The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Addicknt, did you get a reply from PS?
Coop
Rathole, I'm not sure I'd call it game changing just yet. Their understanding of the area has certainly been enhanced but at the end of the day it's a model which is only as good as the data fed into it.
It certainly looks promising and based on the data presented would appeal to someone like me. However, until it is drilled we won't know. This is still exploration in my book - not appraisal. It will further enhance their understanding of the area and they may even get some decent production.
Funding is another story however.
Coop
Ratty, one more thing. How can you say the JVP's new nothing of this bold new plan? They would certainly have known about it. SGC are the license holder and operator so they would make the initial announcement. Subsequent news releases and presentations from the JVP will include the Anzus prospect.
Coop
Wow Ratty, you really are a negative chap but then that's probably your job; you're certainly not invested here.
Coring reduces risk - it doesn't remove it.
You give nothing to this board expect negative sentiment and contempt. You don't even try to be objective.
Do you have anything technical you want to share / discuss?
Coop
Morning guys, here's my take on the SGC presentation.
Dempsey - although Dempsey (IMO) has been a technical success, it really hasn't been a commercial success. What it has done however, is it has allowed re calibration of the geophysics, geology and the petrophysical models which is very very important in our game.
They make the statement that the turbidite channels down dip of the structural crest are the main target. Slide 5, the seismic plot which shows all the green / yellow at the bottom is where they are targeting. Understanding how these turbidites are formed (they are basically avalanches which have happened millions of years ago) is key. Getting close to the source is beneficial as this is typically where the better quality porosity / permeability is found. Their geologists will have a much better idea of this now.
Alvares - The key thing for me in Alvares is that they took core. I have already been over all the logs from Alvares and they look good and they now have more control points from drilling Dempsey to further refine their models.
Having cored the well they then perform SCAL (special core analysis). This provides all the properties of the rock including porosity and permeability hence they can make the prediction on slide 10 regarding gas rate versus permeability. For a given porosity there is a range of perms hence the range of flow rates. I feel more confident now on the performance of Alvares knowing they had cored the well. Hopefully we'll be producing cash from this well by the end of the year (depending on when the start operations).
Anzus - Well it doesn't take a rocket scientist to see why they are all excited about this prospect!! This prospect is a direct result of the work done on Dempsey whereby they have been able to re calibrate their geophysical and geological data from the Dempsey control points.
Although seismically we're seeing an abundance of gas shows we still need decent quality reservoir to commercialize this so don't go betting the house just yet. However, they do have a much better geological understanding now from Dempsey so they're targeting better quality reservoir (top of slide 8).
Hopefully there is a donor well they can use to drill the prospect to reduce costs but they may opt for a new drill as a new drill would allow them to optimize trajectories to ensure all the main targets are delivered.
Coop
Why do you think Shell?
Coop
Addicknt, whatever it is I hope it adds value soon!!
Coop
Agreed addicknt, based on their response I was left thinking it will be next year before there is any further progress with the project funding which means a deferral of around 9-12 months for commencement of production.
I replied with lots of questions but my main query was based on the weakening prices they quoted versus the economics from the feasibility study (which are lower than current contract prices) so therefore the NPV of the project is increasing and yet we cannot finalise the funding.
I stated the obvious with the following, "We have a large institutional holding, we have secured a good debt package and private fund financing, we have a long term offtake agreement with Hanwa and yet we seem unable to cross the line."
I also stated that I had lost confidence in the decisions the company were making and that I felt there was something underlying going on that we as shareholders were not being told.
I await to be enlightened.
Coop
Addicknt,
I have a feeling we both got the same standard reply and I too have followed up with more questions. Here's the reply I got and I'll post any further reply I get.
"Many thanks for the email and the questions. Yes, the lithium equities markets have weakened significantly over the past 6 months, generally as a reaction to softening lithium prices in China due to a significant amount of new lithium feedstock/concentrates being produced by new lithium projects coming on stream in Australia. Spot prices have declined from around $20,000/t to $15,000/t and contract prices from $15,000/t to around 12,500/t. It is not anticipated that prices will firm until increasing demand from the cathode manufacturers picks up in Q1, 2019.
In Mexico, we are continuing to finalised the Front End Engineering Design and commence preliminary site works. As you will have seen from our last quarterly update we continue to maintain a strong relationship with our existing shareholders and our off-taker Hanwa, plus are looking forward to SGRF, the Omani Sovereign Wealth Fund, joining the register at the next equity raise.
In terms of timing, we will continue to monitor the equity markets and wait for commodity prices to strengthen. We will also continue to update our shareholders with quarterly and other regular updates."
Coop
This company is hemorrhaging market cap and share price at an alarming rate and generally with low volumes. I have not been impressed at all with PS and the BOD. There is no information coming from then at all (period) which could potentially alleviate the drop in share price we're experiencing.
I have a substantial holding with an average of £1, I can see BCN getting bought out for a fraction of what they're worth as they are so undervalued at the moment. The fact the price has been driven down so hard on relatively little volume over the last number of weeks gives me a lot of cause for concern.
We need the project to go ahead so therefore I'm not overly concerned about additional dilution.
To PS and the Board, I will say three things - Communication, Communication, Communication.
Coop
I should also say that the costs I mentioned were pre-downturn. Rig costs have come down to between a third and half of where they were and service companies are more aggressive with their pricing so the cost of an exploration well (in the UK at least) should be significantly cheaper.
Coop
It's impossible to say Augustus, if it was a single reservoir then the water tends to come from the bottom up. Since this is multiple reservoirs (each probably with their own water contact) then it could be coming from anywhere). A production logging tool run into the well will determine where the water is coming from but that costs money.
What they are currently doing will work in the short term but as the rate of water increases then they could end up eventually killing the well. Also, as reservoir pressures decline, the effect of the water is more pronounced.
Drilling an offshore well anywhere in the world is quite expensive. In the UK sector, it costs around £20MM to drill a vertical exploration well (to around 15000ft) dependent on what suite of logs / cores are taken.
The well they are planning should have multiple sidetracks to determine extent of reservoir and may even have a well test to determine deliverability so therefore the cost could double. Getting a partner who pays these costs for a share of the equity would be the smart way to go for EME.
Coop
Hi guys,
Haven't posted for a while as there hasn't been anything worthwhile going on.
Key thing for me on the Alvares re-entry is the "new fractured reservoir play"; this could be very interesting.
Dempsey isn't looking too good in my opinion, already issues with liquid loading and the problem won't go away - it will tend to get worse over time unless they can either shut-off the water or increase deliverability (i.e. frac).
I'm hopeful of some positive news on the China front with the announcement of a farm-in partner - hopefully carrying EME for the initial drills to prove up reserves in at least one of the fields.
I do believe there is a cash raise coming unless there is an influx of cash from elsewhere??
Cheers
Coop
L2, I've half a million you can have for a fiver!!
Seriously, great news although fully expected. Do we expect any other debt deals?
Coop
Addicknt, thanks for that; I haven't seen the article yet.
Coop
Definitely good news guys. What are the thoughts on how this affects our relationship with Hanwa (regarding a potential offtake agreement)?
Hanwa have indicated they want to increase their equity to 20% and PS let slip that they have guaranteed sales for the first 10 years. Definitely starting to get messy again (as with the NV deal).
If I were Hanwa, I'd be securing my lithium requirements for my battery division right now (before it gets messy).
Coop
Hanwa have stated their intent to increase their equity in BCN to 20% or so, they could buy out KDNC as part of that deal??
I can't see BCN selling up, they have everything going for them. The order book for the first 10 years is full, financing WILL happen (we just don't know percentage of debt to equity). Market Cap will be in the £Billions when they go into production so I really can't see it unless someone makes a ridiculous offer.
Just my opinion.
Coop
Hopefully some news on the debt part of the funding shortly (which will obviously drive the equity part) - I stand corrected guys as I thought funding was getting pushed into Q3. Everything currently on schedule!! Coop
Finally got around to reading the June Corporate presentation and was pleasantly surprised to see the statement that Hanwa have expressed their intention to increase their equity interest to 19.9%. 19.9% after dilution I'm assuming . Coop