Member Info for DevonianExile

I am sure that various people have posted links to expert well testing summaries - if only to illustrate that this is not as simple as watching a liquid pour out of a valve. Well here is another pretty comprehensive summary

https://www.slb.com/~/media/Files/resources/oilfield_review/ors07/spr07/p44_59.pdf

The important thing is that the three wells are a) test and b) mark the development phase prior to moving to the full blown production phase. Hence a host of key data is expected to be sought and verified. Worth a quick read - and in particular note the comments on the criticality of such data when moving to reserve proving. Also that requirements for proving are not entirely universal - different countries may have different requirements. I am absolutely sure that the authorities are tracking this just as much as we are - and Zaza will want to ensure that every requirement is properly addressed.

Seems like our Terry is a happy bunny...……..from TOT

Good old Terry L Thoem FRR’s head of Health and Safety has been out in Georgia for the past two weeks. He hasn’t put any pictures up yet on his Facebook page but seems to have had a successful trip:
“I return home tomorrow from my “home away from home” here in Georgia. I will be glad to be back in Houston with family and USA friends. Its been a great 2 weeks. Good trip to Kakheti, and good work in Tbilisi office. And I’ve been able to see many of my Georgian friends for dinners and lunches and visits. Didi madloba to all my megobari for taking time to be with me. Nahkvamdix. Aba he aba ho. Bednierad”

Later , presumably just before getting on the plane, he posted " Terry L Thoem is feeling fantastic" . Make of it what you will but it cheered me up anyway. At least it reassures that there have been no incidents at any of the well sites. Hopefully we’ll have some pics to look at after he’s back home.

Mole - agree entirely with your view of life - especially the bit about audience. There is no point in talking about things like reserve based lending unless you are already deep into those conversations, and as I have suggested a number of times there will be have been a huge amount of parallel working going on for a long time now.

To the point that I suspect that the next RNS might not even be about flow rates from T45 and Dino - or at least might also incorporate other significant developments.

One thing that is clear - the current SP movements and trading patterns are the equivalent of the half time banter at a tightly fought football match. No one knows the end result

First some very interesting posts from Geo - I do like your objective thoughts which are always backed up by strong logic

Separately - I have just played the first tape back from last week. I didn't really interpret the 3-4 week comment in the same way as others, but on replaying it accept you can interpret in a number of ways. I take it more that over the next 3-4 weeks we will see more information on the next stage of field development - ie beyond Niko. Also that within that space we are likely to get more well updates.

We will have to wait and see - but I think we could see further updates at any time. One thing I am very sure of - they will not be just waiting for the full set EFTs to emerge before they take the next steps. They will be well into the strategic review for 2019 - which will build on not just Z19 but all of their findings - including the gas. There will be a lot of parallel work going on here - sequencing the next phase, updating the economic model, discussing the next phase options with drill contractors, dealing with the gas issue, updating the CPR database, updating the authorities, preparing funding options, preparing for a reserve declaration (I am sure this will happen in the relatively near future), perhaps talking to third parties on Tarabani opportunities now that gas has raised its head beyond MK, and so on.

And I think a lot of people are watching this very closely now

I have to say I am in the far better in than out group - a couple of quickfire updates and sentiment could change very quickly indeed.

Yep - and a company I have been pleased to invest in in the past. Not many like it though!

Lots of posts regarding interests of PIs v Financial Institutions/Lenders.

Reality check one. If a company needs to raise capital it can either borrow it or sell equity for it. Lenders want the security of understanding a business in depth - otherwise they won't lend the money. They will involve lawyers, accountants and technical experts examining all sorts of data - including detailed examination of the accounts - and a form of contract will be put in place. Fact of life.

Reality check two. The directors look after shareholder interests - or at least are meant to. Well some do, and many don't - but in the case of FRR the ONLY way the directors will make serious money is by getting the SP to move forward. Not a guarantee of success of course - but it is one of a number of key reasons why I invested long term in this company (and show me one other similar AIM entity where the two key people own over 17% of the equity).

The company is now at a point where we can genuinely hope to see some serious non-equity based funding - and if that happens it is a monumental step forward.

I think the pipeline is probably in the wrong place for the latest thinking - the visitors to Georgia last year might be better informed on this

Pompey (and I'm a Pilgrim by the way) - about 4 years ago they built a pipeline to take gas from the shallow MK wells to the grid. They clearly ran into a variety of problems and the flows never matched their targets. So there is a small amount still going in but the revenue numbers must be very small.

They will have learnt from this - and the MK deeper prospect plus Eldari B and Gareji are where the real opportunities exist.

Sprinter - re Niko there will be a contract stating the depth the drill will go to. This will need to be changed - and I really don't see a problem there even if some additional cost is involved

I played the podcast back this morning and it is very clear that he is under instructions not to reveal anything about T45 and Dino flow rates ahead of an RNS. So we will have to wait a little - but my strong guess is next week at least for T45. It is also pretty obvious that they want to get the data absolutely right in order to update the CPR databank - which will a) form the basis for any reserve declaration and b) be the bedrock towards future funding.

As Coggy said there was a glint in his eye when he talked about T45 and Dino - but it is anyone's guess for what reason

E

Pophead - the RNS reports initial flows between 350,000 and 600,000 scfpd - varying by chock size. He also said this week that flows had increased since the RNS

Take a middle number - say 500,000 scfpd - translates to just over 14,000 cmpd.

1000 cm is priced at circa $200 on the local wholesale market - so around $2800 per day. Might not sound that much - but if you had say 50 wells doing similar this compounds up very nicely - over and above the oil. None of this priced into the WHI model.



Sa

Don't usually post on this stuff but VY and CWT made up 2 of the only 3 people I have ever filtered.

CWT was a person of remarkably few words on ii, VY is a person of remarkably many words on LSE. They are not the same person unless some remarkable brain function change has taken place - and for the life of me I can't think why I am even posting this comment.

Not sure where people get the Zaza average at 0.34 P from - it is way higher than that. And the LSE list has gaps in it. His break even is over 1P I think you will find.

SB on ii used to track this but the 71 million shares he had before becoming a director were probably bought at far higher prices - bit like SN's early stock – but the price was never disclosed. Then the equity swop for management debt came in at around $8million priced at 1.00P. In all I reckon he probably paid around $10 million for his shares – perhaps more - so around 1.0P per share.

SNs break even is even higher - I think SB reckoned that he had paid around $20 to 25 million (the RPNs alone were $18 million). My guess is his average is around the 1.5P mark, but again could be higher

One of the reasons why these guys have never given up in my view - and Zaza has no intention of just breaking even IMHO

Yep Coggy - I also think the 1000 bopd assumption is with Niko initial flows by year end - but if they do the deeper drill there it could exceed the original expectation.

There are four real prizes at stake here IMHO:

- Eldari B flows without stimulation - at least initially. A big plus regarding the early outcomes and ease of production

- Eldari B obviously includes a free flowing gas opportunity - will be interesting to see how they deal with this but monetising the oil has to be the number one priority.

- The WHI field valuation of just under $500 million was based on Z9,14 and 15 oil only. So add Eldari B and it might get really interesting.

- The more success they have at dealing with the geology, drill challenges and oil production the sooner they can start looking at an oil field reserve declaration

Glass definitely half full

Covered most key points for me - only wish he had done this last week but as I have said before I think he simply misjudged the reaction. Key points for me:

- if each well can deliver 1 million barrels in lifetime that doubles the lifetime assumption. Whether they can get it all out in a 10 year window remains to be seen. Be interesting to see the next WHI review

- definitely pleased with the Tarabani gas - said flow is increasing at the lower gauge level

- said T45 and Dino are commercial. But new wells will start in Eldari B and move upwards. Well - that is what testing is all about

- said 1000 bopd by year end

- talking to hedge fund re next drill phase

- UD2 - looks like a side track next year I think

As I said the lesson here is do the Podcast right after the RNS - but better late than never. I will keep my holding firmly in place

Good question - I'll try to answer on an NPV basis and only for Z19 from T39. Assume just the oil from this zone and - say - 250 to 300 bopd (ie half of the highest reported figure) for the 10 year life of the well - then it is going to be in the region of $30 - $35 million applying a 10% discount. Figures are approximate but can be worked out using the WHI model. The model for Eldari A only wells is an equivalent NPV of around $17 million.

If they can simultaneously add Eldari A or gas production the numbers go up - but I am not sure if this is feasible. And of course this seems certain to be unstimulated flows - one assumes stimulation at some point would be able to arrest the natural decline impacts

Of course early year production would be highest - so the initial ROI would be very impressive with a very short payback period (6 to 9 months (but T39 is of course already paid for)

What is feasible on other wells is to go deeper to other Eldari B zones and co-mingle.

Whatever, the ROI numbers are jaw dropping if those flows can be anywhere near maintained. Which is the reason they were so pleased with the decision to go deeper.

I can hear the critics well up as I write - but this well exists and the early numbers are very impressive. Which is why I remain very positive

Ivy - quite agree re the Nomad. I have managed to contact him in the last day or so and can assure that he is pretty realistic regarding the real world. But the company assisted by YJ are responsible for comms - the Nomad is there to sign off, ask for supporting evidence when necessary, advise and prompt.

Obviously he is always guarded regarding what he can say in a private conversation but it is my view that issues such as UD2 will never be black and white. I am sure he would have been aware of the challenges but they will have course tried quite a few permutations before the announced decision was made. And as I say again there is a real world to operate in.

Like Coggy and some others I think there was a lot of good stuff in the last RNS - completely overlooked by the UD2 news that many had hoped for (repeat - up to 17000 cpmpd gas and plus oil from an almost certainly unfracked perforation . I suspect Zaza has been taken aback by the scale of the reaction - and hopefully will be talking to YJ and the Nomad re how to respond. Obviously has to be based on concrete news - but my view is that most if not all of the turbulence is PI driven - and IIs will in any event be in contact with Zaza on a regular basis - hopefully receiving soothing words.

That's the way it works whether it is a FTSE 100 or an AIM minnow

Quite agree Mole - and there are relatively few windows for directors to buy given all the AIM rules constraints. At the January meeting Zaza said to a number of us that he wanted to buy more - but timing always an issue re whatever is going on behind the scenes. I am also very sure that a) Zaza will be disappointed with the initial UD2 outcome, and that b) he will be very happy with the three well programme - both oil and gas.

If he were minded to buy more then he has only until the end of August before the half year window closes - and even then the Nomad would have to be satisfied that he wasn't aware of pending price sensitive news

Dirk - I'm pretty sure the 90% COS was for the 3 oil wells. In fact when TOT returned from Georgia he said the guys on the ground were uber confident re the oil programme but a little more guarded re UD2.

Going back to the sequence of events the WHI report came out 25th August - barely 2 lines on UD2 from 47 pages. Then just 4 days later on 29th August ZM and SN announce they have put £250K into the UD2 workover with £500K from a placing. The workover rig was mobilised on 6th September - even before Dustin arrived as an employee.

Now I know they will have been planning something but the timing was spectacularly fast and £750K seems very low cost. In retrospect I wonder if there was simply a rig available with a window of opportunity and they went for it at quite short notice. All history now but compare it to the time and cost lines for the oil drills. Also interesting WHI in later reports had not put too much weight on it - described it s deminimus expenditure. (Not sure I would agree given where we are but understand what they are saying)

I will keep posting on ii but I think today has been a great example of LSE at it's best. So my summary as follows:

- Dustin is still there - focussing on stimulation drills. Most likely just T45 and Dino
- By reasonable deduction it looks increasingly likely that T39 Z19 is flowing initially without stimulation
- Apart from a very healthy initial oil flow we have up to 600,000 scfpd - which is roughly 17,000 cmpd. Just for Z19
- This is without the other Eldari B zones and just a few hundred metres above Gareji with its 3.2 TCF of possible gas
- We are planning to drill in 250 locations - so perhaps a mix of gas and oil wells - some fracked, some not - perhaps alternating through their productive lives
- A number of us (me included) think that much of the 3 test well is about creating a reserve declaration opportunity . And over time this could be for both oil and gas

Question for Regdik. Based on you experience you said that a major would be unlikely to look at Tarabani oil - which I would instinctively agree with. But if you added a multi well gas opportunity would that change their thinking???.

All to play for in my view

Gary - excellent post re the reserve possibility - and as I have said a number of times I am absolutely sure that one of the outcomes of this campaign will be booked reserves. Clearly it might take a while - will needs lots of data and independent review - but this would indeed be a game changer. Any serious debt financing and perhaps third party involvement (perhaps ultimately for Gareji gas ???) would almost certainly require this step.

The precise words from the NSA Technical Evaluation document go as follows: "However if FRR demonstrate the success of planned potential new drilling and completion techniques we would envisage that a small proportion of these possible reserves would move to (1P) reserve category and a significant portion would move up to the proved plus probable (2P) reserve category."

Given the size of the possible reserves these would indeed be big numbers, and as I understand it would not require a further CPR. The original work would simply at long last have been validated - subject to an external review.

Also need to remember that whilst we all hoped for UD2 drill success it is at Tarabani that they have the most historic data and field experience. Hence if you were chasing a reserve declaration this has always been the most likely first step

Definitely all to play for IMHO

Hi Prodigy - I don't think they can book anything re MK until they have shown that the drill techniques are working well. Just my view but I think the various definitions are pretty clearly

Hopefully results the 3 oil wells will however be allowing them to move towards a Tarabani declaration - at least initial. But I suspect a load of third party independent review is required first

JMO