@Austin14, I tend to agree, I think it makes good commercial sense to farm out Serenity if Liberator comes good.
That said, in the interview, they talk about "subject to funding," and Serenity offers considerable more value once appraised, and said appraisal would not take too much funding, given they have already talked (in the interview) about adding drills onto the Liberator development drills next Summer.
This Summers programme demonstrates that fro circa $25m, they could drill 2 appraisals on Serenity, which in my view, if successful, would add considerable value to any Serenity farm out.
What I find most interesting about Serenity, is that the company is calling it in line with the 197m STOIIP resource but in the interview they state that ;
"in terms of all the predictions we made about Serenity,
"we found a 10ft oil pay section here. . . in Tain they have 4-5ft. . . we were expecting to see something similar to that in this location. . . so better than we expected"
"Our model was assuming for Serenity, an average 40ft net pay section. . . we have used 40ft because when we tuned the model we needed 40ft, so that is what we are assuming, could be thicker than that . . . if we assume 40ft of that sand then that is how we came up with the P50 197mm barrels (STOIIP).
The model assumes 40ft average but was supposed to start with a similar thickness to Tain, at 4-5ft, but it has started at twice that figure.
Furthemore, he goes on to say ;
"we were supposed to TD the well in the Valhall. When we got to the Valhall, we saw some indications of sands, which would be the Coracle sand, so we deepened the well (geological sidetrack) to see of we could find more of these sands, and we did, and on the logs it looks like there is potentially some oil in there as well, so that is a pleasant and unexpected result."
As I say the company is stating that the result is in line with their expectations. The RNS is very clear ;
"with preliminary well results that are consistent with i3 Energy's pre-drill estimate of 197 MMbbls STOIIP for the entire Serenity closure within the Company's licence area"
However, those 2 quotes above, point to the actual result being better than that. If finding oil in the Coracle sands was an "unexpected result" then it cannot be part of the 197mm STOIIP.
If the sands were expected to start at circa 5ft thickness but have come in at double that, then surely that means potentially more oil, or at the very least plenty of early headroom.
It will be interesting to see what the "pressure measurements and samples" are analysed and further well results are reported over the coming weeks.
@Che7win It would not reduce dilution, it would remove pressure from the balance sheet by converting debt into shares.
The removal of the first series alone would remove £600k from the yearly debt payment, and so on and so on.
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It needs to be remembered that Serenity sits right next door to Tain, is likely connected, and is very close to existing available infrastructure. At a likely conservative 70mmbbl of recoverable oil in Serenity, that low cost development option, is very attractive, such that I cannot see how 1 suitor (vulture) would be the reality. With competition comes better terms.
There are many examples on AIM of much smaller companies, with far frailer balance sheets, making good solid deals, and they do not get picked on anywhere near as heavily as I3E. Debt element respected.
I am no fool. I appreciate that failure at A2 would weigh heavy on the I3E valuation, but your words/outcome is for me far too dramatic and I do not see the end for a business that has just hit 200m STOIIP, and has just announced a XTOIIP uplift on Liberaotor West, which brings their total STOIIP to over 500m barrels.
If investors are here for the shorter term and need their money out far more quickly than I do, then I take your point, be it that my point about the drama, still applies, be it with no slight intended.
I have never before witnessed a company's entire future being brought into question, so soon after such a major transformational event in its short life time. 200m barrels STOIIP discoveries don't come along all that often in the North Sea, and they are rarely so close to such good infrastructure and such keen, money laden neighbours, who are so clear about their future desires
For goodness sake, Serenity was only announced 2 days ago.
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@Spike501 I appreciate your comments and respect your viewpoint.
What I find rather interesting is that much of the focus/sentiment around the A2 drill, continues to be based on what happened on the failed drill at Liberator, and not on what the success at Serenity tells us about the revised mapping.
If L2 had not happened, and we only had Serenity to go off, then where would we all be then?
The RNS is clear ;
"This result also adds confidence to our revised mapping of the Liberator field, which utilises the same reprocessed seismic dataset now used to map the Serenity field, and integrates data from the recently drilled 13/23c-9 Liberator well."
The company states categorically (be it an internal estimate) that Liberator Phase 1 holds 23mmbbl of recoverable oil, at 'just' 36.5% recovery. Blake is at over 50%. Not CPR led but based on the 2 CPRs from 2017.
The company has stated categorically that the A2 drill is testing one area of Liberator phase 1, not all of it, and certainly not the discovery area, or indeed Liberator West.
Liberator holds an oil discovery that is right next to the A1 zone and has been proven to be commercial, even when developed as a 1 well design + 1 well add on post first production.
Whilst shorter term, and we are likely talking 6-12 months, the SP may well tank on a failed A2 well, should it happen, I fail to see how that means that all value is removed, to the point that the company could not, at the very least given some time, achieve a valuation equivalent to where we are right now. That being £33m MC plus £22m debt = £55m.
With Serenity on the books and resources established, in time, that is achievable, even with further dilution. Its not my desire to see this outcome, but it is worst case scenario as we sit today, and something I could live with, be it I would have a good wait and likely many shenanigans to deal with.
As for the "high yield debt," you speak of, I see an 8% coupon over 4 years. That equates to c. £1.75m per annum.
With Serenity on board, I3E can achieve a great deal in that year, including a farm out.
In my view, upon failure at A2, the company would have to renegotiate the terms of the junior debt facility, in order to remove the obligation for an RBL by Christmas. That is most definitely a risk. But the terms are centred around the payments and so long as I3E make them, especially with Serenity on the books, and Liberator too, I see no issue that would put I3E out of business, but would clearly want to see more evidence before making a final decision.
As for the Serenity discovery and those vultures, so long as I3E can demonstrate a solid balance sheet and yes that may take some dilution, then given a clear run, I can see them still reaching a very solid farm out deal on Serenity, that would allow it to be developed and likely appraised, at little added cost to I3E.
@Che7win I appreciate your concern and would not wish to undermine that or be disrespectful to it in any manner.
When I first invested in Bushveld Minerals the iron ore play back in 2013, my average was circa 5p and I made my move, shortly before the iron ore price collapsed heavily.
In the 2 years that followed, despite some very interesting and potentially very rewarding new developments, i watched the SP also collapse until it hit its low of circa 1.3p.
Despite this drop, I never sold a penny. What I did was learn my investment inside out, such that I was well prepared for every eventuality and attack that would surely come as BMN went through its many cycles, and of course, raised equity from some often dubious AIM sources.
When the price hit rock bottom, my knowledge of it drove me to back the company to a considerable extent. This was because the company was clearly demonstrating that it was much further down the line, than the market wished to appreciate or understand.
Along the way BMN had to raise what were considerable amounts of money, for a junior miner, in order to take advantage of their geographical and asset based position.
I never wavered from trusting them because with each finance deal and their attitude towards it, through the words and interviews they released, they demonstrated that they were fighting for my shareholding and protecting long term shareholder value. That did not mean that dilution was not considerable, it was more that the level was necessary for the stage of development that they were at, and that I could clearly see that through analysis of their actions.
By 2018 that trust delivered a share price that topped out at 48p. It took 5 years to achieve and the journey is still not complete, but the long term rewards (that completely put to bed any early short term concerns over dilution, and/or paper losses, be it there were hard times) were delivered, in time, and they were more than worth the wait.
At the core of it all, was a management team that played fair, that I could trust, and that could make good deals happen. Those skills do not suddenly disappear over night. Once they start to happen, then they tend to keep happening, and that is very positive for my investment in them.
I see the very same skill set in I3E management, who I might add, are making far better corporate deals than BMN ever had access to, and given time I believe the rewards will come, such that early set backs will be forgiven and perhaps forgotten, because the bigger picture will place them in the context of what had to be done, to get it done.
In the meantime, there is a need for some gritting of teeth, some hard work ad determination, and some patience, because making money in this business is not easy and nor should the sort of rewards we expect be so either.
Further to the discussions on the junior and senior debt facilities today, it is worth pointing out the following clause in the agreement with the junior debt holders ;
From the 25th Feb 2019 RNS (whereby the main terms were agreed and are traceable right through to the junior facility close out RNS dated 3rd June 2019).
"If at any time i3's share price exceeds 125% of the exercise price of any series of Warrants for 90 consecutive days, i3 can require that all Noteholders exercise the relevant Warrants in full."
What that means is that for each series of £8m warrants, the share price would need to remain above the following levels for 90 consecutive days.
Series 1 exercise price 40.7p - 90 day minimum price = 50.9p
Series 2 exercise price 48.1p - 90 day minimum price = 60.1p
Series 3 exercise price 55.5p - 90 day minimum price = 69.4p
It is for the individual to decide what success at A2 would deliver, but I would suspect, the 90 day rule would certainly in play.
If A2 fails and the debt stays on the books (contract terms/potential breach of contract noted), then the existence of Serenity and I3E's ability to appraise, develop, farm out, what is a really strong asset, has the ability to drive an SP higher than a number of those minimum SP prices, for more than 90 consecutive days. Therefore, at the very least the junior debt could be reduced, through the development and thus value, that Serenity would add, even if dilution were required to achieve it. That is because we would be coming at things from a circa 93m shares in issue base, and not the fully diluted 150m shares, that the junior debt facility warrants create.
The market cannot have it both ways.
That is one example of what having Serenity on the books now creates, and is another example of what a good deal the junior debt facility was, because it places a ceiling on the profit margin, and a potential I3E controlled time constraint on the debt, which the junior debt holders did not need to accept. But they did.
@JAdam Believe it or not, I wrote a post on that very subject but decided not to post it, at the danger of being too long winded too often.
An exert fro it said ;
"The mix of Graham Heath and Neil Carson, with the addition of Majid Shafiq (an ex-oil capital man, so someone from the other side of the finance table), is for me a very solid base from which to strike what are rare and very robust, finance deals."
I think its is very easy to become bogged down on the will there or won't there be dilution question.
For me the core of all of this, is the quality of the management team and their ability to get deals done and done well.
Right now, I3E management are knocking out positive deal updates, and demonstrating their ability to make good deals, that benefit me as a shareholder. That may change but we can only judge up to the point that we are at.
With that knowledge in place, I have no concerns at this time about dilution.
I have spent hours investigating RBL facility examples, purely because my previous experience of them, was to do with companies that already had production. I have never found an example of a company that achieved an RBL facility without some form of production already in place, which says a lot about I3E management and their Liberator asset.
However, if for some reason said RBL facility requires some warrants, or I3E need to strengthen their balance sheet in order to gain final sign off of the RBL facility, does it really matter? Will it remove my reason to be here?
If the RBL facility is to be closed out then A2 must have come in. If A2 comes in then I3E will be raising at considerable higher valuation levels, such that a balance sheet strengthening raise, would mean very little, if indeed someone can prove that they need it, because that is not what the company has said to date.
Personally, I see some potential future dilution being required to appraise Serenity, do I mind? No. Why? because that appraisal (which I believe may actually lead to a further junior debt facility, or add on to the senior facility because I3E management have proven their flexibility and deal making skills already), will create far more value for me than the dilution will take away.
Dilution is not our enemy, wasteful keep the lights on dilution fulfills that role. Selective dilution that allows a company to improve the worth of its assets, to accelerate those assets development, is worthwhile and I welcome it with open arms, when in the arms of a team that has demonstrated a desire to avoid it, and just happens to own 20% of the company to boot.
A full appraised Serenity that is still 100% owned, is a far more attractive prize than a Serenity that has a single oil discovery on it, be it that it is a big one.
So the focus should for me be on what will the dilution be needed for and not that dilution exists. That said, I3E may just surprise us all with their future finance related plans.
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Banks are not generally in the habit of taking away a company's assets, at the very first sign of a contractual term being breached. What they normally do is seek assurances or additional support from the company to alleviate said breach/additional risk.
That too, in my opinion, would apply, should A2 fail with its objective. That of course is the worst case scenario, but even then, it is highly likely that breathing space would be given to I3E, to explore the development of Serenity, in order to , at the very least, maximise its sale, or more likely, a farm out, that allows I3E to reduce its debt and progress the Serenity asset.
A scenario such as that, would likely lead to dilution, but given the size of Serenity, and it close proximity to available infrastructure, it would still end up delivering a healthy return from the current £35-40m MC that we see right now.
Yes it would take more time to deliver, and yes the profitability of the investment would reduce, but a prospect with likely 70mmbbl of recoverable oil, is a very big asset, which brings us full circle back to where we started.
An element of the market is attempting to take that oil discovery away. They did not like it beforehand and indeed wrote off its chances of success, and now that it has come in, and come in almost completely in line with the company's guidance, both technically and commercially, they don't want it to matter, well it does and by some margin.
More importantly, the RNS from 29th Oct 2019 states ;
"This result also adds confidence to our revised mapping of the Liberator field, which utilises the same reprocessed seismic dataset now used to map the Serenity field."
With all due respect to all commentators out there and indeed the entitlement they have to share their view point, there is very little justification for focusing in so heavily on the Junior debt facility. The evidence, when taken as a whole, demonstrates a very versatile, professional, and productive management team, that through the quality of the Serenity success, clearly has a very able and now successful technical team. That technical team has re-mapped Liberator and I am very much on board with that.
The Serenity oil discovery is "transformational" for this company, so much so that Majid Shafiq said at the start of the Proactive interview, that it was "an absolutely spectacular success" for I3E.
That means it is an absolutely spectacular success for I3E shareholders, and no term related to the junior debt facility is going to take that away.
Serenity means the state of being calm, peaceful, and untroubled. That is exactly where I am right now with I3E and their upcoming A2 drill, because the deals these guys have made coupled with the Serenity success, allow me to be.
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Some things to take note of in that bigger picture.
I3E have announced both through an RNS and now an interview with Proactive, that the RBL needs to be signed off by December. That is a fact that has been known by all parties since it was signed in June 2019.
The only thing that has changed since that time is the timing at which Liberator (and we do trust it will be) is proven, which has shrunk the time available to complete the facility (Originally circa Mid September, now early December). That is a risk.
However, anyone with any oil investment knowledge, or indeed knowledge of business, will know that the parties involved, will not have simply sat on their hands, awaiting an oil show. They will have completed as much of the paperwork as possible, in order to give the RBL facility the very best opportunity to succeed.
Furthermore, at last call, it was communicated by I3E that a syndicate of lenders, intending to be a part of the senior debt facility, are also members of the junior debt facility. A team of lenders that Majid Shafiq stated yesterday, have been working with I3E for the last 3 years and know one another very well.
It is therefore highly likely that said lenders are committed and indeed obligated to ensure that all reasonable efforts are made, to close out said RBL facility in good time.
In addition, do commentators really believe that upon success at A2, this group of lenders, including those in the junior facility, would simply walk away, or call in their debt, rather than offer a small negotiated, and perhaps financially beneficial, extension, in order to close out the deal. A deal that I repeat has been 3 years in the making.
Possible? Always. Likely ? Not really.
Banks exist to make money. This deal will make them money. It would not be thrown away for the sake of principals, or a clause in the contract that can be altered.
Do I3E have the abilities in place to negotiate that change.
Lets see now.
They have achieved a junior debt facility with no production in place.
They have all but negotiated a $100m RBL facility, with no production in place.
They have managed to persuade BGHE to defer up to £3m in oil services payments until first oil, in exchange for warrants, that came, at the time, came at a near 20% premium to the 10 day moving average.
They have managed to persuade Dolphin Drilling to offset a "material amount" of their costs beyond 30th Sept 2019, and sign a strategic agreement, for the use of Dolphin Drilling rigs, through to 2023.
What then are the chances that I3E can find a suitable WIN/WIN solution to a RBL facility, that to date, the company has not said will fail its December deadline, or indeed lead to a default on the junior debt facility. That assumption is a market led one, which whilst possible, is for me, given the recent deal making history of I3E management, unlikely to occur.
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I find myself once again somewhat gobsmacked but unfortunately not completely surprised, by the way many participants operate in the AIM market.
From the moment the failed L2 pilot well drill at Liberator was announced and the company decided to change course, the Serenity prospect became a major focus, perhaps even battleground, between an army of bears and a select band of bulls.
Much of the effort since then has in the main, attempted to find every single possible fault with Serenity and every skeleton that might lurk, in the company's closet. In doing so, questions have been asked of every aspect of I3E, with attempts made to undermine (be it by design or default) the professionalism, integrity, and therefore abilities of the BOD and their technical management team, and bring doubt to the whole idea that I3E could be a good investment.
These have included but are not exclusive to, its COS, the lack of a CPR, the fact that the block had previously been owned, and so must have been thoroughly examined, such that Serenity couldn't possibly be there, that this BOD cannot be trusted because their plans change too much. Whatever it may be, the intent was clear, our money should not be trusted to this company.
Now the Serenity prospect has come in and in my view, delivered a major new North Sea oil field, be it that it has to be appraised and financed. But those two facts do not take away how significant a find it is, or indeed the affect it will have on its neighbour Tain, and those that own it.
That field sits within what is considered to be a world class set of sands, and is highly likely connected to Tain, and so is automatically on the radar of at least one of the partners there. A belief that is backed by the fact that Serenity is clearly the much bigger brother of Tain.
That same field sits about 10-15km away from an existing FPSO, which has, to date, ample spare capacity to carry a unitized development, and can likely be delivered at a very reasonable cost, given that the full field development costs would need to be shared.
Yes it is early days and the company still has to complete its drilling programme and prove Liberator. However, the doubters would have me completely ignore the success at Serenity, because they have found a new bone to chew into. Now its about the junior debt facility, and a default that they imagine is relevant to the point that it renders Serenity, at best, a distressed asset that could need to be sold to pay off debt, that it is imagined cannot be re-negotiated in any manner.
This story, this event, that we are witnessing with I3E, is a prime example of the market's inability to think outside the box, or to breathe with the bigger picture, and consider isolated concerns, within the greater scheme of things.
@JP2000 I posted previously that in my view (and purely my view only), the revised bidding instructions will have triggered a 3-4 week period, to allow for bids to be updated (I favour 4 weeks).
That would place revised bids at circa end of next week. I would then think that AMER need circa 2 weeks to review and recommend their favourite, even though I suspect they have had one for a while.
So I would expect a recommended bid to come around about 15th November.
The company's statement about completing the FSP in Q4, is either related to determining a successful bidder, or as stated earlier, achieving a recommended bid that is backed by the directors and the major shareholders, which means everything would/could move fast after that, be it that it could well run into early 2020.
My view only based on previous experiences in other fields.
Take a look at slide 7 of the latest Liberator update. If they had sidetracked "towards the site it had already been drilled and found (oil) at," then they would have hit a lot of fresh air and disappointment. Plus the well they drilled gave little sign that a sidetrack would be successful, which is a key ingredient for justifying a sidetrack on an already tight drilling programme.
On your second point, I could not agree more. As I said earlier, the L2 pilot well could well turn out to be a very necessary leg on what could/should be, a very successful longer term journey.
The problem is Ophidian, in which direction would/should they have sidetracked? Without the data analysis, they would not have known just how far north Liberator is, from the original mapping that they had. A quick comparison of the 2 maps I posted in the tweets earlier, demonstrates this.
It has taken the entire duration of the Serenity well to determine where Liberator actually sits, and so the decision to down tools at Liberator and drill Serenity, has proved to be a good one.
Especially, when as we now see, they 'only' need to re-drill a 'local' pilot drill, in order to satisfy their RBL facility.
After further review, it may be confusing to some what I have just explained, and that was not my intent.
The updated map in the latest presentation (slide 7), is more than enough to see the relationship between the new A2 location and the discovery well.
Using the scale available, I have the distance between the 2 wells is c. 550m.
Apologies for any confusion.
Here are 2 links to a pair of tweets I have just published on the pending A2 pilot well.
The first shows the location of the original 13/23d discovery, which spurred I3E t acquire the first block.
The second shows the position of the new A2 pilot well.
The exact position North to South, needs a little more work, but it is quite clear that the original discovery has to sit within the channel boundary. So it cannot be all that far away.
The reason it is so close is because its task is to "priove the reservoir quality" through a "qualification test" and not as has been repeatedly claimed, to establish reserves. They are already there, be it that they were challenged by the L2 pilot well failure. However, I3E have clearly been able to adjust and agree a revised Phase 1 development, that still only requires a quality test of the reservoir, in order to be fulfilled.
Hence why I3E have positioned said pilot well, as close as they can to the existing discovery.
If anyone else were getting their hands on $100m so easily, they would likely be committing a crime to achieve it.
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What was clearly missed over the last few weeks, was not only the flexibility that I3E had with their Liberator area, but also the rather unique fact that the Lib phase 2 area CPR, was (as stated by Majid Shafiq in the 31st Oct 2018 interview with Proactive) rather cheekily produced, prior to I3E having control of the block.
Therefore, the resources there were designated as being "Contingent Resources, Development Unclarified. . . because the area is un-licenced, resources cannot be classified as Reserves" (See slides 4 and 6 of the CPR for Lib phase 2 area).
When I3E secured the phase 2 area, they were able to re-position the drill centre into that block, and bring into play the L4 zone and its 8mmbbl of 2C resources, without the need to do anything else, such as prove it.
The fact now that i3E are still talking about their $100m RBL facility but are only drilling "a few 100 metres to the North East" of the failed L2 pilot well (A position I might add, that practically places the well on top of the discovery well, despite the fact that said well, delivers an RBL to support the entire phase 1 development) compounds that argument all the more.
Not only that, it speaks volumes about the trust that the proposed lenders have in I3E management, the Liberator asset, and the revised mapping employed to define it, plus its ability to pump at high rates and deliver cash flows to pay off said RBL facility, in short order. In a nutshell, the low risk that the Liberator asset offers them, even after a perceived failed pilot well at L2.
The beauty of this entire situation is, that despite the fight that needed to be had to defend the truth post the L2 result, what the L2 failed well has actually done, is create a far more robust and secure Liberator phase 1 development plan, which in turn should now go on to kick off considerable cash flows, which if nothing else, will strengthen I3E's arm in negotiations across the board, including Serenity.
I have more observations to come but right now I3E is looking really good from where I am sitting.
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Having now had a chance to view the latest interview, first and foremost i would like to say just how rock solid this investment is for me right now, and how ludicrous the current valuation is, such that it is clear that what we are witnessing is simply temporary markets dynamics, which once overcome, will lead to a significant re-rate.
The interview had just about everything one could ever wish for ( and I will try my very best to avoid saying I told you so).
On the first Liberator L2 Pilot well COS, Majid Shafiq says this ;
"I know there were numbers out there of 90%. I don't think we ever put those numbers in the market"
On the revised and upcoming A2 well, he says ;
"We've drilled the 8 well (original discovery on LIB), we've drilled the 9 well, which is very close, we're drilling a few 100 metres north east of that, and we have the new seismic mapping, which tied into all those 2 well control points, and is a really good data set that got really really clear mapping of this sand, so its very high."
The core reasoning,
"The intention always was to drill a well here that meets a qualification test for the borrowing base, and that is what the A2 well was designed to do, and so we need to drill this A2 location and prove the reservoir quality. . . And it proves up a well location"
This is demonstrated by the fact that I3E are not being compelled to drill either the A3 or A4 locations, by their potential RBL lenders.
Talk immediately after the L2 pilot well was all about I3E potentially not having sufficient reserves in Phase 1, to fulfill an RBL facility for $100m.
However, the company throughout the whole L2 pilot well storm, maintained its stance, that they still had a "robust" phase 1 development. They just needed a successful drill to prove the reservoir quality.
If this was about reserves, then they would be positioning the next drill at a far more riskier location, such as A3.
Whats more interesting, and (i won't lie) for me personally very rewarding, is that the A4 location (see slide 7 below), is essentially the previous L4 location. That location could only ever have been the 8m in 2C resources, that formed part of the previous Phase 1 development.
From the Jan 2019 presentation (slide 8 - A regular favourite of mine these last few weeks) ;
"Phase I targets c.13 MMbbls 2P reserves and 8 MMbbls 2C contingent resources with planned initial flow rates of c.20,000
I have previously, many times, stated that I3E remained confident about their phase 1 development, even after the failed L2 pilot well, because they had L4. That said, the A3 well would naturally have proved that location up further, prior to it being employed, purely because it would have happened first.
@Genghis15 With all due respect, I haven't employed an NPV as a means to calculate a future SP.
I have merely provided the existing NPVs as a means to demonstrate where Serenity should be heading. I have not even attempted to state an NPV for Serenity. Please review my posts fro clarification.
@Genghis15 With all due respect, I haven't employed an NPV as a means to calculate a future SP.
I have merely provided the existing NPVs as a means to demonstrate where Serenity should be heading. I have not even attempted to state an NPV for Serenity. Please review my posts fro clarification.