Martin:
Gusella has a couple of bad habits. He obviously with Petrolifera in Argentina did not do his homework. Argentina has a long history of closing the door on development projects after they come to fruition. They let others bear the exploratory and development costs and then fully or partially nationalize the assets. We as a result, have a minimized revenue stream with which to cover all costs and risks. As long as one has no qualms with theft, it works. We now have a project which we cannot sell and yet has inadequate returns for the risk we assume. Argentina gets the profit, the oil and a free ride.
With the situation in Canada and Algar, he was obviously under capitalized with the result that he could not following his decision to curtail production on Pod 1 and the resultant market crash, he was left with inadequate capital. Then he faced the issue of reduced production predicated on his decision to curtail production at Pod 1 and suffered loss of productive capability. Translation, added cost and reduced cash flow just when that was precisely what was required. Result? Added costs and the need due to inadequate capital to delay and refinance Algar.
Similarly, we are seeing like weaknesses with respect to Petrolifera in Colombia. Gunslingers have a way of dying when they run out of capital. Unless of course, they are able to dilute the heck out of their stock and investors so as to get more capital.
A run of bad luck maybe. But then those that do not adequately budget for contingencys and then "knee jerk" react when a contingency occurs, are frequently known to end up in failure. With the result that their investors lose their investment.
Can Gusella still pull it out? Sure. But at the cost of significantly diluted equity on the part of the investors and a resultant doubling of shares outstanding. Meanwhile, improved contingency planning likely would not be a bad idea. After all, gunslingers sometimes die and take their investors with them!
Brian
