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To be clear. There is documentation/evidence out there that states that ALL reserves across ALL fields owned by I3E, would be included in the RBL calculation, be it on a sliding scale.
That means Serenity too. Tain itends tying back to the Bleoheim FPSO just like Liberator Phase 1. So a revised development plan (if necessary) could even include Serenity but even if that isn't necessary the RBL would take the reserves there into allowance.
We must mot forget we are talking about 2 assets that are no more than 10km apart and only 15km or so away from a readily available FPSO. Far longer and more involved tie backs exist out there than what I3E is planning and that will have a large influence on things.
@spike501 Fair enough as is your prerogative but I disagree.
With all due respect you are demonstrating a misunderstanding of the data and the progress made by I3E since the CPRs were completed.
Firstly, in UK jurisdictions RBL providers will consider reserves across all fields that are held by the proposed borrower.
Secondly, and far more critical the reserves defined as Phase 1 are only Phase 1 because that is all that I3E owned at the time it was produced. Despite this the Phase 2 CPR stated that Liberator Phase 2 warranted 2C resources of 22mmbbl but defined them as "Contingent Resources, Development Unclarifed." (CPR page 6)
They also made it very clear that "because the area is un-licenced, resources cannot be classified as Reserves." (CPR page 4)
By acquiring the neighbouring block 13/23c I3E were able to update their development plan, move the drill centre and include an estimated 8mmbbl of 2C contingent resources as reserves because the development is now clarified and the bloack now licensed.
So it isn't phase 2 liberator anymore it is an extended Phase 1.
The rest of Phase 2 has been designated by the company as being Phase 2 but it will still be counted as part of the RBL if the resources can be classified as reserves with a development plan.
So a scenario.
L2 proves to be limited in its scope for reserves. Therefore, I3E would need to run with their back up well, which is L4, although that well is actually part of the stated first 2 well production (L2 + L4).
A3 is drilled and delivers a mid case result. Liberator East would then be further de-risked. If some reason I3E are struggling to get the level of RBL finance their desire from their 2 production wells (L2 and L4), they could easily switch focus to the Phase 2 area and run an alternative scenario of L4 + a new well that runs into the remaining 14mmbbl of reserves that are in the Liberator Phase 2 area.
Alternatively, if L2 and L4 are of sufficient size to achieve the desired level of funding, then the company could update their development plan to include the additional northern well, thus demonstrating it has a development plan and CAPEX for the lenders to assess as they see fit. Hence the flexibility.
Because the plan is flexible and not as rigid as the market is determined to make it, the whole of Liberator Phase 1 and Phase 2 East can easily be included in the RBL at a level that I3E determines is wise enough to secure their funding.
Each type of reserves carries varying percentage levels to its NPV10. What I3E needs to do is adjust their development plan as little as possible to ensure they meet the minimum criteria they require.
For somthing considered uninvestible by the uninformed, we seem to have rather relentless buying today, and personally I am not surprised, I never in my wildest thought I would be buying shares in i3e at this price..
BBN - regardless whether technically phase 2 reserves could be used against an RBL facility, I'd be highly surprised if a lender took into account phase 2 reserves for a facility that is required for the phase 1 production. Reserves that are not on production and not much use to a lender, its primarily the security against the cashflows they want.
I still think there is a significant risk here that the available facility size could be substantially reduced due to the result of the pilot well.
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So the statement by I3E management has validity. The question is therefore about how what classification of reserves they are (proven, probable, possible). That classification will help determine the percentage of NPV (over simplified for this post) that the lenders attach to the total reserves in each class.
The key point here is that the belief that the funding is based purely on Liberator Phase 1 as it exists in the Phase 1 CPR is wrong.
Liberator Phase 2 holds 22mmbbl 2C resources that are classed as "Contingent Resources, Development Unclarified" (CPR Phase 2 page 6).
8mmbbl have been transferred to the reserves class, likely 2P, which would place them in "Approved for Development" class and in doing so secures them a far higher grading from the lenders on the discount to NPV scale.
In addition, the other 14mmbbl of 2C resources should be able to be included in the RBL calculations be it at a far lower ratio. The last known information I have found states 20%.
However, as we all know the A3 drill is looming large and should take centre stage to things long before the RBL is agreed and the lenders have done their due diligence.
Hence why I3E have stated that the RBL is dependent on a successful summer drilling campaign at Liberator and not at Liberator Phase 1.
A3 was always going to be a big drill because it potentially unlocks the substantial upside in Liberator Phase 2. It is now more so because of the result on LP2 and the fact that it comes prior to any further discussions on the RBL, which would always have been the case but is now more prominent.
However, the size of the RBL will be determined by both the technical results of both drills and the company can still secure funding based on the whole Liberator area and so the calculation/valuation and validity of Phase 1 should not be conducted on merely the assumption of how much recoverable oil Liberator Phase 1 holds in it.
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Good morning O&W.
Just picking up on your post from yesterday, I certainly agree that there are a number perceptions in play here that are driving the short term turbulent movements in the SP.
I agree wholeheartedly that there is certainly doubt over the current advertised funding levels for the Phase 1 development and it is as far as I can see driven by a misunderstanding of the maneuverability that I3E has with their lending.
I do however believe that it is more complex than that. There is a lack of information on what the L2 result actually means for the reserves that are defined in the 2 CPRs. That should hopefully be cleared up in the next LP2 update. In the meantime the market is playing it very safe, which is understandable. If we add in the doubt over Lombard and their remaining 11% and in my opinion a number of shorts that are taking a short term position based on all of the above doubt, then we have enough to upset the market enough to create this disconnect between what I3E is and what is perceived today.
I believe the shorts issue will come to close soon enough because there simply isn't enough information right now to justify a sustained push south and as far as we know the Borgland Dolphin is being readied for the A3 spud, which even at an adjusted COS, a theory that is not proven at this time, the risk reward offers considerable upside on a positive result there or at Serenity.
Lombard wise I have shared my view already that I don't believe their goal is to sell down hard or indeed to disrupt the market unnecessarily. Its an opinion based on watching their sells over the last few months or so.
So we are back to those reserves and the perception of what I3E can achieve with what they still have.
Contributors across the many social media outlets can try to undermine the reserves base as much as they want but the fact is the oil is there and the latest company interview states that the affect of LP2 will be on the 8mmbbl of reserves attached to that area only. That could change but it is current until further notice.
LP2 as we have established over the weekend, is designed to pick up oil through a horizontal section of the southern section of Liberator Phase 1. Therefore, there is oil there still but it is now about how much and how they re-design their wells to exploit it.
Currently the latest report from I3E is that they still have 13mmbbl of reserves plus LP2. 8mmbbl of these reserves are around the LP4 area, which were classed as contingent resources, Development unclarifed. The relocation of the drill centre to the edge of Liberator East has allowed those contingent resources to be turned into reserves (development clarified).
The RNS could come at any point in the day so no counting chickens!
This does have to turn at some point though!
No TR1 from LO, so that puts the persistent II seller theory to bed, at least for the time being.
I didn’t know Lombard were selling out the entire holding.
Wow. How did you find this out? Lots of us lesser mortals have been trying to find out but you must have some amazing sources mate.
I wonder what I3E meant when they said they had institutional support in their Friday Q&A?
You don't know that Lombard is selling, you know that Lombard has sold some and thats the only fact here. What happens in the future is still yet to be known, but please lets just get the terminology correct here and stick to what is known, not what supports your position.
With Lombard having such a large holding and selling it down its hard to see where a bounce is coming from short term. Perhaps from an RNS that gives a little more clarity to operations.
Should get an RN this week and I expect 35-40 min
In simple terms then the SP whilst oversold maybe should be somewhere between here and 56p.......so 40p would be a realistic figure imo
I think you have a strong point Older. Certainly the connection between this first well and access to finance is a concern for many.
I think that PI’s assumed that this pilot well had a circa 90% COS. We’ve figured out how that might have come about.
It seems to me this pilot well actually had a much higher risk profile, totally the opposite to PI’s expectations. As I understand it the well was drilled at the high point of the structure. That high point was very close to the edge of the channel. That’s very risky isn’t it?
If I’m correct then PI’s had an unrealistically high expectation of success with this well.
I would humbly submit that it is the availability of funds to progress the development wells next year, thereby generating all-important Phase 1 cash flow to implement the staged development of Liberator and Serenity, that is behind the outsized sp fall last week.
Some shareholders have probably deduced, quite wrongly imho, that the Senior Loan facility is/was a binary decision based on the L2 pilot well coming in. Others will have deduced that the lesser likelihood of the Senior Loan facility in its full extent after the L2 pilot well means an equity placing coming up shortly.
Neither is a given, but either would pour oil on the fire after that pilot well disappointment.
This is AIM. AIM shares sink or swim by the ease with which they can attract capital and minimise ongoing but inevitable dilution, before they (ever) become cash generative.
Food for thought ....article by Alan Foum Consultant Geophysicist .......
Risking is generally done by the asset geoscientists working on the field, and would be reviewed by a centralised review team.
Like exploration risking psychology plays a major factor in risking appraisal and development wells. This is usually done by the reservoir development team and is usually reviewed by a review team. There may also be effective review by joint venture partners, which I have personally found most beneficial.
In my experience major biases are more frequent here than in risking exploration wells. I feel that this is because the geologists know something about the reservoir and assume that they know more than they actually do leading to anchoring. Other biases such as groupthink or clique think and focussing on too narrow a specific problem while not thinking about another are also common. Reservoir teams tend to be more isolated than exploration teams and are very task focussed. They may also be located in a satellite office with few other geoscientists to ask.
The only way we can try to overcome these biases is by effective questioning and challenge, inclusion of remote teams and by sharing examples, particularly disappointments which tend to remain hidden by being brushed under the carpet.
BBN - there is a lack of clarity here.
It seems to me that the house broker has issued a note allocating a circa 90% COS to the first well in this drilling campaign. Subsequent to that plans have changed and the production well initially planned has become a pilot well. The 90% COS has migrated from the production well to the pilot well. Many PI’s would’ve held here on the basis that the first well had a very high COS.
That’s just the hypothesis we’re constructing today and needs to be confirmed. At best that’s a communication issue. At worst its deliberately misleading. I prefer to believe it’s the former.
What’s difficult to understand is why around 50% of the mcap has been wiped off the SP. It makes no sense for that to happen if this was simply a pilot well. This will mean less oil in place and that the production well will need to be reconsidered but it’s not as disastrous as the SP fall would suggest. Would that also explain management surprise at the SP reaction?
Is it possible that both PI’s and II’s were confused about the change in drilling plans between Jan19 and Apr19? Alternatively is there further info we don’t yet have that the II’s do?
@i3energy (LON #I3E) There are two further wells coming up, one appraisal & one exploration, both with around a 70% chance of success, so continuing volatility is ensured @Oilman_Jim 13/23c-09 well - it was a stratigraphic test well, drilled solely to gain structural information
I am not assuming that Miton's sudden sell of is due to external issues. When they last reported on 24th July they went very quiet afterwards when there was opportunity to sell. They then suddenly sold off circa 5% off the back of the well result.
My view is they were the party with the stop loss in place and the MMs took full advantage but it is only a theory.
Nobody can say how much Lombard are selling and if and when they will stop and that's the point.
My opinion is they won't be sell everything because I have recorded their patterns previously as a means to establish when I thought the SP was going to push on from 50p. They have to date being very forthright, reporting every percentage threshold, which is rare. The last sell off went through several percentage barriers very quickly so could be put down to speed rather than a change of tact.
All other drops are reported by percent and they have had enough opportunity to sell into this market since the last threshold was breached on 11th Sept.
So whilst anything is possible, the percentages point to a de-risking of their position and not a rapid exit for the door. But until that is confirmed it will sit over the share and many will sit on the sidelines awaiting a driver for a change of direction.
@BWM Who truly knows why the SP has dropped so far and stayed there?
What we do know though is that a great many investors (too many) have been utterly bamboozled by the change on the drilling scheme from LP2 production well to L2 pilot well. Then we have the 90% COS that looks to have come from the house broker and was attached to that LP2 production well and not the pilot well.
Who here can say they invested on the basis that the LP2 pilot well was a "stratigraphic test well"?
Therefore, there aren't actually a great many investors out there who actually know what it was trying to achieve. Is that good?No it is not. Is it the company's fault? Partly but not near as much as many of these new visitors and experts in I3E would want us to believe.
The company is clear that it was a pilot well for the LP2 production well due to be drilled next year and was designed to optimise the well placement. Ideally that would have been right under a LP2 pilot well that had found a 70ft oil column but unfortunately that will not be the case.
Does it write off LP2 as a production well? No.
Does it relocate it? Yes that is what we understand to date.
The sheer lack of understanding of the COS, what the company themselves have said about this, and what the pilot well was supposed to achieve, might just have been enough to completely skew the reaction, a reaction that was then looking for more food to feed its fear, which came in the form of Miton and Lombard.
What that then all created was a period of deep uncertainty whilst the company (clearly communicated) took the time to assess the result, thus prolonging the uncertainty.
That creates an excellent opportunity to short and to drive down against the doubt on the anticipated iis seller(s) and the doubt being created on the validity of the investment case.
All these new contributors and articles certainly aren't be written by would be saviors. The Samaritans didn't just get word of I3E and decided to swoop in to tell us everything bad about them that we should supposedly have known already.
Is my theory correct? Possibly, possibly not? Is it possible? Yes it certainly is.
Shorters aren't born one way and stay that way. They merely play the market trend and opportunities that present themselves. Right now its all about the doubt on phase 1, on whether I3E can raise finance. Itr even goes as far as doubting that the reserves even exist. All designed to make investors who are already vulnerable think things are worse than they really are. So yes it is certainly possible.
However, a great many of those doubters will turn believers when it suits them. Ther are 2 high impact drills here, each of which could create a multi bagger situation. There are far worse punts on AIM with far worse chances that create far more attention than I3E is currently achieving but it'll come. Greed will see to that.
Milton have been selling all over so I don’t think it’s possible to definitively link their selling to the well result.
Lombard still have a large holding. If they’re going to zero then that’s going to be painful however we have no knowledge of their intentions. If they’re still at it they’ll have to notify again soon. I’d also like to think that they’re not selling at any price and do would have a minimum figure that they’re prepared to sell at.
Management say the II’s are supportive, so I would expect Lombard to retain a holding but I couldn’t hazard a guess at its size.
We need more clarity. Hopefully an RNS in the morning.
Until the II’s are through we won’t get a bounce.
There are two institutions selling as far as we know.
Miton has been selling a variety of shares due to a merger. They may have decided to be more aggressive post result but their selling is across a number of shares.
As for Lombard, they probably are reducing risk but have also been selling for months if you look at the holdings RNSs. It is difficult to know if they will sell down to zero but for them it will also be about risk management for their clients.
IIs will of course be more risk averse than retail investors but when they stop we should see a decent reversal.
Personally I’m expecting a few more days of this crap before we see a change in direction for the share price but it all depends on what the company says in its next RNS (tomorrow?)
Got you MPLS!
What’s not yet explained BBN is the massive SP drop on a pilot well result.
If this was a stratigraphic test well as you and Oilman Jim have said I wouldn’t have anticipated that reaction. Why are II’s selling heavily?
Is something in the pilot well result linked to securing the senior debt facility?
Do II’s have knowledge that PI’s don’t yet have? Will that be made clear in tomorrow’s RNS?