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WWN,
If it's bothering you then can I suggest you ask HUR for clarification.
I have always found they are happy to reply to any politely worded email.
Just an idea.
GLA.
Something to mull over on this topic:
At what depth did well 7 produce it’s oil from?
At what depth is 7Z producing its water from?
At what depth did 4Z produce it’s water from?
What does the MDT data tell us about the OWC?
Is there a low case where the OWC is shallower than than structural closure?
ADUK
Thanks for the response. Regarding the Low/Mid/High model articulated in that section of the CPR, then the Mid/High case both assume the flow of producible oil from below structural closure. So surely WD suggests Low Case? Not necessarily the Low Case as described in the CPR, given for example that Porosity and permeability may be better than expected in the upper reservoir.
To paraphrase, you say that it won’t affect the EPS which is going great guns. But you’ve not said why you think that when both the HUR and RPS models suggest it will.
I do recognise that articulating this ‘issue’ will not be welcomed by some. But to me it is a key argument that Hur have not yet satisfactorily explained. Hopefully the CMD in January may provide the opportunity.
WWN,
Your post of yesterday morning is interesting. Not 'negative' as such, but certainly thought-provoking.
I'll quote bits of it...
" The CPR states:
In terms of the Low Case, Hurricane considered this {lack of flow from lower in the reservoir} to be extremely unlikely given the wealth of data that supports producible oil below structural closure, but viewed that the inclusion of such a case provided confidence that the economics of the field are robust and the EPS can prove to be successful in this low case.
My argument is that WD probably puts us in the Low Case."
There, I'd disagree with you. I'd propose that such a condition in no way compromises the EPS (currently seemingly going great guns) and its oil-producing minimum six-year lifetime.
" Until proven otherwise this has huge implications for both the resource upside and for water. However, the low case is not necessarily catastrophic and therefore the downside risk is mitigated somewhat."
Quite agree with that. And also remain convinced that the water ingress (from the aquifer) 'issue' is pretty much a non-starter.
"What do you think are the implications of WD?"
Now THAT'S the 64,000-dollar question! One to which the company has not even hinted an answer, simply because they'll still be analysing the data.
It's something I think about a lot (when I'm not thinking about other far more enjoyable stuff, of course!!!! ;-)) ), but not to the extent that it's making me twitchy. Been in this story long enough to not do anything until the 'West Warwick' result comes out.
But nevertheless the failure of WD to produce commercially can't be ignored.
LW. I think the bid will come when we least expect it! And will depend on the risk appetite of the bidder.
I can't answer your question, WWN, because I don't understand enough about drilling.
I understand your basic point, but it's like getting the gist of something rather than truly understanding it.
Before I read your latest post, I was going to say that I wondered whether these considerations are influencing the majors.
I recall something about them supposedly taking the view that HUR would have to prove the model before they would get involved.
Maybe we are not to expect a bid until three years of oil production have elapsed.
Longwait
The section of the CPR I’m quoting does actually mention 3 years data. I can’t tally that with recent statements on 6 months pressure data. It may be that this pressure data is sufficient to prove flow from the lower reaches of the reservoir? Hence why I’ve always said this is a key risk area that RT needs to explain better. I think I recall from the CMD, he admitted that more work was required on the model post-WD and I assume that is underway using both the theoretical fracture model and the best available collected data. I also accept that we are talking across both GWA and GLA, but the fields are meant to be analogous so I think that is valid. For reference, it is section 7.8.7 of the Lancaster CPR.
For investors at the moment, the only real evidence available is the CPR, and it is reasonably explicit in the implications. The CPR states:
In terms of the Low Case, Hurricane considered this to be extremely unlikely given the wealth of data that supports producible oil below structural closure, but viewed that the inclusion of such a case provided confidence that the economics of the field are robust and the EPS can prove to be successful in this low case.
My argument is that WD probably puts us in the Low Case. Until proven otherwise this has huge implications for both the resource upside and for water. However, the low case is not necessarily catastrophic and therefore the downside risk is mitigated somewhat.
My question to you is: What do you think are the implications of WD?
Yes.
I remember you said it was mentioned in a CPR.
But if it's important, why is HUR talking about six months production being the key thing?
Why not three years?
Longwait
The models predicting water breakthrough in Year 3 are not mine!
There are 2 of them covered in the Lancaster CPR. One is Hurricanes own model and the other is by RPS. They have similar results. Hurricane model a Low Case that assumes oil will not flow from below structural closure and that results in the water breakthrough. Hence, until they explain the WD failure to flow then the risk remains significant (IMHO). They remain economic, but without the upside potential. I suspect the CMD next year may be when they seek to explain.
All the best
Cebo-456,
To add to your post on financing a FFD at GLA.
Key contractor finance is another option to fund some of any FFD.
PMO have actually secured $400M of contractor finance for Sea Lion subject to raising the rest elsewhere. That's it on Sea Lion. I know the story but for the purpose of this example, my point holds good.
There are a myriad of financial options available to an O&G company with $427M free cash flow (30k bond net @$60 Brent and $20 Opex) and 1B barrels of oil plus on GLA alone (subject to successful drilling on GLA).
Nobody (inc the BOD) wants any more dilution. We did that in a major way to get us where we are now and as things look to be panning out there should be no need for any more. If anybody gets cold feet then they can always jump ship straight after the GLA drilling anyway.
All this is assuming that GLA comes good.
If it doesn't then you don't need to worry about any of the above, as you will have bigger fish to fry.
GLA.
Cebo
The $25 was for 2019, but it was up from their previous guesstimate of $22.
No mischief!
The big question now is, after today's announcement, what and when will be the next SP mover?
Ash - XEL and Hur are in completely different situations but I think you know that, also your statement saying "Capex will be $25 a barrel next year" was somewhat baffling, or at least it was to me. A bit of mischief on your behalf perhaps.
IMO, Hurricane do not need to jump into any FID for FFD. - this could be phased, using multiple FPSO's over several years (FFS, could Ricfle have been right once afterall) if required using some debt/RBL etc if needed. There will also be vessel owner's that will work with Hurricane rather than having FPSOs doing nothing and costing money. - This may a preferable solution in the long run as although bringing in a partner will monetise the assets quicker it is still dilution - I have full faith in the BoD to find the correct solutions, and pretty sure that they have a very strong hand now that the EPS is producing, as, or better than modeled.
'However, we remain cognisant that it will take at least six months of steady state production before we are able to evaluate the validity of our reservoir model.'
No mention of WWN's critical third year.
I suppose if WW is non-commercial, SP will be back in 30s.
Every success results in stabilisation of the share price and every failure results in a slump.
That's AIM / Lewis Carroll.
sorry Ash but that's BS. Xcite were in no danger of near term anything. They'd spaffed (pardon the expression, I'm just trying to current) the cash up the wall on FEED's and nice 3D models and pictures of future platforms and subsea infrastructure without actually buying or ordering or deciding on a single thing.
HUR spent the money on ordering equipment after a FID and are now reaping the benefits with $200m revenue per annum and rising. That's something that can't be ignored and why I think the share price is underpinned and should be growing monthly as a result.
There is absolutely no comparison between their position and the one HUR find themselves in.
Anybody suggesting this is the case needs their bumps felt or is deliberately trying to mislead less we'll informed punters.
Yes there is, both need money that we/they haven't/hadn't got yet with no 100% guarantee yet.
People were called derampers with XEL for saying the same things and look what happened.
Nothing is certain until it has happened.
I tried to buy more here if I could have sold some others but a 12% spread with the other one stopped that.
Hi Genghis,
I imagine that HUR's preference is most definitely for a FO. Taking on a FFD of GLA is a major undertaking of which they have limited experience. Having said that experience can be bought in and responsibility outsourced to the key contractors.
However, it does no harm to the negotiating process to make this type of statement not does it do any harm to have a Plan B, much like they did for the Lancaster EPS when potential suitors failed to materialise back in 2017.
I thought we had ALL got way past comparing HUR to XEL on here .
There is absolutely no comparison between their position and the one HUR find themselves in.
Anybody suggesting this is the case needs their bumps felt or is deliberately trying to mislead less we'll informed punters.
GLA.
I would happily pay 7.5% for a bond to get us up and running with FFD.
XEL should have had the money in long before their bonds were due to mature.
ASh666
" 'Hurricane continues to have a 100% interest in the GLA and is exploring a number of structures to fund full field development, including those that do not result in a reduction in licence equity. "
So that might involve equity and dilution."
It might. But if you can get $220m bonds away @ 7.5% for an EPS, for a co with no current income, I reckon some form of debt would be readily available art ac rate well below that, now we are a producer with a proven concept and a huge resource.
But the preference must be for a farm in, and I think one will come.
It didn’t happen as they issued bonds that matured just as the oil price collapsed. I remember speaking to them a few months earlier and the enthusiasm was electric....but I stopped short of investing and had my money on HUR instead. Thank goodness.
AquaeS
It's XEL I'm referring to when I say don't just assume that the obvious will happen when it comes to farm-ins and takeovers.
To this day no-one knows why it didn't happen, or has happened since with the "Rolls Royce" of oil fields in the North Sea just sitting there waiting to put a straw down and suck.
Well this article provides an interesting contrast to Sirius Minerals and Xcite and shows what a brilliant job the BoD have done to create this success story so far.
Project financing a perennial stumbling block for ‘world-class’ small caps
For the likes of Sirius, Hurricane and previously Xcite it presents the daunting task of taking ‘world-class’ assets entirely on their shoulders to fund and take projects to fruition by themselves.
Hurricane, heavily back by private equity even before its 2014 AIM float, has navigated this challenge particularly well. It executed a series of important funding rounds with the help of its cornerstone investors - largely using only-partially dilutive convertible debt.
The West of Shetland oiler has enjoyed comparative comfort as it had the wherewithal to drill several wells and earlier this year it successfully delivered an ‘early production system’ at the Lancaster field which gives it revenue-generating production in the order of around 14,000 barrels of oil per day.
https://www.proactiveinvestors.co.uk/companies/news/902865/sirius-minerals--fields-and-dreams-why-small-cap-firms-struggle-when-building-projects-902865.html
johnniefp
"Continue to run the business I suppose. We don't always get what we want and the BOD don't always get what they want. We'll be cash generative so in the absence of a buyer perhaps we turn into a producer on this asset once proven then move onto the next exploration. "
-------------
Spirit's future in uncertain. Maybe they will get sold to someone that doesn't want to continue with us.
Perhaps we sell 4mn barrels a year at $35 net to us, that's an income of £140mn pa.
Would that pay for drills, tie-backs, installations?
Or have I got my sums out by several decimal points (always likely!)
The BOD have a job to do running the company for the benefit of all.It is not their job to mollycoddle short term chancers.in due course the facts will speak for themselves
...so what will HUR do then with no "structures" or takeover?
Continue to run the business I suppose. We don't always get what we want and the BOD don't always get what they want. We'll be cash generative so in the absence of a buyer perhaps we turn into a producer on this asset once proven then move onto the next exploration. Even if you wish to sell you have to run it like you'd own it forever so I think the plans are so far correct.
I think longer term plan to get off AIM will help get the story out.
By market captialisation this is easily FTSE250 firm.
Now we have profit re-listing on a proper market will be much easier story to sell!
This remains a solid medium (2-3 year) investment.