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The #I3E supply ship Hermit Fighter commencement date just got updated to tomorrow.
https://offshore.clarksons.com/
See term contracts page 2 for details.
@Backwoodsman Good morning.
If you are concerned by the current difference between the two then it if not for me to convince you otherwise.
My main point yesterday was that investors should be careful allowing themselves to fall outside of the known parameters. Those currently sit between 56% (WH Ireland) and 72% (I3E).
Personally, whilst WH Ireland state they have studied Serenity from a technical point of view, they cannot have committed the same level of technical expertise or indeed time, that I3E have.
So it comes back to the trust issue. I accept that Serenity comes with significant risk but my position is one of trust in the company.
Much of the mistrust that now exists with I3E stems back to the L2 drill and the 90% COS myth.
So take a look at the enclosed article below, which was published shortly before the L2 commenced.
In that article the following line and quote from the COO for I3E, John Woods, is key ;
“On the Liberator field he added (John Wood) : "With these wells are looking at a 70 to 80% success rate, so we’re hopeful.”"
Now we know that the A3 well carries a 70% COS from the CPR written by AGR. Therefore, a simple process of elimination says that they expected the L2 to be around 80% COS. Hence why he said "so we are hopeful." However, they never added this COS to their June presentation , nor talked about it at that time either.
80% is still a very high COS but it isn't 90%. It can still go wrong but it does not automatically undermine the model, and certainly not the model on a completely separate structure, that has been calculated with the data from 4 successful wells.
What it does quite categorically do is remove the 90% COS myth from the equation and makes that somebody else's idea.
So in my opinion, the least that investors should be doing is basing their judgement of the COS on the next 2 drills on that 80% figure and not 90%, as some still wish to believe.
https://www.energyvoice.com/oilandgas/north-sea/205282/i3-energy-set-to-begin-drilling-work-at-north-sea-liberator-field/
The above article was written in
In other words it was written before they drilled the well that found zero hydrocarbons!
June 2019 after they reviewed the current drilling program , I3e signed the rig contract & secured the funds needed to drill Liberator and Serenity.
WH Ireland on I3E "...We believe the company has never been so strong. It has an exceptionally exciting catalyst rich outlook relating to potentially large scale resources. It has the backing of multiple providers of capital and operationally progress is also strong. “
Well if you dont like what your reading sell up and move on....
Here's my tweet on Hermit Fighter supply vessel.
Contract booked to re-commence from 26th Sept 2019. Would it be carrying the personnel back to re-mobilise the Borgland Dolphin by any chance.
Previous contract started on 13th August, the date the permit for the rig location was approved.
https://twitter.com/BigBiteNow/status/1176138972365512705?s=20
There are currently 2 stated opinions on the COS for Serenity. The company states 72% COS and WH Ireland back in January, who stated 56% COS. The following is a copy of another tweet from Alexios at the weekend, who was kind enough to share the WH Ireland note at the weekend.
https://twitter.com/Alexios1201/status/1175774762460745729?s=20
Investors can make their own mind up as to what and who they believe and what percentage COS is correct.
Personally, I believe it to be a dangerous game to be moving away from the boundary of these 2 figures on nothing more than a whim or so called intuition.
My position is that I trust the management and their combined experience and professionalism. A mistake has been made somewhere along the line on L2 Liberator, but that is no reason to throw the baby out with the bath water.
Serenity is a separate structure altogether and I will continue to treat it as such until evidence is presented that changes that stance.
What we have here is 2 blocks that to me look very much like they share the same oil field, be it they have each have a different name and operator.
Slide 10 of the January presentation is clear when it says Serenity is "interpreted as the westerly extension of the Tain Discovery into Block 13/23c."
Not only that but said oil field, if indeed connected, already has 4 discoveries in it.
One failed pilot well on Liberator does not suddenly change that for me because there is no justification top do so other than fear driven by opinions that do not carry fact.
Does the management have something to prove? Yes they do.
Does a failure to hit oil mean all data and work that has gone into the last 2 years, should be thrown in the bin? No it does not.
If Repsol owned both blocks and had the data that I3E has to hand, would they have drilled their first well where they did, or would they have centred it around the S1 location or even further West? In my opinion it would be in the S1 area for sure.
So I am very much in the closer to 72% camp than broker playing it safe 56% one.
This is particularly true when I read the WH Ireland update and see the words ;
"The Serenity prospect is unusual to the extent that it is supported by a wealth of cross disciplinary data vs the typical geological approach."
"In our opinion, drilling the prospect is more likely than not to result in a success, which is exceptionally attractive for a prospect containing circa 69mmbbl of recoverable oil."
For that WH Ireland values Serenity at an after tax NPV10 of $518m at Brent $55 per barrel.
I3E current valuation just £22m.
Whatever the final COS. That sort of data backing a connected field with 4 successful fields so close to Serenity drill location, means that the disconnect is just too big, so something has got to give.
https://twitter.com/Alexios1201/status/1175775292608172034?s=20
https://twitter.com/Alexios1201/status/1175775292608172034?s=20
Thank you BBN, very much appreciated your input and research.
I am quite fresh to oil exploration, apologies in advance. But if sands are becoming thicker and geology is similar to Tain area, why Tain owners didnt apply and fight for this block at the latest UK license awards? Is regulator preventing too many licenses to one company? or are there other reasons?
Thank you very much and apologies again if that is something obvious to others.
Moving onto Item 4.
"How viable is Serenity and how much risk does it carry?"
I am going to buck the trend here and call out Serenity for what it is, which is a really good appraisal drill of a potentially much larger oil zone than Tain currently carries. Tain was reported by RRE in their RNS of 12th Feb 2019 as follows ;
"The development of the Tain field (50.0% interest) is progressing with the Field Development Plan (FDP) due to be delivered by end of 2019, with the intention of Final Investment Decision (FID) soon afterwards, giving an incremental net 2C reserves of 6.1MMboe."
That places Tain at 2C reserves of 12.2MMboe at 100%.
https://www.lse.co.uk/rns/RRE/rockrose-energy-plc-update-on-activity-and-reserves-gfby13k78qv61he.html
The following report describes the status of Tain after the initial discovery drill and 2 sidetracks. To date 4 drills have been carried out on Tain, all successful.
After the above 3 drills it was stated that ; "the discovery could contain some 20 to 50 million barrels of oil-in-place."
The key line for me in the below report is this ;
"A second sidetrack, 13/23b-y, was drilled to the west and proved the extent of this thicker sand sequence over the structure"
https://www.rigzone.com/oil/news/oil_gas/a/26543/talisman_strikes_at_ross_field_in_north_sea/?utm_source=GLOBAL_ENG
Sidetrack 13/23b-Y is the nearest drill site to the border between Tain and Serenity at circa 800m
This can be measured on page 2 in the enclosed Serenity document from I3E below.
The same page also has this to say about 13/23b-Y ;
"A strong amplitude anomaly is observed at top Rodby"
"c. 10km area of the anomaly lies within block 13/23c (Serenity)"
"The anomaly is present in the area of the 13/23b-Y Tain well"
So we have Tain with thinner sands over at least one third of its total 3km width vs Serenity with ever increasing sand thicknesses and the same anomaly as the nearest drill location to Serenity but at circa 10km in length and far larger area to boot.
Tain currently coming in at 2C reserves of 12.2MMboe but clearly with more to come once in production and further appraisal drills are undertaken.
https://i3.energy/wp-content/uploads/2018/12/20181212-i3-Energy-Prospex.pdf
Now if we refer back to the I3E January 2019 presentation, we see on slide 10, just how close I3E are intending on getting to that Tain 13/23b-Y drill location.
https://i3.energy/wp-content/uploads/2019/01/20190115-i3-ENERGY-Q1-UPDATE-v1.3.pdf
On a simple measure I have it at 500m from the block border, which places the total distance at circa 1.3km in a zone, which through the I3E review of the 4 successful Tain wells, is demonstrating an ever increasing thickness of sands.
This is particularly true when we see that since my 10am post, we have discovered that the Serenity drill (S1) mobile installation permit has reached "decision" status.
Apologies everyone I have just revisited my drill programme numbers from this morning and have noted a sizeable error.
Part 2 of my 3 part post timed at 10am today should have ended as follows ;
"That would lend itself to a total covered cost to year end of 94 + 30 = 124 days.
The Borgland Dolphin set sail (rig mobilisation) on 14th August 2019.
Today is 23rd Sept, so we are at day 40 (NOT day 51 as written. I had added in the perceived 14 days for the permit and not updated it prior to publishing).
As it currently stands, I3E and their team should be able to cover all costs if they are able to execute the last 2 drills in circa 84 days starting tomorrow (NOT 73 days as posted earlier).
Clearly the sooner the permit to position the mobile drill rig comes through the better the chances they will have.
This revised timescale should be checked and double checked by all investors but from where I am sitting I3E is fully funded to achieve both the S1 and A3 drill, at the full 40 days for each drill, which itself includes full contingencies.
On that basis, I believe the market is getting this very wrong right now.
The SP collapse is II manipulation. It is all part of the deal when you get them involved in finance. This is why II's don't like companies they are funding to hedge their gas/oil prices. They need the SP movement to make money/side bets.
Time to switch off for a month and look forward to Serenity results..;o))
Moving onto item No. 3
"Will they be able to physically achieve the 3 well programme with Winter approaching?"
I will try to keep this one short and sweet.
In 2016 after a successful pilot well drill, HUR set about drilling Lincoln 205/26b-A.
Enclosed below are Hurricane Energy RNS' dated 9th November 20156 and 19th December 2016.
As the dates themselves clearly demonstrate, HUR drilled that well in late 2016. Later than I3E will need to do if they now are able to mobilize fairly quickly on S1 and then move straight onto A3, whose permits are already in.
Yes it is only 1 example but it is an example that demonstrates that I3E can drill into November and that a deeper drill than A3, can be achieved in 40 days in those conditions. Yes things can go wrong and bad weather could be more of an issue, but it isn't guaranteed. So the 3 drill programme is certainly on if I3E decide it is fully warranted, which in my view they believe it is and are as they state, simply employing their options to the best of their abilities, by switching to S1 to ensure that the optimal location for the A3 is achieved, so they can ensure success as much as their are physically able to above ground, as opposed to what exists below it.
https://ir.q4europe.com/Solutions/Hurricane2018tf/3942/newsArticle.aspx?storyid=14105536
https://ir.q4europe.com/Solutions/Hurricane2018tf/3942/newsArticle.aspx?storyid=14105533
Moving on to item 2 of my list then.
"How viable is Liberator phase 1?"
I have covered this extensively on this BB and so won't regurgitate too much. I have read some comments from the weekend that attempt to conclude that Liberator has no commercial oil in it. With all due respect that is absurd.
The perception as always is based on the current intended programme and not what is actually achievable. Don't get me wrong the company needs to drill A3, which is a commitment under the award of the block. That appraisal will help determine exactly how much oil and in what category they have, in order to finalise the financing.
However, it should not be forgotten that Liberator has a discovery on it already and it is this discovery and the subsequent CPRs for I3E in 2017, that enabled I3E to negotiate their junior debt facility. That facility wasn't conjured up out of thin air. These lenders aren't your standard AIM lending gangs, they are serious people with the likes of BP themselves involved. BP I would argue know their oil and know their data, and so that £22m was attached to the discoveries that sit within that block and can be commercially removed.
Furthermore, fixating oneself with the current development plan and the proposed $90m senior facility, is far too rigid. The CPR talks about a 1 well development plan at circa $35m CAPEX, supporting the cost of the roll out of a 2nd drill shortly after.
If the CPR is to be employed to attack the company then it is only fair to use it to establish what is actually possible and how achievable that is with what we know to date. That 1 well development plan was for LP1 and LP1 holds circa 5m boe of recoverable oil.
Even without further success on Liberator, that plan can be executed and in my view the funds raised to achieve it, with limited additional pain for shareholders if any at all. However, the company clearly wants to achieve more and a quicker timescale.
Right now the market is pricing the next 2 drills at a substantial discount but worse than that it has effectively written off Liberator phase 1 until further notice, with the perception that there is limited chance of a commercial development.
It will take time for I3E to prove that to be incorrect and the 2 drills in between will have far more reaching affects on the whole story first of all, but given that L4 has now been included in the phase 1 scheme, which increases those reserves to 13mmbbl and the 2 well development desired by the company, there is a viable commercial project to be had here, despite the disappointment of L2, which is being grossly overplayed in order to pain a picture of a company that is worth zero if Serenity or indeed A3 do not deliver.
That the story will have changed and downgraded and will have to suffer until the development is achieved is absolutely true but the belief that the company is these 2 drills or nothing is also not true, however much some contributors may wish us to believ
Thanks BBN. You have put a lot of work into your analysis. Its just a shame the BOD cannot seem to do something similar. It would certainly go a long way to steady people nerves
To be clear here.
I3E Energy brought a total of circa $48.85m into the business this year through their various finance raises.
The drilling programme, which is a 'minimum' 94 days contract is perceived to cost $36m but I3E were able to offset $3m in oil service costs post total cost announcement.
Therefore, as a base case investors should be able to calculate that I3E will pay $33m for their drill and hold $48.85m in funds, so have circa $15.85m in float.
It is not confirmed at this time that the contingency element of the drills, so the difference between the advertised 94 day programme and the circa 121 days expected to demonstrated in the drill applications (Serenity still to be confirmed but similar depth to L2 and A3), is an additional cost outside of the advertised figure.
I lean towards it being included for reasons already stated earlier today but it is for the individual to decide whether that could/should be the case or not.
The financial situation is certainly, as a minimum, far better than the market is appreciating and that for me is because the market hasn't done enough homework on the facts, and is simply using old headline figures, which is wrong.
Now we have a decision on the rig for Serenity, so the full approval cannot be far behind. The application states an earliest start date of 7th October in the application but as the PETS system states, it is indicative only. With a permit in hand I3E and sizeable costs per day, I3E will not be standing still on this.
Some very welcome news ! Thanks BBN.
Apologies that should read "Consent to Locate a Mobile Installation."
Looks like I3E have wasted little time in driving the authorities to authorize the Serenity drill mobilization.
Further to my set of posts this morning, the OGA PETS system is now showing the Serenity "permission to position a mobile installation" and oil discharge permit" with a current status of "decision."
https://www.gov.uk/guidance/oil-and-gas-environmental-data
So perhaps that down time won't be very long after all and that 73 day programme or better is on.
(3 of 3)
To be clear, the drills programmes from those twitter links both demonstrate a circa 40 day drill programme but the 2nd (A3) specifically states that the 40 day programme included contingencies.
Where I still have a key outstanding question is on the cost assumption that the 3 drills should cost $36m for a 94 day drill programme.
In business it is rare that a programme and costs would be presented, that do not align with one another. I struggle to see how I3E would report a total cost of $36m to their investors but present a traceable set of drill programmes, which defines a programme of circa 120 days (assuming S1 is also 40 days).
It is not wise to tell the market the lowest possible cost. The usual play is to demonstrate the full potential cost, so contingencies included, and then better it by hitting a ,lower drill programme target.
Yes the company has raised and saved a sizeable float, which could be perceived to be the contingency fund, but with $3m of the $12m negotiated post debt raise, the company would have already have demonstrated to their lenders their ability to cover any foreseen cost overruns, which would mean that those 120 days would need to be covered and proven as such.
So I find myself leaning towards the $36m being a total cost inclusive of contingencies, at least the point that they alleviate the burden on I3E cash levels. After all once the debt facility is drawn the company has to be able to cover its costs through to first oil in Summer 2020, and for me the lenders will have wanted security that the cash raised in 2019 was sufficient for al of that.
This is merely my opinion but I believe that the $36m has more included than just a 94 drill programme but even if it is not, the facts demonstrate clearly that I3E has a lot more cash on hand to support an extended drill programme, than the market is currently prepared to accept.
What the market appears to be doing is taking the circa $41m cost from January 2019, dividing it by the 94 day programme only, and concluding that there is a far greater issue than there really is, be it that the situation is not ideal for anyone involved.
(2 of 3)
So as a starter for 10, we have a potential $36m cost for a 'minimum' 94 day drill programme and I3E holds circa $48.8m in cash minus operating costs and junior debt finance interest payments.
According to the 2018 accounts Administrative expenses for that year were $2.37m
In terms of the junior debt facility the company will pay up until end of 2019 circa £550k ($660k) in interest payments IF, they have already taken the full amount upfront, which I doubt. The 25th Feb RNS is clear when it states ;
"expected to be drawable from April 2019"
In my experience companies don't pay all their costs up front, they are billed on a monthly basis, although there will highly likely be a need to prove payments can be met and also to a degree deposits for big ticket items, such as the oil rig.
However, let's be conservative here and include the full payment of $660k.
That places I3E finances needs at circa $3m for 2019.
So we are at $48.8m - $36m - $3m = $9.8m of float.
However, one month after that June presentation came the agreement with BHGE to offset $3m of the oil services cost until first oil (See RNS dated 2nd July 2019). An agreement that is still receiving no credit from the market post the L2 result.
What that should do is increase that $9.8m to circa $12.8m of float.
So the base case situation as it stands is that I3E holds a free cash float that is equivalent to over 33% of the total 'minimum' drill programme of 94 days, when employing the $36m total drill cost from the June presentation.
It should be noted (and checked) that that slide is the only place I can find where the costs and the 94 drill programme appear together.
On a like for like basis, ignoring the stand down time cost savings reported in Friday's RNS, and on a very simple basis, that equates to circa 30 days, when leaving circa $1.3m in float for the company.
That would lend itself to a total covered cost to year end of 94 + 30 = 124 days.
The Borgland Dolphin set sail (rig mobilisation) on 14th August 2019.
Today is 23rd Sept, so we are at day 51.
As it currently stands, I3E and their team should be able to cover all costs if they are able to execute the last 2 drills in circa 73 days starting tomorrow.
Clearly the sooner the permit to position the mobile drill rig comes through the better the chances they will have.
(1 of 3)
Right now the I3E valuation is being beaten up by a variety of interested parties, be it directly and intentionally or indirect through need and a wish to de-risk following the L2 initial result.
The key questions now appear to centre around the following ;
1. Will I3E be able to afford their 3 well programme now it appears to be an extended period?
2. How viable is Liberator phase 1?
3. Will they be able to physically achieve the 3 well programme with Winter approaching?
4. How viable is Serenity and how much risk does it carry?
1. The opinion as far as I can see is that because I3E have announced Serenity will be next, the belief is that this will lead to an overrun, more costs, and so perhaps I3E will need to raise more funds.
I have been mulling over the documentation and statements that exist and would offer this ;
In the I3E Operational Update RNS from 10th Jan 2019 the drill programme is as follows ;
"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."
Note - This year I3E have raised £19.15m through placement shares at 37p, which included a £16m market raise, £2m from Lombard, an open offer (£360k) and director purchase parallel to the open offer (£788k).
They then raised a further £22m in junior debt financing.
On 22nd March they paid back £433k in outstanding loan notes.
Total £40.7m, which $1.20 exchange that equates to circa $48.85m. From this we need to deduct I3E operating cost and junor debt interest payments at 8% per annum paid quarterly, starting 3rd June 2019 (See RNS of same date).
I3E RNS dated 9th April 2019
"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 2019."
I3E RNS 31st May 2019
"Additionally, on April 9 i3 executed a minimum 94-day drilling contract with Dolphin Drilling for the use of the Borgland Dolphin semi-submersible rig, which is expected to spud the first of three back-to-back wells in mid-summer."
The 10th Jan 2019 RNS was released 6 days before the January presentation, which is the last available presentation from the company and also cites this $41m cost.
However, as we all now know, since January 2019 the drill programme has now only changed due L2 moving from a production drill to a pilot drill, and the drill pricing etc has been firmed up. Remember it said "circa" $41m
In the Proactive Investors presentation Mr Shafiq showed a slide with the drill costs for each well (see 15 mins 32 secs in )
https://www.youtube.com/watch?v=LxszZF-apmE
These were as follows ;
L2 = $11m
A3 = $12m
S1 = $13m
Total cost $36m.
https://twitter.com/Redmirres/status/1174633373576388609?s=20
https://twitter.com/Redmirres/status/1174634195706155
Hied, they got up to 3 days (or 3 working days) to declare any change(s) to their holdings. In their recent TR1 LO confirmed that they are still holding 10.99% of the i2e's shares which is equivalent to 10.27M shares, last Friday 3.9M shares were sold & 6.2M shares were bought, I think most of those shares came from LO so this is why I said I think they will be out soon.
Saying that, we don't know if they want to cash out from i3e or to keep a small position here.
I believe they have a number of days to prepare and publish a TR1, it's certainly not instantaneous after a sell off.