Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Mirasol,
I agree that it would have been wiser to defer mention of the potentially deeper OWC until there was more certainty. But, I suppose if it helped to accelerate YA’s operations ..........?
With regard to the coring of the Kim in the HH-2 pilot hole, is it possible that the HH-2 trajectory is close enough to HH-1, such that it may be expected to duplicate the HH-1 results? -I’m not sufficiently familiar with the planned trajectories to know
GLA
Penguins,
I must say your post was very fair and reasonable.
I might add that a recovery factor at the high end of SS’ range (10-45%) should be attainable, since the lower cost of operating onshore will allow production to continue down to low rates. A lot of oil can be recovered in late field life, but the NPV impact is reduced by the lower profit margin and the time value of the money.
Incidentally, ‘DCF’ is the same calculation as zNPV. The ‘discount’ is the restoration of values to ‘present values’.
One other assumption in these numbers is that the 12.5 mmbbls ‘seen’ by each well is not the same OIP, but two separate reservoirs.
GLA
Penguins,
I must say your post was very fair and reasonable.
I might add that a recovery factor at the high end of SS’ range (10-45%) should be attainable, since the lower cost of operating onshore will allow production to continue down to low rates. A lot of oil can be recovered in late field life, but the NPV impact is reduced by the lower profit margin and the time value of the money.
Incidentally, ‘DCF’ is the same calculation as zNPV. The ‘discount’ is the restoration of values to ‘present values’.
One other assumption in these numbers is that the 12.5 mmbbls ‘seen’ by each well is not the same OIP, but two separate reservoirs.
GLA
Mirasol,
Thanks for the link to the GCA publication. Interesting for me as I’ve done quite a bit of work with their guys over the years GLA
Should have been Mirasol, not Mirador
Mirador,
Thanks for your helpful reply, and interesting comment on gas volumes.
Personally, I’ve always been concerned by operators quoting ‘barrels of oil equivalent’, when reporting test rates, because a barrel of oil is generally worth so much more than an oil equivalent barrel of gas - especially relevant when dealing with high GORs
GLA
By the way, its hard to believe the confusion between formation water and drilling fluid given the vital importance of that in this context. GLA
Mirasol
Apologies for being pedantic, but I think its better to use imperial gallons (35 to a barrel) rather than US gallons (42). GLA
JK
I’m afraid you did say something factually incorrect.
The increased oil volume connected with the Portland well does indeed mean that the production rate decline will be less than it would have been (at the same production rate).
You are correct in pointing out that the initial production rate may not necessarily be any higher, but it is quite likely. It depends on the reservoir geometry and other factors.
GLA
When the Archbishop left Enterprise to join the church, the chairman said on TV how pleased he was that - when he arrived at the pearly gates - there would be someone there to vouch for him! looks like Angus needs a few miracles. Turning water into oil instead of wine would be a good start at Balcombe. IMO
Argus,
In your example, the dilution is more than offset by the gain in market cap. However, the historic problem with UKOG’s dilution is that it hasn’t led to an increase in market cap - not even enough to offset the dilution, never mind a benefit to shareholders GLA
Burningspear,
We don’t need a CPR for an exploration/appraisal project. Work done by the operator to date would be reviewed by the farm-inee and his consultants/advisors. Neither would we be looking for a BP. There are plenty of mid-size companies which could be interested IMHO
Since a lack of capital is forcing UKOG to use devices which are expensive and value-destructive for shareholders, can I suggest an alternative approach. We now have a 100% interest, or near to it, in some prospective licences- Arreton, Godley Bridge, Broadford Bridge. Perhaps we might accelerate monetisation of one or two of these via farming out minority stakes in exchange for funding exploration well costs. A 100% carry may be possible in exchange for a 20-30% stake. Besides funding our drilling commitments, and arguably diluting the risk, it would help to demonstrate to the market the value of these prospects/discoveries.
The problem I see would be the extra near-term work load for UKOG, since we would no doubt prefer to remain as operator. Personally, I would also prefer to retain the Arreton interest, since it appears to be a sizeable low-risk project, but Broadford Bridge and Godley Bridge might be suitable - a joint well at Godley Bridge should probably be pursued as an alternative.
Mirasol,
Ref you're 17.06, partner approval of capital expenditure by the operator is governed by the JOA. as it happens, Penguins referred to this in his post at 20.18. usually this means a vote to approve the JV budget at the beginning of the year. The operator would not proceed with well-planning or rig contracting unless this was in place. The approval will have a pass-mark. At a later date, the operator will issue an AFE to cover the cost of the well. This will also require approval by a certain percentage of the equity interests.
The actual contracting of the rig will be done by the operator. It would be unusual for a non-operating partner (Magellan) to get involved in the rig contract, for example. HHDL should only require Magellan's approval of the AFE. As mentioned by others, there will also be provisions for default or sole-risking in the JOA.
GLA
Penguins,
The water is absent from the produced fluid because it is bound to the rocks and not mobile. Fortunately, oil is the mobile phase. If more water enters the system, via injection or aquifer movement, the water will become mobile, and oil production is likely to fall as a result.
Don’t sit on the edge of your seat, waiting for the CPR.SS has said that it will take a lot more data - including production history - before significant volumes can be moved from ‘resources’ to reserves.
Experts like Exodus will be wary of extrapolating data from a limited area like HH, across the whole basin, at this early stage. Much of the OIP will have to be confined to the speculative end of the reserve estimates for the foreseeable future
I’m afraid it’s not quite accurate to say that UKOG are not unduly concerned with maintaining the Portland reservoir pressure. This is the reason for restricting the rate! The 11 April RNS speaks of “prudent Portland reservoir management purposes”. For the OGA to permit higher volumes to be produced on test, they have to be satisfied that longblterm oil trecovery will not be harmed. In the scenario where oil rates are unrestricted, and without pressure support, ultimate oil recovery is likely to be reduced by excessive formation of gas in the reservoir.
The reason for restricting Portland rates currently is almost certainly the lack of pressure support until water injection can be initiated. Remember that so far we have seen no evidence of water; ie no sign of an extensive underlying aquifer which might offer natural support. Consequently, if the chokes are opened, and rates maximised, one would expect reservoir pressure to fall, especially in the near well bore area. This would lead to free gas breaking out of the hydrocarbon liquid, and eventually to lower oil rates with a higher gas-oil-ratio.Once water injection is underway,, balancing oil withdrawals, and therefore stabilising reservoir pressure, production rates will be allowed to increase.
This is quite different from the KL zones, where water injection can move quickly through fractures and - in some cases - lead prematurely to high water-cut production wells with correspondingly low oil rates
Very difficult to go the EGM route.
Possibly, an alternative would be to contact the chairman and/or non-execs, who should be guardians of shareholders interests.
Buying - up other Weald Oiler’s will depress the share price in the foreseeable future and increase our risk, rather than spreading it via farm - out etc