A new variation to the existing oil discharge permit for the Serenity drill has appeared on the OGA energy portal. It is dated 23.10.2019.
No other permits have been changed.
I am not going to speculate as to why it has been issued. I merely saw it and wished to update the BB, although it’s certainly an interesting development.
@tonynorstrom1 I take on board what you are saying and you are correct that I have made an assumption.
Upon further analysis, I see that the 94 day, 3 well campaign, is included at the top of the slide in the June presentation.
In addition, Majid Shafiq states that the "total cost of that programme is just over $40m."
With the BGHE deferred payment, this would place the total cost at "just over" $37m.
I stand by my earlier statement that the "total cost" will include those considerable contingencies because the company has already stated as much, and it is a sensible conclusion under the circumstances. The drilling schedules (120 days) will have been known at that point in time.
So the total cost is most relevant. That said, I had forgotten about this part of the presentation, even though I have watched a dozen times or so. So I thank you for that.
That error aside, that still places I3E at circa $12m running room post the 120 day drill.
I also support in part what nGOk has stated because the drill programme is broken down into various different components, on every good example being the anchor handlers, which can have very high day rates (circa 75k a day per boat), which themselves skew the average day rate you have employed.
Despite this deviation, I still see a company with a very solid funding position, which should see them through to the senior debt facility sign off, if/when they hit the oil they seek.
In the RNS dated 3rd June 2016 (see below), which was the point at which Yellow Dragon were introduced to the business as a co-partner for Vametco, BMN stated the following ;
"Yellow Dragon is a private, strategic investor in African resource projects. The Group comprises a syndication of private investor groupings from Asia and Africa."
No more, no less.
@tonynorstrom1 You are absolutely correct when you say "a significant portion of the costs are time related i.e. equipment rental."
So where is the timeline for the c.$41m cost stated on 10th Jan 2019 that included a L2 development well?
What you appear to be missing here is that the 94 day contract for the Borgland Dolphin had no cost associated with it at all, until the June presentation. That presentation stated $36m.
The BGHE deferred payment removed $3m from that total. So its $33m.
The only worthwhile reference that the 10th Jan c-$41m has is the "inclusive of considerable contingency."
Because that contingency, very sensibly, will have been applied to both the 2019 drilling programme and the senior debt facility, because both have the same ingredients, drilling in the North Sea. So one would not allow contingency for one operations and then leave it out for the other. That does not make sense.
The fully contingent drill should be costing $33m and is for upto 120 days.
Therefore, the key factor is all about where we sit within that, as opposed to why we are where we are. Today is day 71 of said 120 days.
However, as you point out, the rig was "down-manned to minimise standby costs," which means that circa 10 days of those 71 would have been cheaper than the standard day rate.
The potential mechanical sidetrack on the Serenity well, is something that can happen, that is why there is contingency. The final outcome of that assumed additional work, is yet to be known. However, it does not detract away from the fcat we are at day 71 of 120.
In addition, the $33m clearly supports an argument that I3E has further funds should the 120 days run over.
Also, to assume that every day the rig is on contract is at a standard cost, is for me incorrect. There will be a more than on rate, and those rates will include a variety of known possibilities. So the $360k statement is too simplistic.
That said, I3E has as far as I can see, 49 days to complete S1 and drill A3. That is more than half of their anticipated 94 day programme, and S1 is already well under way.
I have done my very best to explain the history and the reasoning as to why the costings are as I state.
From your answers, I suspect you have not fully understood what I have written this morning. Perhaps that is my failing but then the subject matter is complicated, hence the number of words.
There does not need to be a schedule reference because what I have clearly demonstrated is that the $41m is redundant, so therefore has no place in the discussion.
It is redundant because as I explained this morning, it is based on a development well at L2 and not a pilot well.
The 94 day programme did not exist until the L2 pilot well was introduced. Therefore, a calculation employing a $41m cost and said 94 drill programme, with all due respect, has no worth whatsoever.
If you refer to the drilling schedules you will see that in the bottom corner, they have a July/August 2019 reference. They were issued as part of the permit process for drills that are actually going to take place and not a plan that was changed post junior debt facility negotiations.
The June presentation gives you the total drill cost when including a L2 pilot well, which will include contingencies. That figure is $36m and from that figure one must subtract the $3m for BGHE.
So its $33m and not $41m, and its 94 days without contingencies.
In very simple terms, I3E has sufficient funds for the drilling campaign, even at 120 days, and more than enough to cover all of the G&A, finance costs etc.
There can always be unknown factors or disasters but until they occur, in my view, and this generally goes for most BODs, the current situation has to be respected, given that a good sized safety net has been included.
Common sense - The idea that a seasoned set of oil men, used to operating in the North Sea, would set about attempting to drill 3 wells in said North Sea, and only raise enough cash to cover their initial drill programme, without any real concern over the contingencies or indeed the other associated known costs (finance costs and G&A being big ones), even though they know they have to submit a Petrofac led drill schedule that is minimum 26 days longer, is lets be frank obscured.
Yet the market is determined, until perhaps recently, to say that could actually be so.
For those that are interested in the potential sale of the 33.9m shares that are to be issued to YD as part of the settlement of their earn out agreement, I would offer this ;
When BMN bought out YD's 55% of Bushveld Vametco on 21.12.2017, this being the deal that created the earn out agreement in the first place, YD at that time held 79.8m shares.
On 8th August 2019 BMN announced a series of holdings updates associated with the YD shares. Whilst they were dated 8th Aug 2019, they actually were associated with updates from 18.06.2018 and 22.11.2018.
What they showed were that between the 21.12.2017 transaction and 18.06.2018, YD disposed of around 8m.
At this point is is important to appreciate that there was no lock in on the 79.8m shares reached courtesy of the YD buyout of Bushveld Vametco.
By the time we then reach 22.11.2018 the total was down to c.67.8m. We know this because at that point c.64m (5.72%) shares were transferred to The Orange Trust leaving YD with 3.8m (0.34%).
As of 30.09.2019, The Orange Trust still hold those 64m shares. The whereabouts of the other 3.8m shares is unknown.
It has been reported by the company that The Orange Trust is a vehicle of an investor who is well known to BMN and that was also essentially YD. However, to be clear, I cannot factually verify this but it is the reason why the holdings update took so long, because it looks very much like the holder did not feel the need to update, because he/she is the very same person. Clearly other more regulatory based parties thought otherwise and so the update came, be it many months later.
I cannot say what YD will do with their shares once they have them. What the evidence points to is an investor who has held a very good majority of their shares throughout the highest price points we have witnessed here, and still hold even now, after the price bottomed out at circa 20p.
That lends itself to an argument that the person or persons behind YD are a long term investor. The evidence also lends itself to an argument that those 33.9m will soon also find their way to the Orange Trust.
So whilst the market may well need to take on board those 33.9m shares, which in all fairness is under 3% of the total shares in issue, there is limited evidence to support an argument that YD or the investor(s) behind them, are keen sellers. Infact the opposite appears to be the case, based on what I have read and how it logically can be interpreted.
@tiler1 The going concern statement released in the interims, states very clearly that the company is financed for the foreseeable future, which in accounting terms is expected to be the 12 months post sign off of the interims.
The interims were signed off on 30th Sept. I know this because it is specifically written in the interims that this is the case.
That is post L2 result and drill programme plus change of drill sequence and rig down time.
Some will say that this interpretation can be changed, that the interims aren't fully audited, and therefore the statement is irrelevant. I say that because of what I have clearly spelt out earlier this morning, the market is looking for trouble with I3E and its management, and so wants to disbelieve what they say.
The interims were RNS'd and the going concern is included and explains that their assumptions are based on the fact that they were able to raise £41m "during the period."
That should be absolutely clear if the market is able to appreciate the fact that the contingency based 120 day drill programme is costing $33m and the company raised over $49m, but the vast majority aren't aware of this or simply do not want to hear it, which is fine but a great shame.
@MTSparky With all due respect, your quote is a tad misleading. my recollection is that the 1-2m barrels was an example and he went on to say it will be "a figure between 0 and 8m, but it won't be zero" because there is oil in other parts of the L2 horizontal location.
The exact wording is not correct but the message was as I have stated.
It is important to distinguish between a failed L2 vertical pilot well aiming at 1 part of a stretch of a field, that will be extracted using a far longer horizontal development well, that will penetrate ares outside of the vertical drill area.
The exact affect/outcome on the L2 area, will be known shortly.
It is also important to understand that on slide 6 of the Jan 2019 presentation (see below) gives a very clear indication as to what L4 well holds because the phase 1 development states ;
"Phase I targets c.13 MMbbls 2P reserves and 8 MMbbls 2C contingent resources with planned initial flow rates of c.20,000 bopd."
The L1 and L2 locations only hold 1-3P reserves, so by a process of elimination, the 8m 2C must be associated with the L4 location and should be proved up by the A3 appraisal well.
The L2 location in the 10th Sept interview is stated by Majid Shafiq as having been assumed to hold 8m reserves. That therefore places the L1 location at 5m because he does indeed talk about c.21m of reserves for phase 1, as does the Jan presentation.
So if A3 comes in the company should have minimum 13m reserves at L1 and L4 plus whatever is still at L2, which will be between 0-8m barrels.
However, the actual development plan may need to change because I3E have to satisfy the OGA that thy are/will extract the oil in manner that maximises the recovery. So we could just as easily end up with a 2 well development plan that captures all 3 reserves locations but looks nothing like the plan we see right now.
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That is why I have previously quoted the Proactive presentation from June 2019, which contains a slide which states the individual well costs (enclosed below. See 15 mins 15s onwards).
There you will see that the cost for the 3 wells amounts to $36m in total because the pilot well is clearly coming in at a much lower cost.
Now , whilst I cannot prove it 100%, that cost will have been presented in line with the guidance given for the c.$41m, in that it will be inclusive of contingencies.
So that 120 day programme should be costing I3E maximum $36m.
However, since that June presentation, I3E have agreed with BGHE a contract that defers $3m of their oil service costs to first oil (expected 2020). Therefore, the total cost for the 120 day programme for I3E is $33m at 120 days.
I3E have raised closed to $50m this year.
Nobody that I can see in the market that is made up of social media, is talking about this or indeed fully engaging with it in any manner. What is being said is that I3E have not talked about or proven that they have sufficient funding for the 3 drills and beyond.
That perception, along with the expectation and disappointment around the L2 pilot well drill/result, has all been born out of the change from a L2 development well to a pilot well.
Part of the responsibility for that lies solely at the feet of I3E and their BOD. However, that fail to communicate well, does not automatically take away the facts as they stand, and those facts say very clearly that I3E is in a far stronger financial position than the market wishes to understand or appreciate. Nor does it remove the potential outcomes of the drills that are still to come or indeed make the words that I3E have put out to the market since L2, any less relevant.
That's because I3E have not lied, they have told the market all of what I have just explained, because I have found it.
There is a clear difference between poor communication that confuses and communication designed to confuse.
I3E are for me very firmly in the first camp but the market wants to place them in the 2nd camp, and there for me lies the opportunity.
If one is prepared to understand the core reasoning for the way that I3E and its assets are being misunderstood, then that should allow everything that is and has been witnessed here this last month and a half, to be viewed in a completely different light.
That's where I am right now.
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@tonynorstrom1 Good morning. This post is in answer to your post from yesterday at 17.56pm.
1. With all due respect, the 120 days is not a permitting window. It is the sum of the 3 drilling schedules that have been submitted to the OGA as part of the permitting process.
I enclose the Serenity drill schedule below ;
"Operations for the main wellbore. . . are expected to take 39 days, including contingency"
And here is a copy of the 2 other drills ;
Total = 120 days.
It is therefore not an assumption, which I do try to avoid whenever I can. I am a logic driven investor basing my assessments wherever possible on the facts that are available at the time.
2. The above data supports, as a minimum, the interpretation of the quote you have employed regarding "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."
Nowhere does it say that the 94 day drill programme will cost $41m. What it said is the company expected the drilling programme to cost c.$41m inclusive of considerable contingency. The drilling programmes demonstrate that contingency and the total is well beyond 94 days.
However, I would ask you to bear in mind that you are assessing a post from me that is based on a worse case scenario, which I have explained previously is itself flawed, and its core is the fundamental reason why the market is punishing I3E far more than it should.
When the c $41m cost was published, it was associated with a 3 drill campaign that included ;
"The first Liberator Phase I production well (called L2) in Block 13/23d" (See 10th Jan 2019 RNS).
The 9th April RNS update, which for the first time included the 94 day programme, stated that the 3 well drill programme now allowed for ;
"the Liberator Phase I L2 pilot well."
I have previously posted that the evidence points to this change being driven by the agreements made in the finalisation of the junior debt facility, whose term sheet was agreed on 25th February 2019 but which was closed on 3rd June 2019, after an alteration to its size was agreed (£24m down to £22m).
A vertical pilot well does not cost anywhere near the same as a horizontal development well.
So what we have is a situation where the market is associating 2 facts that do not belong together. The c.$41m cost is associated with a 3 well drill programme that included a development well at L2.
The 94 day drill contract (inclusive of considerable contingency) is associated with a 3 well programme that includes a pilot well. Totally different.
@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.
It is important to remember that a permit for the A3 well is already lodged.
So according to the BEIS Regs, I3E can adjust the permit at any point up until it has been decided upon, even if it means relocating the position and targeting another geological location.
This is designated as an "update."
See page 53, section 3.4.6
"Any change following the submission of an application but before the issue of the relevant determination, including any change to an application prior to the issue of an EIA Direction, is termed an update, and any number of updates can be submitted up until the point when the developer is locked out of the system as the Department has started the process of
issuing its determination."
"in exceptional cases the developer can notify urgent changes by email and the Department can issue the environmental approval by email, providing a formal application is submitted to the Department via PETS within two working days."
The permit is lodged and can employed as the basis for whatever drill A3 turns out to be, if indeed it is changed at all.
So we may never see a change to the actual paperwork and the update will perhaps only ever come from the company itself.
Apologies, the $600k is relevant to both the accounts and the deal, so the difference is actually as stated, $2.1m ($13.5m - $11.4m).
So the premium is 18.4%.
So BMN must be seeing something very worthwhile in paying that premium now, when FeV prices are circa half of what the H1 2019 average was.
Like I said earlier, watch out for those buses.
This is a really interesting development.
I posted some thoughts on this a few weeks ago. To give some context to this deal, in the 2018 accounts (Note 27), BMN logged a deferred payment for Vametco of $17.4m.
In the H1 2019 interims, this had been reduced to $11.4m , which is a reflection of the fall in vanadium prices.
Vanadium prices in 2018 averaged $81 per kg compared to $56 per kg in H1 2019.
Today's settlement, which takes into account a $600k deferred payment, so is effectively $12.9m, demonstrates a belief that Vametco will better the equivalent result in 2020.
Now I don't know i there is any forwarded thinking allowance on production, but at best we are talking about a jump from a mid case 2,850 mtV to a possible 3,250 mtV in 2020 (3,400 mtV target is full production capacity for 2020 not expected outcome).
So we are talking circa 10% more production.
The settlement price is circa $1.5m higher than the current deferred payment allowance in the accounts. So circa 13% difference.
Not every deal is the best deal but every deal happens for a reason.
1. BMN believe that Vametco will deliver a stronger result than they have currently allowed for in their accounts, which means more than 13% added production but at an average price of $56 per kg.
2. Vametco will be achieving further revenue generation that is currently not covered in the accounts. One example being what I said earlier ;
"Vanchem has significant surplus ferrovanadium smelting capacity that will enable surplus MVO at Vametco to be converted
to ferrovanadium at Vanchem."
Remember Vametco has a partner that sits outside the ownership of Vanchem and/or all other assets that BMN are and are planning to create.
3. This early buyout is a requirement for a plan that is not currently known, an/or could be attached to a clean JSE listing, although I don't personally buy fully that myself.
BMN tend to make good deals, and this deal expects that something significant enough can/will happen in 2020, to justify its brokerage.
Did I mention that I was looking forward to 2020?
What makes it all the more interesting is the fact that their interims state the following ;
"We are preparing to fund Liberator Phase I on a 100% working interest basis through our progression of a US$100 million reserve-based lending facility."
Lombard will have no doubt have read those interims and no doubt, as a junior debt holder and major investor, will have interrogated I3E over the details.
The fact that they remain at over 9% holding, perhaps gives insight into a wider belief that what I3E is saying it will do, could actually be true.
Right now the market is ignoring these messages from the company but the evidence that I can see, says that they shouldn't be.
I posted yesterday that Lombard as part of the closure of the junior debt facility, agreed to take a £3m stake in the junior facility, as well as a further £2m in the form of a placing. Both of which delivered them participation in the warrant scheme for the junior debt facility.
The important part of all that is the junior debt facility participation because what that makes Lombard is a participant in a facility that is designed to unlock the assets of the company, and that has been signed off by employing independent experts to review the I3E data on its assets.
Hence why I3E stated in their Interims that the L2 well result was ;
"a surprise to the myriad of independent technical reviewers, reserves auditors, and third-party consultants who have conducted due diligence on behalf of the Company's stakeholders."
There is of course an argument that those taking part in the placement, would also have conducted due diligence but I cannot see how it would have been to the level of detail expected for the debt facility. After all, were those that took part in the open offer afforded this chance? Is it the norm with placements? No it is not.
However, by introducing Lombard to the junior debt facility, I3E have created a barometer to their progress and their results.
That's because Lombard will have based their decision on a comprehensive review of the results/advice of the independent technical reviewers, or third party consultants that they or the lenders as a whole will have employed.
As the only known major holder of I3E stock from that party, they are a visible player in the game.
This is not to say that they have inside information. What I am saying is that the due diligence and access to further extended independent analysis of I3E data, becomes far more relevant.
There has been much talk about Lombard reducing their stake and the validity of Serenity prospect.
As of today Lombard hold 9.18% of the company having last notified on 24th Sept. This despite the fact that they hold £5m in warrants.
Lombard do not need to hold through this drill. They could easily build their risk into the warrants and look to make back any losses on their placement shares (37p remember), through success on those warrants.
However, without a further holdings update to the contrary, they aren't doing that. The market still believes they are but the facts say they have increased their holding (be it slightly), not sold it further down.
The size of the increase is not what is key, it is the fact it is going the other way, and the fact it is a company that is a junior debt holder, which itself perhaps gives insight into where those junior debt holders sit right now, given what their independent reviews have told them, even after the failed L2 pilot well result.
Clearly they have reduced their holding post L2 but what they aren't demonstrating is a desire to offload any stock they can, which is key given what I have explained above
Whilst I would encourage shareholders to always remain vigilant, stay on their toes, and never take anything for granted in this world, I believe there should also be a little room for acknowledgement and enjoyment.
BMN are about to close the deal on their second processing plant, moving from 1 to 4 kilns. More importantly this week, they have effectively delivered the means by which they will advance to 8,400 mtV production. Not nameplate. Production.
In February 2016, the majority of us were still all praying for the Mokopone PFS release, believing its near $300m price tag would deliver the sort of development that would make all our dreams come true.
Jump forward 3.5 years and it turns out that Mokopone is one of the last pieces in the jigsaw, that will help BMN deliver considerably more than what Mokopone set out to do, but for around half the price of what Mokopone would have cost.
More importantly, Mokopone would never have got financed, if it had remained the prime asset of the company. Nor would we be able to say that there are 'only' 1.2 billion shares in issue, because that would have been eaten up by delays to the finance of Mokopone, and if we were lucky, the delivery of the mine and processor there.
So in my view, whilst we can and should pour over the details of the Vanchem acquisition and everthing else that affects our investment here, there is nothing wrong with taking a few moments out, maybe with a warm or cold drink in hand, and reflecting on what could have been and what has indeed come to pass here.
Vametco and Vanchem are some achievement. That achievement is even greater for the cost and dilution they have avoided.
Mix in the pending energy storage market break out, and there is every reason to take those few minutes to smile and say well done.
@Bella6532 All very valid but the beauty of this business right now is that those items could easily be placed in the very nice to have box, and the investment case will still look extremely good here.
I have often in the past talked about focusing on an outcome that does not deliver all goals, in order to establish whether said 'reduced' outcome is in any way tarnished by these missing elements.
We could very easily produce a even greater list of potential revenue streams by including such things as potential bulk ore sales from Mokopone to China, but the point is, value and potential in BMN does not need to be fully wringed out in order for a significant return to be made here.
Therefore, we have a very strong investment case, which has a stream of added bonuses that are capable to supporting that business case, even if one or two included elements, fall by the wayside.
I have perhaps not explained myself well enough but trust you get the gist of what I am attempting to convey.