Equity's a Better Use
The disclosed equity raise, in and of itself, to provide capital against which to negotiate, is not the worst thing to do, as it provides optionality. In this case, however, we believe that the team should go one step further and raise sufficient equity to drill the first well, at least, to test the hypothesis.
We say this because of the risk profile, i.e., the number of analogue and offset wells that provide the support to the Mesquite wells suggests that the risks are lower than they would usually be.
That way, the positive results will better enable the team to articulate the value and raise the probability of achieving that value, thereby closing the discount between the asset's value and the deemed worth, thereby improving the value flow through to the equity holders.