RE: cc29 Jun 2018 13:43
Normal risks associated with a small exploration company like this would be things like:
(i) absence of adequate financing to continue exploration, however, with Caspian, they already have production from their shallow MJF wells, that already finances their plans for development of further MJF wells and when they start to export their MJF production under their new production license, once approval is applied for and provided, then cashflows will improve still further sufficient to finance continued exploration costs associated with their deeper wells. Fixed costs are already covered by existing production;
(ii) normally companies of this size and stage of development have already divested a large part of their interest in the license area, however Caspian have not only financed the drilling of all of their existing wells through various past financing arrangements, yet they still hold 99% of the BNG license and more importantly have no external debt. This leaves them with all possible ways to raise additional finance if they ever need it, through reserves, farm outs, advance sales of crude and even private placements, none of which they are planning to do as they have sufficient cash from production.
(iii) There is always technical risk associated with execution of operations, this is where they have struggled the most, however, they have learned from past mistakes and so ongoing operations are likely to be better than we have seen so far. This is probably their biggest risk though as they need to be able to demonstrate that they can test the oil from the deep wells with such high pressure and continued operational challenges.
(iv) political risk is another factor, however, the Kazakh Government continues to look for further foreign investment and has/is developing its laws and investment climate so with the fact that Caspian has already received approval to move to a production license then much of the political risks are less for Caspian than other companies investing in the region and of course we have strong Kazakh management running the Company, which also protects it from political risks;
(v) Risk of climate and location is always there and impacts the timing of operations with the severe winters and proximity to the flood zone being near to the Caspian Sea, however, this mainly impacts in the form of delays to operations;
So there are not really and tangible risks that are associated with companies such as this, as always, it comes down to timing of their success rather than will they become a successful oil producer.
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