpyalty
b) 3 current exploratory wells averaging 30 barrels per day
c) potential for 2,000 wells!!!
The intermediate and long term prospects for NEP are now stunningly better than before the announcement. It is not unreasonable to extrapolate that post testing, NEP may well drill 100 wells per year, adding $1.00 per share to earnings EVERY year.
Is there work to be done? Sure. Will it take some time? Sure. Is it worth the investment? By every indication now and by how TIAN worked out, it's a complete no brainer, figuring to pay back at least 50% ROI in the first year of production, and 100% in the second.
In the meantime, income will not drop as much as presented here; possibly none, as oil stays above $90. The p/e is pretty darn low anyway; cash balances will remain high and get higher, probably $2.00 per FD share before new production; and now there is the likelihood of dramatic earnings growth and rapidly growing reserves post exploration phase.
Makes no sense to me that this acquisition is not well regarded in stock price, even if viewed in a worst case light, as the base case figures to be so very profitable 1 to 1 1/2 years forward.
This is the message that the company needs to do a better job communicating. Hoping a March conference call presents the less conservative view.
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