Hi Mike,

I think there were two main issues with Oilexco. Firstly they were almost entirely reliant on the LoC from RBS, and the remainder of their cash requirements was coming from their oil production. Oil prices were tanking, and RBS was getting squeezed. A simple hedging program could have guarrantied their growth and stability while they brought their next field online and they would have been home free. Instead they were greedy, expected the bank to be there, wanted $200 oil prices, refused to do a PP a few months before they went into bankruptcy and kept no cash in reserves.

I believe the other main problem was that they had huge long term liabilities in the form of drilling platform rentals. I think they were paying a 50% premium over the regular industry rental fees to ensure they could bring their new fields online faster, ie: no patience and greedy. The rig company wouldn't drop their prices or let them out of the contracts. I'm sure from the rig contractors standpoint they looked at it as a selling point to other customers... You want a rig? Ok, I know it was $150k a day last month but I can get $300k a day today, so pay-up! Not a lot of reason for them to let Oilexco out of their contract.

In our case we have ZERO liabilities. No long term or short term debt, no contractual obligations to drillers, and our land permits are paid up. We're the exact opposite of where Oilexco was. While I don't want to go down their road, I also don't see any issue with having a bit of debt with a solid Canadian bank.

The idea of bringing in another partner is also something I would avoid. While it would solve the short term problem, you can't get rid of them later. Keep in mind that worst case we can still just slow down the rate we drill holes in the first 2-3 years. I know everyone wants to make a double overnight, but having a more gradual increase in the production schedule can still work for us without further dilution (after this one) or adding debt. A production of 200 wells in year 1, 300 in year 2 and 400 in year 3 will bring us to a point that we're also self sufficient. It's just an extra year on the timeline. An extra 15% dilution compounded over a couple of years adds up fast.

Brym