I'm still riding this waterslide, but I must say, things are looking rather dismal.
I'm hoping that Sonoro has been working on a farm-in agreement for sometime and that they are going to release news soon. Having said that, it almost seems like wishful thinking.
Do you think there is hope for a farm-in agreement or some kind of 'white knight' that will save the day?
I don't know why, because there is nothing new that would cause the share price to fall this low. The only thing I could fathom is that there is a misunderstanding of exactly what is going on, because the news releases have been far & few in between.
Contracts First thing is that there are two different sets of contract awards, with only one that was holding things up:
1) Drilling Contract 2) Civil Construction Contract
The Drilling contract was already awarded several months ago; nevertheless, it was the Civil Construction contract that was holding things up. The Civil contract consists of road construction (4 KM from the highway), plus the required infrastructure.
Apparently, the Civil contract was awarded in July; however, questions/answers were going back & forth, that Sonoro realised that the company who they had awarded the contract to, didn't understand the terms. As a result, Sonoro had to re-submit the tender.
If you listen to the First Energy presentation ( http://jetslides.tv/webcasts/503 ), Richard states that all they are waiting for now, is the signature from the drilling contractor (fast forward to 8:40 of the presentation). This implies that the Civil contract has finally been settled (Although the slide in the presentation states that the Civil contract has yet to be finalised).
While they were re-tendering the Civil contract, they were negotiating further terms with the Driller. Apparently, the contract with the driller is now vertically integrated; meaning that the driller will be buying the oil from them until the Topping facility is completed. Another way to look at it, they will be paying the driller for his services with oil.
Although the terms of the Drilling contract were negotiated a long time ago, nobody was willing to finalise it until the Civil contracts had been finalised. According to the presentation, it would appear that the Civil contracts have now been finalised. As such, the driller can now sign his contract.
Construction & Drilling According to the presentation, it states that the Civil construction can take 30-45 days. This statement is confusing, because it leads people to conclude that it will take 30-45 days before the drill rig can be moved into position.
That is not the case: The road will take one, maybe two weeks at the most. As soon as the ground is levelled, the drill rig can be moved into position. Yes, the Civil construction can take up to 45 days, but that is for the entire project - not simply the road.
Once the drilling starts, it will take ten to twelve days for the first well.
Cash Position When the Q2 results came in, the cash position was $7.2 Million. It’s obvious that they have spent millions since the beginning of the year. However, the question that had most concerned: Can they complete the drilling program before running out of cash?
The fact that they are presently looking for a farm-in partner, scared many into believing that they don't enough cash. However by my calculation, (granted, I don’t know how much the security aspect is going to cost), they should have enough cash on hand for the 3-well program (definately enough for two wells).
The problem is what’s going to happen after that, given the fact that they want to drill a further 12 wells in 2012. I believe this to be the reason for the farm-in partner(s). If they are looking for a partner today, it will take several months before someone signs on, because that’s the time one would need to conduct proper due diligence... It will not happen next week.
Nevertheless, when Richard revealed that they were looking for a farm-in partner, it gave the impression that Sonoro wouldn’t be able to complete the present 3-well program without help. The present 3-well program will go-ahead without a partner… the partner is for next year’s program. The problem is that most didn’t understand this; hence the fall in share price.
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