Originally posted by excitable2
In my head Spinnz, it is impossible to predict what terms may be negotiated. There might simply be a production clause, giving us some preferential right to purchase any production?
And again, in my head, the 88E/OEL/RMP sheet agreement with Great Bear is sort of like a Farmout. There are before and after back-in agreements negotiated to GB, as well as a bunch of other considerations (refer ann 25/6/18).
So i'd say any Farmout will almost certainly include a BAIPO, similar perhaps to that struck with GB.
"...In a farmout, the farmor usually reserves an overriding royalty interest, with the option to convert the overriding royalty interest to a working interest in the lease upon payout of drilling and production expenses, otherwise known as a back-in after payout (BIAPO).
https://www.lexology.com/library/detail.aspx?g=0a129a52-a9fd-4af4-af0c-cf60dbb77e16
Who knows. All i do know it that the upgraded prospective (unrisked) resource ann this morning seems an excellent validation of the direction DW & Co are steering the ship, and as Mikemike says, the increase in prospectivity surely outweighs the $14m raised via the latest round of dilution.
Agreed Ex....it is hard to know where this farmout deal will fall within the spectrum (or is it matrix?) of possibilities. But no harm in speculating, right?
Rightly or wrongly, there are a few things that I am expecting. All based on the premise that a 'successful' farmout will provide the first step in unlocking value for existing shareholders
and also provide resources to continue the unlocking journey. So, reimbursement of back costs via an upfront cash payment, while significant and more than useful to 88E, are almost insignificant on a potential per bbl basis, and even more insignificant in terms of the quantum of de-risking already achieved and the potential prize identification achieved. Hence I would expect that getting this is a given. Maybe even with a reward factor/multiple included given the implied ROI? The amount of WI we give away will be directly related to the amount of free carry we get (& up front cash received) and the number of wells that this applies to. And again the sheer size of the resource potential comes into play here as success case scenario fixed costs are spread over a large base hence driving down the per bbl economics.
Frankly, I would like to see a farmout deal where we have limited contribution requirements to confirm discovery and delineate the asset. So an optioned, multi-well free carry. It may require us to farmout as much as (say) 80% of the gross (for conventional only). Bearing in mind that while the farminee pursues the conventional proving over possibly 2-3 years (winter only on the Tundra), we try to commercialise WB and YG and further the HRZ case. Meanwhile, if the conventional farminee sees some success then our 20% WI in that play could be worth many multiples of our current share price. Just based on recent OSH transactions and on possible POO trends.
Of course, if we can retain more than 20% then so much the better, as long as the funding contributions to maintain WI are both manageable, and not distractive from being able to pursue a parallel exploration journey to the conventional farminee (i.e HRZ, WB, YG).
Who knows!! I guess we all will soon enough. All IMO & GLTA.
(20min delay)
