Where to ...supply base?, page-65

both of you 2 - need to understand the following:

1. mr market cares nothing about book value ...............this is an accounting concept......
2. mr market cares ALOT about rates of return on invested capital.......
3. BOTH - STO and MRM are "leveraged" plays to changes in oil prices ........one has "operational leverage", the other has "price leverage" (after the min "call" level is reached.......)
4. BOTH have required additional capital (cash!!!!!!!!!!!!!!!!!) - one has gone to the market, while the other has sold off assets ........

what neither of you seem to recognise is the simple reality of BOTH situations:

1. STO is trading UNDER issuance price of new equity - why - well mr market understands that STO isn't really earning anything on this new capital (until JCC prices >> domestic gas prices, or the prices that STO is able to develop new reserves to furfill contracts........)
2. MRM is trading WELL under "book" - why - simply b/c mr market understands that at present it will only just be able to pay the int bill.......and it may still require an equity injection to survive...........

however - the banks "must be paid" .......and as such, mrm is likely to survive (albeit NOT in its current form) ........this may take the guise of:
1. deeply discounted issuance - which we have spoken of previously
2. continued "hope and pray" re operational leverage to the industry
3. merger with a better capitalised entity........

while punting on a merger isn't my idea of investing (and why I don't own)........it is somewhat similar to the non-attempt by STO management to address its fundemantal issues (dom gas prices versus jcc)........

what is hilarious - is that STO has basically stated "3-years" to get to capacity for about 60% of its asset base ...........what punters don't seem to realise is that they will spend >2-3 BN in this period to achieve this .........that's why its a very ordinary investment opportunity (rate of return on invested capital)..........

welcome to "reality" ..............

rgds
Value_Hunter