Member Info for cyan2

Its pretty obvious if you read what little ARG writes about Johnson that its not something they believe has any commercial value.
http://www.argosresources.com/exploration-to-date.php
"Johnson contingent gas resource
The Johnson contingent gas resource was discovered by the Shell well 14/5-1 drilled in 1998. The well encountered potentially significant net gas pay of up to 130metres in early Cretaceous sandstones. A portion of the Johnson gas discovery appears to extend into Licence PL001."

Can't see ARG boasting anywhere about johnsons possible economic prospects; after all its mainly gas; utterly useless because of its location.

Good afternoon Stevo12
Navitas revealed that $1.1 billion has been spent fully appraising SL
Navitas got a great deal. They got circa $330m worth of appraisal costs discounted and they are paying only development costs. Hard to assess accurately; but maybe they need to raise £200-300m.

As you highlight; Rhea appraisal would be hugely expensive IF that first $40 m gamble came off.

Only a very wealthy player could possibly entertain an Argos adventure.
Sealion would have been a no risk win compared to exploration on Argos license.
Who have Arg been talking too?

Good afternoon Tuggy

you wrote ; "It is extremely exciting times and the outcome is not far away."
From what Linda COOK has said to date; I think we will have to wait until 2022 for a final decision on Sealions future.

I am hoping that in the coming months Harbour and the FIG will renegotiate some taxation terms as, imo, the current breakeven of $40 is at least $5 dollars too high to make SL development overwhelmingly compelling.

We have to be realistic . We can only take ARG's RNS at face value; there really are interested parties prepared to spend tens of millions on exploration drilling ( taking a risk) on ARG license.

The question I have is this; Any such potential farminn to ARG must have seriously deep pockets. I would have thought they would have been more interested in an actual proven fully appraised asset like SEALION. Rather than gamble maybe $40m on a drilling gamble on Rhea; they could have out bid Navitas who got a cracking deal for 30% of SEALION.

Navitas are a minow and were the best PMO could get . To be frank; Navitas are not cash rich.

I just wonder who has been talking to ARG?

I see Argos announced a conditional fund raise which was expected.

a key line , imo;

"..the Board believes it may be some time before any farm-in partner's expression of interest is translated into commitments."

I just can not see anyone mobilizing a rig just to exploration drill on ARG's license.

I think the key to any realistic chance of a drill depends on whether there is drilling activity on Sea lion .

Since Noble walked ARG have been seeking a new partner.
RNS dated 28th Feb 2020
extract
"The Company's ability to achieve its long term strategy of developing its exploration projects is dependent on finding an exploration partner and discussions are underway with interested parties to achieve that."

RNS dated 18 September 2020
Extract
"the Company continues to seek partners to participate in drilling on its Licence and is currently engaged with a number of counterparties who have expressed interest."

RNS dated 7th April 2021
Extracts
"On 7 April 2021, the Company announced that it had conditionally raised gross proceeds of US$550,000 (being the US$ equivalent of approximately GBP400,000) through the issue of 14,428,001 Subscription Shares at a price of 2.75 pence each (the Issue Price).
Completion of the Fundraise is conditional on: (i) the passing of Resolutions; (ii) the Falkland Islands Government consenting to the extension of PL001 for a further period to expire not earlier than 30 April 2022; and (iii) admission of the Subscription Shares to trading on AIM becoming effective on or before 31 May 2021. In the event that the Subscription does not become unconditional on or before 31 May 2021, the Fundraising will not proceed

...whilst the Company's discussions with potential farm-in partners remain on-going, the Board believes it may be some time before any farm-in partner's expression of interest is translated into commitments.

In the event that the Company is unable to complete the Fundraise or an alternative means by which to raise capital, find a farm-in partner, or negotiate an extension to PL001, the Company may be unable to realise its assets and discharge its liabilities in the normal course of business and in these circumstances there would be a significant material uncertainty over the Group's and Company's ability to continue as a going concern."

The key line;

"..the Board believes it may be some time before any farm-in partner's expression of interest is translated into commitments."

Its a long, long road.

I just can not see anyone mobilizing a rig just to exploration drill on ARG's license.

I think the key to any realistic chance of a drill depends on whether there is drill activity on Sea lion .

I am not sure Linda COOK would get a much better insight by travelling to the FI's.
If she did actually fly down I would find that very significant because the only good reason to go was to sit across the table with the FIG and hammer out some new terms.
We have to listen carefully to what COOK has said in the conference calls; There are so many other development opportunities out there that COOK clearly specifically stated SL ,"has to compete with".
If the numbers do not work for COOK ; we have a problem.
The main reason to takeover PMO was to get a listing and take advantage of billions in tax losses. Those tax losses makes North sea assets potentially very much more profitable than in the FI's.
The theory that the NS is all old; near end of life assets is not the whole story. Look across at JOG and their plans for a Buchan hub which plans to exploit a known 'old' field but also exploit a pretty new discovery ; verbier.
If you have the choice to invest in an area where revenues would effectively be tax free (by utilisation of tax losses) and the likes of the a FI's with its tax regime ; in a long lead time expensive project ; where would you invest?.
Yes; the FI has relatively low taxes when considering other jurisdictions; however; they are going to struggle compete with the NS when the HUGE tax losses are available.
I want the FIG to encourage early SL development and that might be by offering a tax free incentive; like all oil produced before a set date will be tax free. I think that might galvanise Harbour to get the show on the road.

We have to consider all possibilities. Look at the extreme movements we have had in POO in the last year or two. It could turn ugly again, and time is not on our side. With the current development plan suggesting a breakeven of $40 and many much more competitive opportunities elsewhere; Harbour are not spoilt for choice; its a buyers market.
We all hope that SL will be developed , BUT, time is running out .
I just hope the FIG get real and note the differentials in costs and forgo at least some of the royalty and make project economics more competitive .

Harbour do not appear in any hurry.

Good afternoon buzzthomas
As Ovets said ; this has been done to death but as you asked the question ; "Cyan, firstly do you know when they have to decom" ,I should respond.
I do not know when the assets will require decommissioning. I took guidance from the comments made by the CEO of NOP in 2017 ( https://youtu.be/ziQ1BecDWyA ) which suggested CIVITA had five or so years production left. Remember; that deal later collapsed.
By implication; CIVITA decommissioning could become an issue from 2022 onwards. I believe; from memory; that the liability there is circa $6.5m

The other Italian production is from the offshore Guendalina gas field in which RKH have a 20% interest.
Production is declining.
2017 production averaging approximately 290 boepd net to Rockhopper.
2018 production 180 boepd
RKH September 2019 presentation stated; "Net production: 140 boepd (last 12 months)"
RKH also stated " Efforts continue to manage decline and reduce opex"
At what point does decommissioning becomes an issue there ?

We are hoping that receiving award proceeds will give RKH enough capital to cover day to day management and any capital calls in the years before SL first oil.
It is possible that RKH could try and negotiate a further loan. Its also possible we could be absorbed by Harbour IF they really want to proceed with SL development.
If; by YE 2022, Harbour have not yet sanctioned SL, (maybe Harbour kicking it into the long grass with a deferral), AND if RKH has not won sizeable award it seems certain an equity fund raise will be required.
With about $13.5 million liabilities and costs at circa $4m pa one can start to do the back of a fag packet calculation as to what sort of cash injection RKH might need to survive to first oil three and a half years after FID..

The worst scenario is if Harbour wrote off SL and walked.

Good afternoon buzz thomas
You wrote ; "They only need working capital unitl the Sealion FID is signed."

I respectfully disagree. Yes; once FID is signed then terms are that SL development costs will be covered by loans. However; RKH day to day business costs which include the management of out two remaining "assets" are not, in my opinion, going to be paid by the partners. They are not going to pay Sam's wages or possible decommissioning expenses.
Has anyone a differing opinion?

Good morning Ralph ;
You wrote ; " .....I told you I don't have much excitement for the award if it happens. It would have to be pretty big to move the SP imho. Its always been about SL funding for me."

I agree; the big prize is SL funding. The problem is ; RKH's financial position makes receiving a sizeable arbitration payout critical to avoiding a fund raise towards the end of 2022.
Edisons last report estimated RKH would have circa $5.5m left at this years end. With circa $4m spent PA to just keep the business going ; IMO, we will need to fund raise in the autumn of 2022 IF we have not actually received a decent cash award.
We have to remember we have circa $13.5m of liabilities . We have decommissioning liabilities linked to our two remaining tiny producing assets. CIVITAS being the most toxic risk . From estimates revealed in the aborted sale of CIVITAS to NOP; we learnt that commercial production MIGHT end in 2022. We WERE going to pay NOP to take the "asset" off our hands. NOP had dreams for other activity on the concession. We have to hope there are no capital calls in the nearer term for either assets where productions are in serious decline.

Harbour have recently suggested that any decision on SL will likely be in 2022.
With 3.5 years from a FID to first oil its evident RKH needs a significant cash injection to keep the lights on till then.

Once upon a time we could consider the arbitration as a just a nice possible bonus. not anymore; its absolutely vital.

The company should not have allowed itself to get in this financial situation. COC were too keen on getting their hands on the cash mountain. As soon as they distributed funds they left the company with only one option ; an out right sale. If they had retained funds then the 'pay to play option' would still have been available. BLVN is now in a weaker negotiating position and further delays do not help.

One can but hope there are positive moves we are unaware of.
However; the POO weakness and our $40 break-even is the principal problem we have; if the numbers do not work; no-one is going to invest.
Add on PMO's endless debt issues and their concentration on the NS because of their enormous tax losses; its hard to see PMO progressing SEALION anytime soon.
i am sure the partners are involved in detailed discussions with the FIG; principally on an agreement for NAVITAS to enter the partnership and the FIG almost certainly writing off RKH's tax liability.
I would like to think that the FIG have recognised the risk that SEALION is abandoned and the never see a penny in tax revenues. I would like them to further encourage investment by forgoing all tax revenues on oil produced prior to 1.1.27 or some other date. That might just encourage an earlier move to sanction as we already know its 3.5 years from sanction to first oil. DURRANT states their assumption is POO will be $65 going forward while the banks are assuming $55. That is good enough for PMO based on their previous statements regarding a reasonable profit margin.
There have been better days when this project should have been sanctioned by PMO; for example 2018 when POO averaged $71 for the year. Things are far worse now with COVID-19 remaining a huge issue impacting demand going forward.
RKH needs a large arbitration award; no matter what

If PMO achieve DURRANTS debt reduction targets and the POO improves by 2025; PMO should be in a fit state to develop SEALION . If you then consider the NAVITAS timescales with Shenandoah; a delay might just suit them.

If PMO mess up; I just hope NAVITAS can step up and replace them in the driving seat.
We just have to hope there is a huge recovery in POO.

After Durrants interview with Malcy I have , sadly, come to the conclusion that PMO has become a mill stone around our neck.

I previously highlighted Durrants comments on debt reduction up to 2025 and the various tax efficient (FREE!) options they have by exploiting NS assets. Durrant all but spelt it out; nothing is going to happen on SEALION for years.

Navitas is run by proper oil men with a track record of success behind them. They might just save the day ,BUT, we have to receive a cash injection ( via an award hopefully) and then have the patience to wait several more years. What will the oil market look like in 5 years?

I agree; the arbitration award is critical; it could gives us the resources to survive to a possible first oil. Alternative is that our management try and fund raise or sell out on the cheap.

I think NAVITAS are our great hope. Have a read here;

https://seekingalpha.com/news/3595973-blackstone-to-boost-stake-in-gom-drilling-project-to-47-partner-says

"Navitas says the project is expected to generate $1.13B in cash flow for the company; production is forecast to begin in 2024."

Looks like NAVITAS are able to raise development cash and generate huge cash flows in due course.

Is it totally out of the question that NAVITAS by , say 2025, MIGHT relieve PMO of the project and drive it forward? It looks like their cash flow will be great by then.

Good question; where has all the cash gone?.
I was shocked when RKH revealed they last year spent $19.3 m on pre development for SEALION; and then we have that $3.9 m AND the 'up to $10m' to pay. If I had known that spending had ballooned so seriously I think I would have held back on some share buys.
RKH have to survive 3.5 years from any sanction date to first oil revenues.
Not going to happen with our current resources .
We need a huge award.

But; are PMO going to sanction in next two years or more?

If you listen again to DURRANTS last interview with Malcy you will hear him make it quite clear; the company's priority up to 2025 is debt reduction ; he set out a series of hoped for numbers.

https://www.youtube.com/watch?v=NxkAN6Tcll0

From 24 mins he makes it clear that spending on development projects will be very much on the back burner.
Its entirely logical because PMO have $4 billion worth of tax losses in UK waters to take advantage of.
Its those tax advantages that attracts the likes of APACHE and CHRYSAOR.
God forbid either takes over PMO because I am certain SEALION will be dumped.

Evidence of PMO's NS fixation can be found in the mooted BP acquisitions; solely designed to make the most of the giant tax losses. In a lower POO environment those losses are most helpful.

Further evidence of where PMO will likely preferentially spend any spare development capital can be found in the 3 new licences PMO very recently won;

Extract from 3rd September 2020 RNS;

"We are delighted to have been awarded the block next to our Catcher Area fields as well as the blocks adjacent to the Tolmount field, given our pre-investment in the extended 3D survey there. These awards provide significant opportunities to create value and to extend the life of these core assets."

Guess where any free development capital will be spent?.

Its all very nice that The Falklands have low taxes, BUT; they can not compete with NO taxes.?

PMO are laser focused on the NS and debt reduction for next few years.

Chances of SEALION sanction in 2021 are, imo 100;1
Chances in 2022 , imo 50;1

RKH MUST receive a really large arbitration payout.

Good afternoon Fuddstone
The half year results are a mixture; part horror story part ludicrous fantasy.
"Should other opportunities, which are value accretive, and which will strengthen the Company and enhance the likelihood of the Sea Lion development reaching a positive sanction decision, be identified then these will be considered by the Board on an individual basis."

RKH have $13.4 m in cash to survive until end of 2022; its ludicrous to think these guys are looking to buy another asset just after they sold the last of the Egyptian assets; utterly ridiculous.

The loss of the Egyptian assets is a tragedy necessitated by the excessive spending elsewhere.
Rkh have not got the spare cash to buy anything extra; except may be a new broom so MOODY can sweep the office himself instead of paying cleaners.
The half year results still include reference to a three phase SEALION development! HELLOOOO; PMO AND RKH have just written off hundreds of millions ;
"US$222.2 million one-off non-cash impairment, based on a decision, in line with the operator, to write off the historic exploration costs associated with the resources which will not be developed as part of the Sea Lion Phase 1 project"

The Merco press understood what a write off REALLY means

hTTps://en.mercopress.com/2020/08/18/falkland-islands-and-oil-companies-new-approach-to-stranded-assets

"Premier Oil Plc, Rockhopper's partner, suspended work on Sea Lion earlier this year, and on July 15 wrote off US$ 200 million of investment because later phases looked unlikely to happen."

You only write off spending when you have no realistic prospect of ever getting pay back.

If NAVITAS signs RKH are indeed left with 30%.

The Egyptian assets were sold because of huge pre 1.1.20 SEALION bills.

Closing cash balance (30 June 2020) $14.5 m

Without the Egypt $11.5m proceeds , RKH would have had just $3m left on 30th June.

The numbers show just how weak RKH has become with eye-watering $9.4m SEALION expenditure in the first 6 months of 2020 .
This can probably be at least partly explained by referring back to the full year results;
8.4.20 full year results extract
"During the first quarter of 2020, the Company paid US$3.9 million of Sea Lion costs related to the period prior to 1 January 2020. Whilst timing remains unclear, further such costs, estimated at up to US$10.0 million and included in the balance sheet under current liabilities, could become payable in the next 12 months."

Of the $9.4m we can subtract the historical $3.9m leaving $5.5m. The half year results do not make it clear whether the majority of that $5.5 is part of the 'up to $10m' due for prior to 1.1.20 pre-development SEALION expenditure. So is there 'up to' another $4.5m to pay?

A possible answer may be found in reviewing these numbers;
Lets consider the numbers since 30.6.20 when the cash balance stood at $14.5m
The remaining UOG shares were sold in August bringing in $4m; add and that makes $18.5m
We are told that on 1st September RKH had $13.4 m
The implication being that $5.1 m was spent in the three months to 1st September. Its possible a large chunk of what was owed has been paid off. If you look at the "current liabilities; other payable s" you will see that $7.873m was owed at 30.6.20
My best estimate is there's likely something over $3m more to pay in pre 1.1.20 costs which RKH are still liable for.

RKH reassure that they have sufficient cash to survive to at least the end of 2022.
I think that looks optimistic.

$5.3m was spent on admin and 'miscellaneous' in the first 6 months of 2020. These numbers for just 6 months are It still far too high. Is it any wonder the share price has fallen when people digest these numbers?

A very large arbitration award is VITAL

The only good news in the results is that NAVITAS are still interested. If they walk; imo SEALION will never go ahead.

Our best chance of ever seeing SEALION developed relies , imo, on PMO fending off the vultures and DURRANT remaining in charge of PMO. I think any takeover of PMO will see SEALION abandoned.

Good afternoon pauldrayton.

Why do you think Chrysaor involvement would be good news for RKH?

Personally ; I hope that Chrysaor does not merge with PMO. I see nothing good for RKH in any such tie up.
They have their own huge debt. See page 5 here;
hTTps://www.yumpu.com/en/document/fullscreen/64100870/annual-report-and-accounts-2019
Their website describes their vision
"Chrysaor's Vision:
Our vision is to create a market-leading, North European E&P company that we and our stakeholders are proud of"

I do not see anything to suggest they would want to go international and keep SEALION.

Its all about the NS and PMO's enormous tax losses makes it the most attractive place to produce. The Falklands may have relatively low taxes but they are at a disadvantage when PMO can invest in the NS and get a quick tax efficient pay back.

The last DURRANT interview was pretty revealing , imo. My take from it was that PMO are firmly focused on debt reduction and NS production. DURRANT was clearly signalling that new development spending was off the table as they prioritize the debt reduction for the years ahead. From what he said ; I can not see money for the advancement on SEALION being available for at LEAST four years; if ever. Note how he was providing possible debt numbers for the years ahead under the proposed new debt facility arrangements which hopefully will be extended to March 2025.
Have come to the sad conclusion that we are never going to see development with PMO in the 'driving seat'. We need a miracle now. One 'miracle' might be a really huge arbitration payout that gives RKH the chance to 'invest' elsewhere; BUT; do we trust our current leaders to get it 'right'?
The other enormous miracle would involve PMO divesting and them being replaced by another committed player . The presence of NAVITAS gives me a very slight hope that they might just be the guys to radically move the dial on SEALION and facilitate a PMO exit by 'selling' the SEALION dream to another investor who could replace PMO.
Realistically ; I think the arbitration is our only hope now.