Replies to post #265025 on SwingTrade Member Forum (SWING)

[HomerRomer]

HENC .56/.575 is starting to move on the fact that they are going to be drilling in Australia within a month. CRAZY oil wells being hit in this area at an even crazier % of success. HENC is using the #1 3D seismic and drilling companies in Australia that are hitting 95% of the time on formations like they discovered. I have read reports of these wells producing as low as 800's barrels per day all the way to 5,000+ bpd with the average somewhere in the middle. HENC has virtually no investment risk since they have partners putting up all of the $ because it is such an amazing prospect. If the 5% chance happens and they miss on the first well, they already have their partner's funds in place to drill 2 more wells after that. Simple math says there is less than a 1% chance of them hitting a dry well on all three. One average 2,000 bpd well = 5 bagger IMO. Pretty nice Risk/Reward here IMO. Either way, it should still continue to run into the drilling date less than a month away.

[HomerRomer]

HENC @ .68 has seen a little climb before the run. Below is a great post by tchauncy who I've followed for years and knows his shit!! Things are likely to get a little crazy as HENC sets up to drill in a couple weeks.

one of tchauncy's intriguing posts from a year ago:
Putting HENC stock price in perspective...

In May of 2009 an investor friend who owned HENC, asked me to look at another oil micro cap stock, Brigham Exploration (BEXP). He asked me because they had just announced their 35% participation in a new field wildcat discovery in the Williston Basin that had tested at around 1500 bbls of oil per day and had a gross cost to drill and Complete of around $14 million. The stock was trading around 1.75 and they had around 40 million shares outstanding ($70 million market cap) but the stock was not really reacting to the discovery. At that time, HENC had just made a run to around .50 a share with around 100 million shares out, so the MC was not that much different.

So, I took a look at BEXP's financial statements and realized they had total debt of over $200 million and had just reported a loss of around $180 million. So genius as I am, I told him that BEXP looked like "it had one foot in the grave and the other on a banana peel" and he should totally avoid it. (certainly proved to be bad advice looking back)

At the time of the first discovery they owned around 300,000 net acres in the total Rocky Mountain region. So a few month later they brought in another well of over 1000 bbls/da. After this well the stock did start to move up. Around this time the world began to know the area where the wells were coming in as the Bakken, soon to be realized as the largest new discovery field in the US in over 50 years. Around the $2.50 level, the BEXP did a stock secondary offering of some 60 million shares taking off some of the pressure of their high debt. A few months later with the stock around $10 a share they did another 10 million share offering raising another hundred million in cash.

In the ensuing couple of years they participated in several dozen additional wells of 1000 bbls/da + and the stock reacted accordingly trading as high as $40 a share. Late last year, Statoil made a cash tender offer of 36.50 a share for the 119 million shares outstanding or approximately $5 billion dollars when the $600 million in debt is added in. At the time of the buyout offer, BEXP had 9 months 2011 reported gross revenues of $337 million and net income of $1.48 a share. So you could basically say they were bought out at over 10 times revenues.


Now some might accuse me of "smoking" something in trying to compare the two Companies. But lets look at what we know about HENC compared to BEXP.

Both have massive acreage participation in areas where 1000 barrel p/d discoveries are commonplace.

Score: Equal


Average net interest. 40% BEXP, 33% HENC

Score: BEXP small plus


Average cost to drill a well. BEXP $14 million, HENC $1.5 million

Score: Strong plus, HENC


Quality of Oil: BEXP-Equivilant to West Texas crude currently around $95/bbl. HENC-Eqivilant of Brent +, currently around $115 per barrel.

Score: Strong plus, HENC


Royalties & Carrying Cost of Acreage: Royalties of 25% plus and lease bonus of $5000 to $15000 an acre renewable every few years is not uncommon in the Bakken. Royalty of 15% and one time lease bonus of a few hundred dollars an acre and renewal cost of only continuing work such as seismic and drilling a well after a few years is common in the Cooper Basin.

Score: Strong Plus, HENC


Corporate Tax: At least 30% higher in US then AU.

Score: Plus for HENC


Comparison at starting point: BEXP had heavy debt and had to pay for its share of all its wells in the Bakken. HENC has really no debt and will be "carried" on the first six wildcats at no cost to HENC through testing.

Score: Very Strong plus HENC


Final Score: HENC below a dollar has to be a "no brainer".


At the time of their last publicly reported reserves prior to the Stateoil purchase, BEXP had 56 million barrels of proved reserves in the Williston Basin. So you could basically say they were bought out for over $100 a barrel even though it might take 15 or 20 years for that oil to come out of the ground. So before you put too much stake in Present Value Discounted to evaluate HENC, understand the real value of HENC is more in the size of the acreage position, then in what reported probable reserves might be on just 2% of their position.

Now over the long run, all of this above can also be said for TGC and maybe a bit stronger. But fully diluted, TGC will have slightly more shares outstanding, and TGC is the one who has to put up the first $11 million in risk capital. After four months, TGC also has the temporary risk of some 80+ million shares being released from restriction which could have a short term negative affect on their price. But either stock, IMO, is likely to be an excellent speculation over the next few years so "pick your poison".

One last reminder. It only took three years from near bankruptcy to buyout at $5 Billion for BEXP. Many of us long term holders of HENC have already been in the stock longer then that. You can bet, we won't be selling anytime soon now that we are finally going to see what really is under the 1.12 million acres.

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