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Both or only one?
And the junior debt has preference on assets , ie Liberator, if the last two drills are not a success the worst case scenario is wipeout. Highly unlikely given L has proven and probable but after L01 there is always that risk, this is why SP is so low .
Also the coupon rate is 8% or 11% payment in kind,ie dilution, which would be considerable if say the market cap is at £10m.
These next two drills HAVE to hit, IMO.
"The third option is that the market just doesn’t trust any information coming out of i3E any longer." - I don't see this as a third option - rather a function of the markets assessment of oil reserves and funding. The market may have overreacted - however, the L2 result is now more than a month old and investors have had a chance to re-access and are still pricing the assets at 18p / share??
"The failure of the pilot well could call into question the commerciality of Liberator but doesn’t affect Serenity. " - It does call into question Serenity as I3E mentioned during their POD cast after the L2 results - drilling plan based on same seismic data. How much it affects the outcome is still to be seen.
"I also think the hype around i3E took expectations to unrealistic levels." - I assume you are saying that I3E have overestimated / hyped their asset. Investors have applied industry metrics to the reserves and COS published in I3E reports and rightly come up with risked valuations which should be multiples of the current SP.
"I think there are several factors are work driving down sentiment - BOD overconfidence, PI high expectations, uncertainty over Liberator commerciality, uncertainty around seismic interpretation and how that affects Serenity, and funding doubts." - agreed.
Just a couple of comments on I3E's funding - in addition to the drilling costs , you have the following:
1) G&A - I believe these are not included in the $41M. Last year these were nearly $3M - I would expect them to be higher this year.
2) Finance Cost - Coupon on the loan notes is payable quarterly on the full UKP24M @ 8% PA
3) Survey - possibly included in the drilling cost - not sure.
4) Other costs including LLI ?
Bottom line whilst I think they have sufficient cash despite the overrun on schedule - we have no idea what other costs are due in this period. Also I3E's assumption may have been that the senior funding would be in place by now - so not sure how comfortable they will be if Serenity does not come in.
I think it might be worth looking at the O&G Authority Report into drilling in the Moray Firth region that I have previously referenced. I should say this report is around five years old and uses data going back to 2010. That said it says,
‘ Roughly one third (34%) of the 98 segments with available pre-drill risking fall within the 21 to 30% CoS, i.e. what you would expect in such mature Basins.
However, more than a third (40%) of these segments has CoS > 31%: this highlights a trend towards over- confidence in the risking assessment. This is happening in parallel with over confidence in estimating the expected resources size.
It must also be noted that the main risk was not adequately predicted in 36 % of the cases, meaning that the prospect pre-drill analysis was not good enough. This highlights the strong need for a compulsory post well analysis in order to improve the overall exploration results.’
There is a legacy in the Moray Firth region of overconfidence leading to overestimating both the COS and the size of the resource.
BigBiteNow’s research and analysis is exemplary however what if the information that BNN is utilising is flawed?
You said, ‘ The market must therefore think that the oil is not there in commercial quantities or the funding is in question.’
The third option is that the market just doesn’t trust any information coming out of i3E any longer.
I don’t think it’s a funding issue because the SP dropped on operational failure. Unless the market thinks the failure of the pilot well indicates funding won’t be completed?
The failure of the pilot well could call into question the commerciality of Liberator but doesn’t affect Serenity. Unless you read across and decide that it’s the seismic interpretation that’s at fault.
I also think the hype around i3E took expectations to unrealistic levels. A BB myth had taken root that the pilot well had 90% COS, which it didn’t. However the expectation was there.
I think there are several factors are work driving down sentiment - BOD overconfidence, PI high expectations, uncertainty over Liberator commerciality, uncertainty around seismic interpretation and how that affects Serenity, and funding doubts.
I think success at Serenity might reverse sentiment quite rapidly.
What you and BBN are saying about the trust and sentiment here is highly relevant.
BBN has conducted extensive and in depth research into i3E. He is content with the facts and sees an excellent opportunity.
The market disagrees. I have to say I agree with BBN when he says its an extreme market reaction. It’s clear that the market does not believe that the information coming from i3E is reliable.
I’m surprised that the SP has dropped quite this much. When I saw the initial 50% drop I jumped in because it seemed overdone on a failed pilot well with two more drills to follow.
Either BBN is correct and this is a fantastic opportunity or the market is correct and i3E cannot be trusted. Given the track record of the BOD I still find it difficult to believe there’s anything disingenuous going on. If anything it must be simply overconfidence, as I’ve said before.
We’re now in a situation where a failed pilot well has led to a circa 70% drop in the SP. That appears to be madness.
Thanks for the comprehensive response. I am in a slightly different boat that Blackwoodsman - I'm still invested and sitting on a hefty paper loss. At this stage I plan to see the story out, however, I must say that I agree with Blackwoodsmans concerns about what the market is telling us versus the supposed potential of I3E. Looking carefully at your response below which is a rosier take of the current state of affairs than the market - these are my comments:
1) I3E's 9th April 2019 RNS states : “On 9 April 2019, i3 and Dolphin Drilling Limited ("Dolphin") executed a contract to utilize the Borgland Dolphin semi-submersible drilling rig for a 94-day programme which is due to commence between 15 July and 15 August”. This is the update provided to I3E's shareholders and logically the basis of the costing to which one assumes they have added an appropriate contingency. The "120 day program" to which you refer is the dates lodged with the OGA - this may be nothing more than a permitting window - you have to have permits that cover the planned program - it cannot be less. To assert that costing is based on "120 days" I believe is an assumption on your part that may not be correct.
2) The 10th January 19 RNS states: "The Company expects its three-well 2019 drilling programme to cost c.US$41 million with additional capex to 2020 first oil of c.US$90 million, inclusive of considerable contingency." Does the considerable contingency refer to both amounts and was the order placed within the budget referenced in this RNS - these are both assumptions as the 9th April RNS does not reference cost. What does considerable contingency mean anyway - 15% of $131m may be thought of as considerable, however 120/94 = 27% - was this in the plan?
3) Trust and sentiment are surely down to the markets belief in whether I3E make a return on investment. The two factors in play are the funding and the oil- I cannot think of anything else. The market must therefore think that the oil is not there in commercial quantities or the funding is in question.
@tonynorstrom1 I am not worrying myself too much with exact valuations for Serenity. I want to see the whole picture unfold and then assess what I3E has and should be worth.
1. With all due respect, I don't see your calculation as relevant to the COS. The market has a trust problem with I3E right now and that is driving sentiment. For my sins, I don't see what the market is so adamant is a problem. Serenity in my view is a very good drill prospect but forms part of a bigger picture, which should be understood better in time.
2. I have explained my view point on this previously. The drill campaign is quoted as $41m inclusive of considerable contingency. The 3 drills have a total of 120 days, which is inclusive of contingency. BHGE have committed to a $3m deferred payment, which reduces that 120 day drill period down to $38m.
I3E raised just under $50m through a placing, the open offer, director purchases and the junior debt facility.
We are on day 71 of the drill. In very simple terms, until we reach day 120, there is no reason for I3E to even call upon their circa $12m reserves.
When we then consider that circa 7-10 days of those 71 days has been on a reduced day rate, then there remains good running room for the A3 drill.
I mean this with respect, but the fact that we are still discussing this topic and the fact that you are not the only one still bringing up finances and the ability to complete the drill programme, only goes to reinforce my belief that many in the market have not taken enough time to understand what I3E is about, what their actual position is, and that gives me added confidence that I am seeing this for what it really is.
I would add that I3E have in part added to this confusion by perhaps not clarifying matters better. However, they would not be the first decent company/BOD who have done this and still gone on to enjoy success. I also remember Ithaca having elements of this in their management style, and Neil Carson comes from very company.
That said, I3E have issued a going concern in their 30th Sept interims (30th June accounts), which makes it clear that because of the equity and debt raises achieved in 2019,I3E for the foreseeable future is financed (this normally means the coming 12 months). Yet the market still wants more peace of mind. That's a trust issue.
I3E are not flying under the radar, it is more the case that the market has temporarily lost confidence in the I3E team, such that it is not prepared to believe words stated very clearly in the RNSs or the interims, despite the fact that they are very clear about what they mean.
It is a very extreme case of mistrust built on poor sentiment. Its not the first time I have come across it but it is certainly one of the stronger versions for sure.
The trouble is with a drill bit being involved, that sentiment could always end up being correct but for me it will always have been constructed on the wrong assumptions.
Unfortunately i3E hasn’t been kind to any of us so far.
I know lots of investors are in and down. It seems sensible to stay in if that’s your situation. I’m down but currently out so I have a different perspective to most on the board.
Buying in for Serenity results looks a straightforward gamble to me. I think there could be a better opportunity post Serenity results. If we had a 100% rise we’d be at circa 35p. A 200% rise would take us to around 53p. If I were to pay 35 - 50p for the stock, with Serenity a success, that might look attractive to me. Those prices woii I LP be less than many paid before the drilling began.
Of course I could be wrong and the SP might boom to 100p, but I can’t see it.
Overall something is very disconnected from really here. Either the market has this totally wrong, or the bulls do. I can’t call that so I might let the drill bit call it for me.
When the RNS is issued we will all know whether we’ve hit the sweet spot and the SP will react either way.
All the rest is based on conjecture, manipulation rumours etc....
You’ve dipped out in twice and lost money so far. I’m in and down like a lot of others. Either you pays your money and take your chance or you stay out altogether.
Unfortunately none of us investors on here know what the final outcome will be but those that are in are hoping to see a significant rise back to blue!
If you ain’t in you can’t win (or lose anything) Your choice!
I would be interested on BBN's thoughts on this. On paper I3E could be worth some of these figures that have been touted about. Serenity alone could be estimated at 70m x $4 = $280m or more. The fact that that the current market cap is only $17m is a flag. What are the current risks:
1) They don't strike oil. If this is the reason then the market is effectively saying that the COS is less than 5% or something like this which would be strange because the wells are close to existing discoveries.
2) They run out of money due to not being able to complete the wells due to bad weather or some other reason either going bust of having to raise further funds resulting in massive dilution of existing shareholders.
3) Combination of 1 & 2
4) Market have completely got it wrong. This is possible - however its not like I3E are flying under the radar - they've been around a few years and Management have had success with other ventures.
All will be revealed shortly.
Good morning BBN,
The overhang matters long term as regards understanding i3E fully diluted.
From my perspective, which is considering an entry point short term, the overhang interests me as it might affect any rise in the SP. Or might not depending on the strategy of the institutions.
Given that some posters on other social media platforms are talking of rises to the 100p or 150p level in the event of success at Serenity I want to examine that. I don’t see that happening and the overhang is one factor that might limit any rise.
What I’m thinking is could it be possible to take a position in i3E, post Serenity success, at a relatively low SP but with considerable uncertainty removed.
Clearly the market doesn’t agree with the bulls. Either this is a fantastic opportunity or something is seriously amiss. Id like to figure that out.
@Backwoodsman Good morning.
Does this potential overhang really matter if one is invested for the long term?
Perhaps you are interested in it because you would like to invested over a shorter period, which is your prerogative but personally I am here to see the assets value realised. Therefore, any sales through warrants, which themselves reduce the debt of the company, their liabilities, and therefore any burden on payments, is a relatively short term issue and a positive, be it that it may take time to play out.
One other thing I would add is that the overhang is a perception at this time that cannot be proven or measured.
The assumption is that the warrant holders will cut and run the moment they achieve their margin. However, that may not play out entirely, because some may decide to wait or only partially de-risk. This is particularly true for those that take part in the senior debt facility, should it be successfully closed, and the terms that they receive.
That's not to say that the overhang could or would not happen, more that its assumption is speculation based on previous experience of these things.
What must not be forgotten is that not 1 warrant has been cashed to date, despite the fact that the 40.7p warrants were at least 40% in the money at one point during the Summer.
Several contributors here have talked previously about them being forward sold, but the evidence to date does not demonstrate that.
What the evidence says to date is that the warrant holders wanted more than 40% return, which indicates a belief that the data they have reviewed on the I3E assets, demonstrates a valuation that is worth considerably higher than that 40% margin. Other wise why not take your chance on the first tranche, knowing you have have 2 more to go.
If you read the posts you’ll see there’s been an interesting exchange of views between myself, Sankeys and BBN regarding the overhang here.
That’s the reality. I personally don’t view it as a negative. I’d like to understand how the SP might perform in a Serenity success case. I don’t think those shouting about 100p or 150p have factored the overhang in.
I’m interested in understanding the opportunity. If you step back for one moment you’ll see. I want to get a holistic view.
I get that some if you are significantly underwater at this time but you do need to learn to control your emotions.
This board is GI anyone to discuss any issues around i3E that they want, as long as the discussion stays within LSE rules.
I would ask you all to stop playing the man. It’s tiresome and will just clog the board.
Older is is doing the same on Union Jack he is just a nuisance of a man board blocker .
Maybe he's actually Jeremy Corbyn
Ophidian, you have to understand that Backwoodsman has appointed himself as the "People's Conscience", that noble spirited individual who comes on BBs from time to time to enlighten, caution and otherwise try to sow doubt in PI minds about a particular share facing headwinds. He seems not to want to make anything financial out of his sly but negative posts, but just to pop in on a regular basis to dampen interest of others. Maybe he gets a kick out of seeing the negative in everything. Or maybe he wants to save us all from our headlong rush to make money on a risked basis. Who knows, as he is quite coy on his real motives. But, like I said, a truly altruistic individual, totally transparent for all that.
You know I actually enjoy reading some posts now that I never thought I would. It really is amazing to see how long it is possible to keep flogging the same moot narratives. If I wasn't reading it with my own eyes I'd never have thought it possible. Even the Trump couldn't beat this for unceasing fact free, innuendo laced diatribe. Remarkable, truly remarkable.