Member Info for 3littlepigs

It was round about 18th March we had the sweepstake. I said $35m so I’m happy!

Absolutely Jiddy! The beauty of the deal is that their WI was in all the same assets that our WI was in, but we were the operator. So we take all the revenue and absorb their share of the operating cost, with absolutely no administrative costs. In any other corporate acquisition the synergy costs obtained by removing duplicate administrative overheads are what make a deal accretive, but no one ever removes all the admin overheads of the business they buy. Yet here we are with no additional overhead. That’s why this deal would have been accretive even if we’d paid twice the price.

The net backs from here will just go up.

bizarre - they've heard their once case and gone to the pub. It's only 10:07am!

But if EME can get a flaring approval then we should be able to so I take heart from what we heard.

We're up...

*say

Bearing in mind my average holding is now at 36p I will day this:

Our share price, despite all the oil in the ground, reflects the low amounts we currently extract on a monthly basis, the high cost of our debt, and (until a RBL is signed) the lack of funding to extract more and remain solvent. These issues are easily solved, hence I hold here, but the market risk adjusts our share price to reflect them.

If I were Art I’d have slipped an extra line on the bottom of the table: C1,C2, C3 1Billion Barrels $10Bn!!!

Good luck all. Flaring approval next, then a RBL.

The 51-101F1 is only required annually isn't it? I remain unconvinced that a new reserves report needs to be RNS'd. Of course, as it will be a very positive document, we will choose to publish its high level contents.

BTW, I would love to see them draw down on the RBL in October; I just know how much work a new debt facility is and am managing my own expectations by thinking November.

Intothedeep: in my experience they'll sign the RBL and draw down on it immediately to repay the old debt. So when he says "draw down on the facility in Q4", he is effectively saying "sign and draw down". He will already have term sheets drawn up, but they are just pieces of paper with numbers on. As he gets towards the end of September his pricing on those term sheets will become refined, and his lawyers may have a draft of the facility documents. The DD will then be ongoing as they test our forward projections and ability to achieve covenants.

I wanted to write a "short" piece on hedging as I think it is misunderstood by many. There are a lot of comments that we should "restructure it" etc. Let's look at what that means.

When you take out a hedge you are entering into a contract to exchange something in the future for a pre-defined price. There are lots of different types of hedging contract one could enter into, with Futures, Forwards and Options all being available.

The simplest of these to understand is a forward contract. This might take the form of a contract with a bank to sell 30,000 barrels of oil per month for $60 a barrel. Assuming this is cash settled, at the end of a month 3 things could happen:

- the price of oil could be exactly $60: neither the oil producer and the bank need to pay the other party anything.
- the price of oil could be lower than $60. Lets say the price is $50. The bank would need to pay the producer $10 a barrel x 30,000 barrels = $300,000. That way, after selling 30,000 on the open market for $50 and after getting this payment from the bank, the producer has received $60 a barrel for each of those 30,000 barrels.
- the price of oil could be higher than $60. Lets say the price is $70. The producer would need to pay the producer $10 a barrel x 30,000 barrels = $30,000. That way, after selling 30,000 on the open market for $70 and after paying the bank, the producer has received $60 a barrel for each of those 30,000 barrels.

We all have perfect 20/20 hindsight and know COPL should not have entered into these hedges! But as a treasurer (me), or CFO (Ryan) they are a very sensible thing to put in place and we as shareholders should expect sensible financial risk management. Remember, only 2 years ago, oil futures went negative!

Right so we know our hedges are costing us money versus today's spot price - what can we do?

We have 2 choices - ride them out (continue selling oil at the hedge price); or buy out the hedges.

I don't need to tell you what happens if we ride them out as it's as simple as continuing to recognise revenue at the hedged price.

How would we buy them out and what would it cost? The bank that wrote the contract could be asked for a price to buy the contract out. They would look at the forward curve of oil prices which might show prices drifting from $100 a barrel to $90 over the next 3 years, look at the gross cash flow they'd receive, discount it by a bit and that would be the price. In real terms the amount paid should equal the net present value of the future cash outflows under the contract, based on the best estimate of future oil prices. That could be a big up front payment to make.

The main reason to buy it out now would be to recognise the cost of the buy-out as an exceptional one off cost (cash only - remember we have booked the hedge loss in our income statement already) and then to move forwards with much healthier revenues. This would be worth it in my opinion, but don't underestimate the cos

Regarding this one on your list: "RBL - with new hedge and decision if old hedge is to be paid off."

In the interview, Ryan said they would give an update on progress before the end of Sept but that the facility was unlikely to be put into place until Q4, so don't get excited about an RBL being announced in September. My guess is November.

I'm going to write a separate note on hedging now as I think this is misunderstood by many.

All the best, 3LPs

Happy to be corrected if that’s the case. Is that a London stock exchange requirement? Or a CSE requirement?

Ploppy, firstly, a reserved report to include CUDA should be easy. Ryder Scott produced the CUDA reports of old so I would expect them to aggregate the new groups reserves quickly.

Do I expect that to be RNS’d? No. We’ve already been told our reserved multiple times by RNS. I do expect it to be sent to the banks for their due diligence.

The new reserves will also be reported in one of those lengthy SEDAR reports.

The next RNS would surely be approval of flaring which is much more important than being told a reserves number we already know.

There was a lot written on this on this board on 1st Sep when the numbers were released. I've copied and pasted my observations from then below. Note wwal, that the 22-27V was only online for 4 days in July but at very good daily rates - so if that continues it is producing 39% more than it did before any works were done.

Here's what I see when I look at the data on a well by well basis for July (look up SOUTHWESTERN PRODUCTION CORPORATION, select data by well, select 2022, download the excel). I have looked at wells that didn't produce for 30 days in June or 31 in July and extrapolated the data:

BFU 22-27V only produced for 4 days - was it one that got worked on? The 4 day production was 684 barrels, which equates to 5301 over 31 days. This compares to 3702 for 30 days of June. That's a 39% increase in production.

BFU 44-21V produced 3220 in July vs 1862 in June (it was offline for 5 days in June - worked on?) that's a 67% increase in daily production.

BFU 34-20V - this is the best one - drum roll - a 119% increase in production on a pro-rate day count basis from 59bopd to 130 bopd.

BFU 21-35-76 ST A SN 3H was offline for the whole month of July. It produced 3360 barrels from 27 days in June.

Personally I see the results of the workovers ion a very positive light.

Is Art our buying some signs:

“Warning - flammable. No smoking near this well!”

Can someone with a background in oil give a view on how easy and how quickly the gas flaring could start once it’s approved and how quickly the pressures might drop. I know every well and every reservoir is different but could we see a 1000psi drop in the space of days or do these things take weeks?

I assume every well has a gas outlet that, with the strike of a match, can glare gas and assume it can be activated fairly quickly.

Our top 10 wells produce 1080 bopd.
The next best 10 produce 300bopd.

I do like the WOGCC site. So much data and transparency!

Here's what I see when I look at the data on a well by well basis for July (look up SOUTHWESTERN PRODUCTION CORPORATION, select data by well, select 2022, download the excel). I have looked at wells that didn't produce for 30 days in June or 31 in July and extrapolated the data:

BFU 22-27V only produced for 4 days - was it one that got worked on? The 4 day production was 684 barrels, which equates to 5301 over 31 days. This compares to 3702 for 30 days of June. That's a 39% increase in production.

BFU 44-21V produced 3220 in July vs 1862 in June (it was offline for 5 days in June - worked on?) that's a 67% increase in daily production.

BFU 34-20V - this is the best one - drum roll - a 119% increase in production on a pro-rate day count basis from 59bopd to 130 bopd.

BFU 21-35-76 ST A SN 3H was offline for the whole month of July. It produced 3360 barrels from 27 days in June.

Personally I see the results of the workovers ion a very positive light.

Wwal - see my response under your other thread.
Cheers 3lp