re: looking at a gift-horse in the mouth...
Looking at a gift-horse in the mouth here people...
I'm pretty much set now after buying a few shares on market prior to the ex date...I'll continue to top up on the rights over the next couple of weeks, but basically, I think I can safely say I am very happy with my current position.
In spite of what people might think, I am not ramping this thing...rather I am genuinely trying to alert everyone to what is really a fantastic opportunity.
Of course, there is risk involved, it is a junior oiler after all, but in all my years of trading, this would have to be one of the best ways of gaining exposure to a drilling campaign that I can remember.
The risk reward ratio is one of the best I have seen, as you will see as you read on.
For the record, I currently hold both shares and rights and have no intention of selling either, at least until the drilling of Maclean is well underway...and even then, I will hold half in order to maintain exposure to this high very interesting prospect.
It's as if those involved in this drill are trying to make it a "retirement" play...LOL...that's fine by me by the way!
I'll explain the current situation, then 5 possible scenarios…you can then make up your own minds.
The shares have gone ‘ex’ rights, so the first opportunity is lost if you didn't buy shares before hand...but for the sake of the argument, I'll assume someone buys 50,000 rights on market now at 10c...LOL...that is if you can get some.
Cost = $5,000 Cost to convert = $6,000 Total outlay = $11,000
*Note - The new 30c options (currently trading under ASX code MOGOA), will effectively be unlisted until you convert the 20c options
This will involve an additional outlay of $10,000, but will result in an amended equity position of...
Shares = 100,000 Options-30c*...ex 06/08 = 50,000
The benefit here is that unless the shares trade over 20c, you don’t have to spend the extra money converting the options…however, when they do, the additional funds will result in instant further profits.
Here are 5 scenarios...
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Scenario 1 - Unsuccessful.
Both wells are dusters...this results in a sell-off which sees the shares plummeting before eventually settling around the recent lows of 10-12c...I'll assume 10c
Results are "encouraging" but no cigar...this results in boredom from the market and a gradual sell down to recent support in the 15-16c levels...I'll assume 15c
Oil or gas is hit in Gilbert-1 (10%), or very encouraging signs in Maclean-1 (35%), which upgrades either permit...this results in a short term flurry after which the shares settle at current prices...I'll assume 20c
Total outlay increases to $21,000, but portfolio only increases by $8,500…obviously at this point, it’s best not to convert.
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Scenario 4 - Very successful.
Maclean-1 (35%) intersects oil, but it's commerciality is inconclusive requiring further evaluation and possibly even another drill. The permit is upgraded however, adding real value to the prospect and to the company...this results in a rally of the shares towards previous highs before settling back a tad...I'll assume 35c
Total outlay increases to $21,000 and portfolio increases by $10,000…from this point on, the options conversion should result in a neutral movement of funds.
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Scenario 5 - Highly successful.
Maclean-1 (35%) (and maybe even Gilbert-1), intersects a commercial oil accumulation and flows at high rates on test...this results in a major re-rating of the company and it's assets. The shares rally through recent highs and eventually settle at all time highs...I'll assume 70c
Total outlay increases to $21,000 and the portfolio increases by $10,000,,,again a neutral movement.
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Summary:
Assume total outlay = $11,000
Scenario-1...portfolio value $6,000 = ($5,000) loss Scenario-2...portfolio value $11,000 = $0 nuetral Scenario-3...portfolio value $15,000 = $4,000 profit Scenario-4...portfolio value $32,000 = $21,000 profit Scenario-5...portfolio value $80,000 = $69,000 profit
The thing I find most interesting is that after the shares pass about the 40c mark (approx) the 20c options will actually trade at higher prices than the shares…this is due to the unique conditions covering the issue.
The leverage here is fantastic.
As can be seen from the above examples, the downside only really exists in the worst-case scenario (scenario-1)...and even that is not terminal in my opinion.
The upside for even a moderate level of success however is phenomenal.
Perhaps enough said.
I have tried to be conservative with my assumed values on the options…in reality, I would expect much higher premium.
Cheers!
MOG Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
