The next focusIR Investor Webinar takes places on 14th May with guest speakers from Blue Whale Growth Fund, Taseko Mines, Kavango Resources and CQS Natural Resources fund. Please register here.
asp,
You are correct, standby vessels are mandatory for offshore installations, though they can be shared between installations in some circumstances. See https://www.marinesafetyforum.org/images/emergency-response--rescue-vessel-management-issue-5-april-2013.pdf . So when the AM is pootling around being a legal vessel no standby is needed, but when she is moored as an installation a standby is needed.
It looks to me (using marinetraffic.com) like she has unlatched. Which sounds to me like they are checking that they can disconnect if necessary. Which sounds to me like part of the commissioning procedures one would expect. At least if I was writing them that is one that I would insist on being demonstrated. There may be other valid reasons, but that is my starter for 10.
regards, dspp
KNOC ......
Let's be honest Centrica's upstream team has never been top drawer. The folk I've come across in the other parts of the business also did not impress me. Maybe Spirit has caused a complete shakeout and they are all top quartile in the upstream now. But even if not they are still perfectly capable of doing the relatively mechanistic stuff associated with a FFD for LinWar, once the HUR subsurface team hand over the reins - and that point would not be until sufficiently well after the key decisions.
Centrica (CNA) is an utter disaster of a business. Unfortunately it is the biggest zombie in the UK room, hence the need for SSE and npower trying to merge their supply businesses to achieve the scale necessary in the slugfest that is going on in that sector.
The scale of the CNA trainwreck is appalling. It has a £7.8bn market cap, and that has reduced by almost two-thirds over the last 5-years. A £12bn reduction in market cap has taken place in that time.
The Spirit 50% share of a matured post-FOIL LinWar (i.e. a dozen wells in place, and pumping at 200+ kbopd, with more to come) is worth $11.5bn at $15/bbl in the 50/50 volumetrics success case. CNA owns 69% of that prospect, i.e. $8bn = £6bn.
Compare £6bn with a CNA mkt cap of £7.8bn and you can see the scale of the opportunity for someone to go in and restructure CNA. There is a timing issue - you'd want to make that move just after drilling success (!) on the LinWar appraisal wells next year. Ideally to be done against the backdrop of a UK implosion in the even of a bad Brexit. The obvious candidates to do that are another oilmajor, or a Yank team.
There are many ways to play this. HUR are thoughtful, and are making the decisions they are for good reasons.
Mikjo,
Thank you. Single train then.
If the turret includes one or more multiphase flowmeters then as you indicate the metering ought not to be an issue, provided they are either in the right place, or selectable, or fitted for but not with.
In that case it is likely 'just' a matter of bolting in the well control stuff, and the ESP stuff, plus the extra gas compression. I say 'just' because I am very aware of how it really is. But far easier than having to reconfigure to get metering in at the front end.
cadger,
Is it one train of separators, or two trains ? Is there allocation metering between the trains ? Is there a test sep and/or a three phase test meter that can be selected to individual risers ?
regards, dspp
JK - you are assuming that they will flow commingled fluid from both fields through one separator train, and that the total water will be less than 5kbd at end of the 6-year (or 10-year) period. But what about if they are (say?) flowing Lincoln through a test sep that only has (say) a 1,000kbd constraint, or a temperature constraint (because water changes temperature). Basically you are making assumptions we don't have data to be sure of.
YuYus - they definitely have metering to support one field. But you need different metering to support two fields. Why. For reservoir engineering purposes, for shareholder purposes, and for tax purposes. It is possible that this metering is in place just on the offchance, but unlikely. Oh and the pipework and valves etc to support it. Again you are making assumptions we don't have data to be sure on.
All we know is that HUR say they can cope. Not how they can cope.
We don't know what is required to enable Lincoln to be produced over the AM, and we don't have access to the information in the public domain to be sure. Riser slots, these seem OK. Connections at turret top into processing system - unknown. Location of oil allocation metering (back to the correct field) - unknown. Liquids constraints - unknown. Gas constraints - we know compression is needed for the export, but it seems able to be resolved at sea from what I have read. Water handling (if/ever) - unknown. Power - unknown. Test seps or multiphase metering - unknown.
My personal guess is that very little is needed to enable increase from 30k bopd to 40k, but the things that I would point at are the metering. If there is no metering then the wells cannot be properly tested and the correct tax & cash allocation cannot be made. If however the right connections ("T" pieces if you like) are in place then this can all be added in field. If those connections are not in place then the most they might have done is put a few in place in the Gulf at the last moment, so as to enable in-field mods at a later date.
But without a process schematic of the AM one cannot be sure. And I have not been able to locate one in the public domain.
When discussing how the waterfront will, or will not, advance through the fracture network one needs to distinguish between the EPS itself, and the FFD of any of the Rona Ridge structures. The risk for the EPS itself would appear to be very low. That for the FFD must be higher as they will inevitably produce to UR. If aquifer drive is present, as seems likely, then inevitably at some point in field life watercut is going to go up. That in turn needs to be taken into account in designing the FFD: the reservoir strategy, the wells, the surface facilities. That affects costs, UR, and production profile. It is premature to ignore water. It certainly affects shareholder value.
Target Zero is no laughing matter. If I recall correctly it was a DuPont introduction, not a Shell one, and as such predated Shell's adoption of it, but I really don't care who invented it. I think it has since been rebranded slightly due to trademark etc issues, and so you may find it called Goal Zero, Target Zero, or Zero Vision, or similar. You will find it adopted by many organisations around the world. The only time I have ever run someone off a rig was because they did not take safely seriously: they were gone within an hour or so (from offshore). Yes, not all risks are equal, but a cultural attitude that they all need to be addressed is important. I am very happy to see that is taken on board by HUR. In that respect some of you may find this case study interesting: http://www.dupont.co.uk/content/dam/dupont/products-and-services/consulting-services-and-process-technologies/consulting-services-and-process-technologies-landing/documents/Case_Study_ThyssenKrup.pdf
I have put a summary of my updated valuations on the TLF thread at https://www.lemonfool.co.uk/viewtopic.php?p=166573#p166573 . Unlike brokers I put times against values :)
The three 2019 appraisal wells may give an indication as to whether there is a tilted OWC in LinWar, as two of them are likely to be at the northern end and one at the southern end. Just a thought.
Analyst calls ought to be open to all shareholders to listen in on, even if only the analysts get to ask the questions. The analysts don't like this of course because it makes some of them look like complete numpties, which they often are, having to be spoonfed by the company as to how to do their valuation. My objection still stands, irrespective of whether this is (or was) an analyst call or a major shareholder call. I can fully understand and support the need to limit the questions to only originating from a select few, but the call should be open to all to listen in on (i.e. inc slides webcast) and there should be a transcript pdq. That is very normal on US exchanges and I see no reason why HUR should aim to be stuck in the dark ages in that respect.
aduk,
Sorry, can't remember where it was stated. Apologies for that. I think I picked it up in something said on a BB or in a news item. I wouldn't expect the company tp publish details regarding a privileged conf call, so that is the wrong place to look. I'm back at my day job so don't have time to rootle around at prresent. Any other takers on this point ?
regards, dspp
IJWT,
I fully agree that the slide is overstating the case to make it a no-brainer, and I have noted my objections to that. I fully agree that the go-it-alone through organic cashflow pathway is viable, and have said so (and you have just set out roughly the numbers I had in mind, thanks). Indeed the existence of such a bootstrap pathway via an IFD was important in my own investment decisions. But there is no mistaking the fact that to go it alone in that manner would be to run the bank balance very low at some pinch points, and to shift the riskometer very high. If at any of those pinch points bad things were to happen (and I have seen many bad things happen, and it is always at the worst moment), then HUR would be stuffed. The starve-HUR-into submission majors have clearly been employing just such a strategy, without any one of them offering a deal equal or better to Spirit (or it would have been taken) and so to expect them to be a white knight in the event of bad things happening on the go-it-alone path is a tad optimistic. Basically the majors are employing their usual "big guns win offshore" tactics and expecting HUR to become roadkill at some point. All told therefore the BoD have gone down this route because of the riskometer issue. I think that there is value in acceleration - not as much as they set out, but nonetheless some, probably enough to make th eexpectation outcome approx equal. But the primary reason is the riskometer and that is less quantifiable unless you have got a copy of CrystalBall in your back pocket and are running some very complex models - and I don't think that they have taken such a formal quantitative approach to it (I may be wrong). Instead I think they have dome this on a qualitative basis and actually I am fine with that. Overall I am happy with this judgement call by the BoD.
Nonetheless I am a) disappointed at being played for stupid by that slide portraying it as a no-brainer decision; and b) very annoyed by the news that major shareholders will be given a privileged conference call. That b) is a complete no-no in my book. There is no shareholder agreement that gives major shareholders any preferenced position and so I would fully support anybody who has time to make a formal complaint to the relevant authorities. In the meantime I would ask the company to avoid that by opening the call to listening-in by all shareholders, and by publishing a transcript in full. That is the real thing to concentrate on now as it affects PI shareholders vs II shareholders for quite some time to come, and we need to get the tone set correctly pdq.
regards, dspp
Jacd,
From a cost perspective it doesn't matter which company is the operator. Basically the 'operator' company has two cost centres in its finances. One is for the (99%) of people and stuff associated with actually doing the job of operating (which is of course a moveable feast - sometimes it is is designing (FFD), sometimes it is pumping stuff, sometimes it is whatever). The other book is for the (1%) of people and etc doing the oversight. The e.g. 99% is then split between all the field partners per the various agreements (in this case on a 50/50 basis, but other ways of splitting are often agreed), and the e.g 1% is the company's own costs to charge directly to its own shareholders. The non-operators have their own oversight costs which they pick up themselves. It is up to any given company how much they staff up their oversight teams. It is up to all to agree and authorise & scrutinise the costs that the operator charges.
There are advantages and disadvantages to being the operator. Typically the operator has the first stab at setting the agenda for the asset, and the others play back seat driver. In this case the switch point from HUR being operator to Spirit being operator has been agreed in such a way as to align with each company's core competences, and is very sensible.
regards, dspp
+++
5 ..........keep that acreage clean for facilities and flowlines and pipelines. That in turn indicates that the realistic tie-back lengths are indeed known (and that may well be 8km straight line equiv) and people are therefore keeping space for a number of FFD dev scenarios. It suggests to me one set of platform structures (centrally located) for the main area of each duo plus several floater-drilled clusters (perhaps adjacent to a light jacket with NUI stuff on it). S tentatively I think this indicates a preference that these field will be drilled(development wells) primarily from floaters.
6. Another reason to drill outside-in at this point is to really understand the shoulders of the structures.
7. Different people use 'monetise' in different ways. I think that is leading to some of the misunderstandings. At least that is my charitable view on life.
8. As I have pointed out before, and continue to think, the optimal gas solution involves a FFD concept for the quad (or the quint, i.e. with Whirlwind). Look at the envisaged timeline for post-deal first gas and you can see one interpretation is that they are prepared to be suboptimal in banging in a WOSP tie-in predicated on LinWar alone. The other interpretation (which I think is more likely) is that by the time they down-select on the gas solution they will have frozen the key technical parameters for the quad FFD, i.e. in the next 12-months ! If you then think through the commercial implication of that it puts the next set of suitors under considerable pressure as they will be expected to pay $3-5/bbl prices for something that is still only at $1-2/bbl stages. Should be fun negotiations against an interesting clock.
9. The other asset in HUR's bag that is ripe for a quick swoop in the style of the Spirit deal is of course Whirlwind. Clearly HUR cannot and should not probe it at this stage (and I have previously pointed out they should rationally delay until the last possible moment), but nonetheless it is a non-trivial item in its own right.
10. With 1km length horizontal sections I don't think they aim to do much in the way of active management of the horizontal sections through well-life. That is another of my thoughts re floaters vs fixed. If you don't plan to intervene, then the high cost of floater intervention becomes less relevant.
11. There were other things but I have forgotten what they were. I'm sure they'll remind themselves to me.
regards, dspp
A few thoughts after thinking this through more on the flight back last night.
1. Fast forward a year or so and there will be more wells shut in due to a bottlenecked AM FPSO than anybody would like. Look at the map and you can see that the tie-back distance from Lincoln 205/26-B to Solan is the same as the tie back distance to Solan. Putting a couple of wells at 40,000 bopd for a while across Solan has to be an attractive way to get additional cashflow. I don't know much about Solan but I am sure the likes of Genesis are doing some work to put options on the table. That could even lead to additional corporate activity. As with the AM debottlenecking it is not just a matter of additional capacity, it will also have considerable implications for production metering, fiscal metering, and well testing, and so is not necessarily easy.
2. I have previously asked if anybody had links to AM production facilities configuration etc but got no response. That was because I was thinking through metering and test seps with debottlenecking in mind. Anyway here is something I picked up in a quick internet trawl for Solan which I am noting here for future ref (I haven't read it yet) http://www.premier-oil.com/premieroil/dlibrary/panda/PRA-157-Solan-EIA-Justification-MAT-B19-V2.pdf and also https://www.researchgate.net/profile/Rzger_Abdula/post/Anyone_got_data_on_environmental_baseline_and_advection_forces_in_North_Sea_oil_and_gas_fields/attachment/59d6415f79197b807799d60a/AS%3A434711815299072%401480654782080/download/solan-es-addendum-2016.pdf
3. I think some of you have got not exactly the right idea re how a farm-in works. Each one is different of course, but in a very real sense, subject to Spirit fulfilling their obligations, they do now own 50% of the reserves/resources in LinWar. If you add up 2C+2P for LinWar at CPR levels you get about 1539 mm boe. The comparable 2C+2P in my spreadsheets for LanHal is 1826 mm boe. So in very rough terms it is correct to say that Spirit have bought about half of half of the most interesting reserves+resources for $387 mln in carry.
4. If you simplistically assume a target £5/share expectation valuation (per my £5.34 numbers I have shared, for a $17bn EV) at the the quad-pack development point, and note that the corresponding EV for now in pre-FOIL is £0.87 (same numbers, for a $2.8bn EV) then the difference is in round terms is $14bn. If 25% of that is ascribable to the post-deal HUR share of LinWar (which in very rough terms it is), then 1/4 of that is $3.5bn. Accelerating $3.5bn by one year at a 10% discount rate is worth $350mln. So on a very rough terms simplistic DCF basis the numbers work if they deliver one-year of acceleration of exit. That's quite apart from the risk reduction aspects.
5. It makes sense to drill these LinWar appraisal wells outside-in vs inside-out if you already have a rough idea where the most likely platform and pipeline sites are going to be and have a desire to keep that acre
+ (I see other people making some of the same points I was typing before running out of post length)
The pre deal drilling sequence on show has been selected to prove that this deal should have been done. One can just as easily construct pre deal drilling sequences that fitted in two wells in 2019 (solo, funded by HUR), and then two more in 2020. However to do that one needed to be prepared to run cash reserves low and riskometer high. Clearly that is the path not chosen and that is what a BoD is there for. But please do not play us for stupids by skewing the presentation to make it a no-brainer.
However in choosing to dial the riskometer down then the flipside is that the price has also been set low. Spirit have got a very good entry point. If they got this then that shows how stingy the other majors must have been to not be putting forwards something comparable or better. That buyers strike was clearly very real. The BoD have done well to choose to put all the deal committments into carry, and none to cash, as that is the fastest possible path to moving up the reserves curve. S|o they clearly still have their eye on the main prize.
But ....... the message needs to go out that a deal at these prices will not be repeated. Anyone coming in after needs to put a lot more money on the table.
We have also found the limits of Ker's pockets and their riskometer by implication.
Overall I'm positive about this deal. It seems to strike the right risk/reward balance.
I am not at all happy about the privileged investor communications call. That needs to as a minimum have a verbatim transcript posted within minutes of conclusion.
regards, dspp
I'm on my holidays and with an iffy connection but I've had a chance to read further.
Firstly a thank you to whoever in HUR has been fielding my requests for a proper top structure map with the relevant locations marked. Could you now please do the other bits I have been asking for including FPSO location; and the wider area map looking further up into Halifax area. But at least we can now see that of the two LinWar northern end proposed 2019 wells one has a direct line tie back distance of 6km (Warwick) and the other 8km (Lincoln). Allowing for curves and loops that seem realistic.
Looking at the same slide (p10) and the other material one can see that all these wells will be drilled as potential producers and they aim to settle the compartmentalisation issue at the same time (i.e. they appear to hope to not need to go vertical then plug back and go horizontal). Let's hope that works as it saves money and risk.
The phase 5 carry is related to the amount of oil that the initial stage of the FFD would depend on the corresponding 2P reserves. 300 mln boe is the trigger to go above $150mln and maxing out at $250mln of carry for 500mln boe. Given that I hold 1539 mln boe in 2C per CPR numbers, which HIR are at pains to state are exceedingly conservative (and I tend to agree), then it ought to be possible for the first element of the FFD to clean out Spirits carry kitty completely.
In general terms my sketching out of a bootstrapping pathway from Lan EPS to an IFD then a FFD was to assure myself that HUR could work its way past a buyers strike. Which had to be a real concern for me as that was what was happening. Now what has happened is that HUR have broken the logjam with this deal with Spirit and fully paralled the project. In project development terms that is fantastic. As some others have pointed out it may have been at the cost of taking the highest value (but highest risk) path off the table; but conversely it has massively derisked and accelerated HUR's ability to stay in the driving seat and monetise the whole Rona Ridge at a pace and direction to its liking.
I am frankly annoyed that HUR are giving an insider communication to major shareholders. That should at the very least be a listen-in even for PIs with a published transcript. That irks me and I hope they rethink quickly. The sorts of questions that the IIs ask, how they are phrased, and how they are answered, are very important for us PIs in assessing our own positions - and we are qualitatively equal, if not quantitatively so.
I have no qualms at all about the BoD closing this deal. That is what they are there for.
The deal is simple enough and aggressive enough to indicate that Spirit want to get after the asset and deliver results pdq. My few dealings with Centrica were not with high calibre people, but I am sure that Spirit will have sorted that out by now. The drilling sequences show the impact of the extra cash without turning up the riskometer.
+ next
Well it caused me to move away from the pool for a moment !
Technically it confirms my suggestion that LinWar can be appraised by tieing back to the AM, and that there is sufficient processing capacity available on AM to take it (after inevitable debottlenecking).
Note a WOSP pipeline tie-in is included in the outline plan. Brings first gas forwards to ?? 2021 which is of course significant.
Commercially I have yet to look at it in depth. First glance in my spreadsheet this is 1539 MMboe that I held at $45c/bbl for $698mln in my pre-FOIL valuation that yielded £0.87/share on fully diluted basis. Note this was pre FOIL. This is $387mln in carry for 50% so $774mln valuation, i.e. very little uplift on my first glance numbers as it implies $0.50/bbl. In contrast if they had waited a year and drilled one well then they'd have got $1/bbl for the same committment. To get a better insight one needs to run a DCF on it to understand the financial value of acceleration.
From a proving up acceleration I think this is extremely good. That gas flare limit was the real constraint to proving up reserves, coupled with the need to debottleneck AM for liquids, plus the minor matter of getting holes in the ground.
Cash flow wise HUR can stand their share, no worries there.
So at first glance I think that financially this is not great, other aspects good to OK.
Strategically it gives away a quarter of the asset early and (first glance basis) at an underwhelming price. I sincerely hope that in turn it positions them to play extremely hard ball regarding valuation of the other 3/4 of the overall asset.
I rather suspect that noises off were influential in pushing this along, which is undesirable. Even a bit of foot-tapping from OGA (or its bosses) is to be discouraged. It does work towards filling a gaping hole in UK cashflows earlier, and makes IndyRef2 one year earlier as well. One has to keep a weather eye on these aspects.
Back to real life now, that pool awaits .....
Thank you JS and ADUK. I pottered off to bed last night and lay there thinking, "drat, I didn't check the date". Whether or not floaters are used is I think a second order issue. More important is how far tie-backs can extend with either short term or long term flow assurance, as that affects how fast they can prove up additional volumes using the AM at its existing (planned) location. So the question becomes how much was known about flow assurance by Costains in putting that slide together ? And did Costain's slide correctly conform to flow assurance concerns or was it vapourware ? Fairly soon I expect reality to overtake conjecture so not worth putting effort into. regards, dspp
As posted by Bill Hunt on advfn, many thanks
https://www.costain.com/solutions/case-studies/subsea-hurricane-lancaster-field-concept-selection/
GLA phase II
count the number of turret connections
look at the distance to Lincoln
look at the distance for which they imply they have flow assurance
look at the direction the gas line exits the slide
imho they are taking great care not to prematurely close down any of the pathways for an FFD, or an IFD
and are keeping OGA onside by doing all this
and are maximising asset value
regards, dspp
extrader, correct, it was me that said that the size made selling out more complicated, hence lengthier. I explained my reasoning at the time on TLF but you all understand the issues I think. regards, dspp
1. Folks, please note the TMF lot are completely divorced from TLF these days. Personally I think some of the TMF hacks pick up ideas on TLF but that's all. I am not going to be terribly active on TLF for quite a while.
2. For my fag packet valuations I only calculate one line-item on the basis of a DCF, namely the $14.65/bbl that I put against the EPS post-FOIL. I calculate that on the basis of a fixed $/bbl margin, so I assume an invariant oil price.
3. For all the other fag-packet line items I declare a $/bbl valuation that I simply assume - what economists call a heroic assumption (or a lazy one). I am using $/bbl for the different reserves categories based on what I see around and about, but nothing terribly scientific. I don't have minions to scurry around and pull datasets together to come up with better ones (or at least not minions who are suited to that sort of work - feel free to volunteer). I do make a certain amount of allowance for proximity to FID (and therefore FOIL) for each reservoir and all the associated risks, and that is intrinsic in the $/bbl values that I declare. Similarly you can see how I adjust the $/bbl amounts for each line item as the overall Rona Ridge moves from one derisking stage to the next, always assuming the 50/50 case.
4. I am very happy for anyone else to propose alternative $/bbl numbers. I've asked repeatedly and no-one has answered.
5. To come up with better $/bbl numbers you really need to come up with particular conceptual development scenarios for each sub-field (i.e. line item) and then calculate the cash flows, discount them to a DCF, and voila. That is a piece of work I am sure many of you have done in the past, and the likely bidders will all be doing. It is fun work but can take a lot of manpower as for each one you need to screen all the realistic dev concepts and then choose one to analyse further. I can do it, but I'm not being paid by anyone to do it. You can further complicate it many many ways of course (reservoir risk, oil price risk, etc).
6. Yes I am very concerned about time to FFD (of the full Rona Ridge), and the corresponding impact on valuation. Anyone who has read any of my posts over the last 20-years will be well aware of my thoughts as to where we are on the peak-oil/gas journey. However, against this, RR is light oil, close to market, with prolific producers, tightly clustered reservoirs, shallow water, shallow fields, nice oil, not too much gas; i.e. cheap to access / quick to produce. That's the only reason I am in HUR. I wouldn't touch a marginal heavy oil field in an expensive location with a bargepole. Again all this influences the $/bbl that I allocate to each line item.
7. Don't believe anything you read on a board; make your own decisions; never fall in love with a share.
8. Thank you those of you who post snippets of real world data up here from time to time. I appreciate it.
regards, dspp