Our latest Investing Matters Podcast episode with QuotedData's Edward Marten has just been released. Listen here.
Nigel Somerville of S***e Prophets posted a very interesting article on this over the weekend. I am not a member but have been sent is as a link: https://maroon-hadria-97.tiiny.site/
If what he claims is true then Gneiss have arranged for Scirocco to loan £1.2 million to EAG in order that EAG can buy GGL. So EAG get the whole of GGL 100% funded by Scirocco but Scirocco only get a 50% interest.
I warned about the Gneiss Energy involvment in SCIR over a year ago, but it seem that things just from bad to worse here. Luckily I have now sold out most of my stake at a significant loss, but I don't think that this lot will ever play fair with us long-suffering shareholders. J Fitzpatrick and Gneiss Energy are just here to bleed SCIR dry.
The good news is that one of the leaders of the aggressive hostile takeover mob who wanted to try and get their hands on Block have sold out. Rather than being as has been described here: “ a big concern”, GP Jersey is an organisation run by the 27/28 year old Fraser Lang to invest his father’s money. In the past he used it to buy a 15% stake in Union Jack Oil and Gas between July 2017 and Oct 2018) and was rewarded with a non-exec appointment on 4/12/2018. However, interestingly, he resigned from this position just seven months later on 10/06/2019 and less than a month after this resignation on 11/07/2019, his stake was announced to have dropped to zero.
It seems a real parallel with what has happened at Block though in our case his attempt to help engineer a hostile takeover of the company would only have been rewarded with another non-exec position if the Scottish banditos had been successful in their takeover attempt and, thanksfully, they were not.
So to answer the question about whether a major shareholder selling out for a loss is a good thing – it most certainly is if that major shareholder is a 27 year old trustafarian who was trying to engender a hostile takeover of the company that was firmly rejected by shareholders. Even their exist was bad for shareholders as they were the ones selling into the rise that followed the announcement of the successful JKT-01Z drill.
What I think is of more interest and deserves an investigation, is why this TR1 was only released on Friday when, thanks to some of the eagle-eyed investors on here, we all knew back in February that they had sold out then as their names no longer appeared on the Block Energy significant shareholders section of the website. It’s nice to see that they have finally admitted that they have sold out but I am pretty certain that waiting nearly 2 months to announce it is not what the regulators would expect them to do. Still at least they are gone now.
The spud must be coming soon, but although it is frustrating that there has been so much time between the last well and the new sidetrack, it is more important to get the sidetrack done right than to get the sidetrack done quickly.
As I have said time and again on this forum, the next sidetrack is the most important drill in the history of the company. At the moment the market does not believe for certain the company’s claims that they have unlocked the geology of the reservoir. This suspicion that after several failures the last drill could have been a fluke is reflected in the share price failing to get over the hill of the share dump that was carried out by Frazer Lang when he sold into the rise after the drill success.
However, if the next sidetrack is completed successfully then all doubts will be banished and the company will have proved beyond doubt that they know how to commercialise the reservoir. As soon as this happens then the share-price will rocket and debt financing for future wells will be an option. So we need to get it right.
That, said, it has been a long time now, so I expect the sidetrack to commence very soon.
Spudsoil – I agree with much of what you said in your Saturday comments. However, I do not think that you go far enough in your challenges and expectations for the company From my point of view:
1. Block the corporate entity should be aiming for not just stability of production but also an increase in production rates in order to take advantage of the high oil-price environment which I do agree should be in place for the next couple of years.
2. I think that the aims that you have been putting forwards (that of drilling eight sidetracks over two years) are far too conservative and I think that following such a conservative path will completely miss the major opportunity.
As shareholders we were denied the rise in share price that we would normally have expected after the successful JKT-01Z well was announced in January because of massive selling-into-the-rise that happened as soon as this news was released. While we have not been provided with a TR1 release to confirm exactly who the seller is, the evidence from the Block Energy significant shareholders list does point to the fact that this would have been by Frazer Lang whose GP Jersey shareholding no longer appears there.
Regardless of who was doing the share dumping, we should not blind ourselves to the fact that the wider market is still clearly dubious as to whether or not the company have truly unlocked the reservoir geology or not. If the wider market was convinced then the company’s future would be seen as secure and so the GP Jersey sales would just have been swallowed up and the price would have continued to rise. The fact that it did not shows that there is still work for Block to do in this area.
This is what makes the next drill so important. Get it right and we show the market that the geology has been unlocked and will get a massive re-rate on the whole company. In my opinion, Block should drill the next sidetrack at the earliest available opportunity. We know that we are fully funded for this drill and if we deliver success then we will convince the market that we finally know what we are doing out there.
This would put us in a position where we were able to go out and get debt finance for a multi-well drilling programme which could be paid for out of the two sidetracks (JKT1 and the one still to be drilled). We would then have the capability to drill 5-6 wells this year without needing each and every one of them to be a success and as long as those ones that were successful flowed at approx 300 bopd then the company would very quickly start to generate very significant income which could be used to service even more debt etc.
We absolutely do not need a farm-in partner as this would just be giving away revenue that should be 100% ours, but the only way we can prove this to the market is to successfully drill the next sidetrack. Once this is done then a successful future for the company is unlocked for all of us.
I think that there is validity to both what bigboffer says and what those who disagree with him sya.
Clearly on an operating level the current high prices for both oil and gas make a huge difference to Block Energy. With oil and gas prices high then the oil and gas that we sell generates Block more money and gives more in the corporate kitty to cover expenses. Essentially the prices going up from (for example) $50 per barrel to $100 per barrel is exactly the same as production going up from 320 bopd to 640bopd.
To pretend that the change in O&G price does not make a difference to Block Energy the corporate entity is simply nonsense. Higher oil prices mean better operating margins and more money in the bank and this is good for any business.
At first glance, even from a shareholder’s point of view it seems that Boffer does not have a point as the share price initially increased from 0.8 to 1.2p over the course of the first two weeks of serious oil price rises and it began to sink down again from March 9th oil peak to drop back to where it is today. So it would appear that it is following the oil price trend pretty much step for step.
However, when you take a step back and look at the wider picture then what Boffer is saying does make sense. Back in September when the oil price was around $74 the share price of Block was 2.4p and so his point that oil prices nearly doubled while the share price halved is absolutely correct.
As Boffer points out this is because the 2.4p share price was prior to the failed drill and although we have had a successful sidetrack since then and the company claim to have unlocked the reservoir geology, the market is clearly waiting for the prove that this is the case with a second successful sidetrack in a row. In short the market is waiting to eb convinced that the second sidetrtack was not a fluke and that Block have indeed unlocked the reservoir geology. If we can prove that we have then the market will re-rate the company and the share price will rocket. Basically, the market doesn't trust the company... YET.
So, , the rise in oil price does help the company but it does not really help the share price. The thing that will do this is the drilling of a successful sidetrack and the first stage of that is to announce the target and the spud date. Hopefully this should be any time soon as Georgia has been unaffected by Russia’s war in Ukraine.
Make no mistake about it, the next drill either makes or breaks the company. The oil price just provides a turbo-boost to the consequences.
GLA.
Some positive thoughts:
1. Oil price is sky high.
2. Our production seems stable
3. The seller looks like they have gone away.
4. The Scottish contingent look like they have given up their takeover bid.
5. We are fully funded for the next sidetrack.
6. The company maintains that they have unlocked the geology of the reservoir.
7. After the huge mess that they have made of Ukrains there is no chance of the Russians invading Georgia.
8. If we are successful with the drilling of the next sidetrack then we will be able to fund future drills out of debt.
9. Q1 results are coming out in 30 days and we should be strating to drill the next sidetrack in that time period too.
10. We still have all the rest of the Schlumberger acreage to explore.
Any finally, the sky is blue and the sun is out.
Good luck everybody. I feel that our time is coming.
The Russians invaded Ukraine,
And now they are at it again,
But Georgia’s in order,
It shares just one border,
And the oil is pouring like rain.
However, this brings up the original point that radx made which is: “what is to stop the Scottish mob doing exactly the same (i.e. selling into the likely rise to ameliorate it) if the next side-track is indeed successful?”
In light of all of other points that I have made above I think that the answer is that there is nothing to stop them doing this and in fact, if they have given up on their takeover attempt the it is almost inevitable that they will do this and sell into any price rise. However, there are a number of factors that I think would mitigate this issue after a second successful sidetrack were drilled.
Firstly: a successful second sidetrack will start the Block share price on a significant upward trajectory as it would prove that the company have, as they claim, unlocked the reservoir geology and that the JKT-0Z1 drill was not just a fluke. This would remove a lot of uncertainty about the future and would show the wider market that future drills would be likely to be successful.
Secondly, and more importantly, a successful drill this would also set the company up with a new price floor and then income necessary to be able to introduce debt-funding to fund future wells. This would be a total game changer for Block. It may also be enough to get some of the Scottish to hold on for higher prices.
Assuming that the next successful sidetrack drilled flowed at approx. 300 bopd then withj prices of approx. $94 per barrel and costs of $24 per barrel (as per the 7th April 2020 RNS) then Block are making $7.6 million per year from that well alone. This is more than enough to finance a 4 year debt facility of $20 million that would fund a 5-10 well drilling program. Even at a coupon of 15% the single nexr sidetrack would fund all the debt requirements and if 40% of the next 10 drills were successful then we would look at generating a further 1,200 bopd which would be $30 million per year. A 60% strike rate would be 1,800 bopd and would generate $45 million per annum.
So, as I have said for a while now, it is my belief that the long-term success of the company all comes down to the success of the next sidetrack. If the company can make it deliver at 300bopd and therefore prove that they have cracked the geology of the reservoir then this will give them a 40% strike rate in wells so far (2 of 5) and this success rate will be more than enough to allow a debt financing program that can be rolled over year on year as more wells are drilled. The upside from this will be so significant that the sale of all of the Scottish contingent’s shares would be absorbed. There is no denying that it would hold back the price slightly in the short-term but there should be so much good news from that point onwards that the share will not be held back for long even if they all got rid of all their shares.
Radx – sorry for the long delay in getting back to you. In answer to your question about “what is to stop the Scottish mob doing exactly the same (i.e. selling into the likely rise to ameliorate it) if the next side-track is indeed successful?”
That is a good question and there is no single answer to it as the answer depends on what has happened on one key question and this question is “who is selling out”. I agree 100% that it is the Scottish mob who are selling but the big question is are people selling individually or are they acting in concert?
If there had been a TR1 issued then it would be easy to work this out as we would know the name of who had sold their shares. However, given that there has been no TR1 released we are forced to simply extrapolate from the available date who has sold and what is going on. From my research into the Scottish contingent last year there are a number of facts that might be pertinent to this:
• Alistair Ferguson first issued a TR1 showing that he owned 5.89% of the company in 8/4/2019 when the share price was approximately 9p.
• Jon Fitzpatrick issued a TR1 for 3.8% of the company on 1/11/2019 when the share price was 7p.
• GP Jersey issued a TR1 showing that he owned 3% of the company on 19/08/2020 when the share price was 3.05p and another showing he owned 5.02% ON 9/4/2021 when the share price was 2.8p
What this data shows us is that whoever has been selling at these prices is showing an enormous loss compared to their initial investment. GP Jersey would have been selling for a loss of between 50%-60% of their initial investment while Jon Fitzpatrick would be selling at an 84% loss and Alistair Ferguson would be selling at an 87.5% loss.
The obvious guess of who would be selling at the moment would lend itself to be GP Jersey as their loss (while still substantial) would be the smallest and the easiest to write off in order to make another investment, whereas the loss for the others would be much larger. However, the absence of a TR1 lends itself against the theory that it is just GP Jersey selling as the sales have been significant enough that if they had been selling on their own then they would have passed the 3% threshold and would have been legally obliged to issue a TR1 to inform the market of this.
Considering that there has been no TR1 issued it seems that the Scottish contingent are selling their shares in concert. This would heavily suggest that they have given up their attempt to take over the company and would be a great thing for us shareholders as they would have been terrible custodians of our assets and money.
However, this is not to excuse the fact that under his watch the share-price has gone in the wrong direction. It may not be 100% his fault but as the leader and CEO he does have to take 100% of the blame for it. He was absolutely on his last chance when he drilled JKT-01Z and I was not alone in saying at the stime that if that drill had been a failure then I would have wanted him out. However, since it appears to have been a success then he has earned the chance to drill the next well and prove that the company really have unlocked the geology.
If this proves to be the case and the company can now start to drill many different wells that all deliver 300 odd bopd then I am happy that the share price will go in the right direction and we will be led by a CEO who has learned from his previous experiences and will not make the same mistakes again. He is by no means perfect but as long as he delivers successful drills going forwards I can forgive the sins of the past and I think that the wider market will too.
He is definitely a less bad option than letting the Scottish mob taking over the company would have been.
Rxdav – looking at your previous posts I assume that by the elephant in the room you are talking about Paul Haywood and the idea that the company would be much more successful with somebody else at the helm?
The way I see it is that essentially the reputations of Haywood the individual and Block the company are fairly inseparable and are both tarred by the same brush of past failures. But equally the reputations of both can be rehabilitated by drilling successful wells and driving the share price upwards.
Personally, I think that any CEO’s reputation would have suffered with the various well failures that Block have delivered to shareholders over the last few years – no matter who they were and no matter how they behaved. This is just the nature of the game. If a CEO supervises the share price going up then he is a genius and If it goes down he is an ******** no matter who they are or what they did. However, great success and great failure is it is in most instances clearly not completely the CEO’s fault. In Haywood’s case he is not a geologist who decided exactly where and how to drill the various wells, he is merely the man who signed them off. He is not innocent of failure but it is a team failure not that of a single individual.
Where he can be reasonably critiqued as an individual is in the hype that he built up around WR-16AZ (the gusher to dribble drill) as this undoubtedly caused many investors to get locked in at high prices that have not yet recovered. However, even here I can see a degree of mitigation for him. He clearly didn’t know that the flow rates were going to decline that dramatically and nor did anyone else at the company. If the well had continued to flow at the rates that were originally announced then we would all have been praising him for the hype and the rocket that the put under the share price. It is only retrospectively that anyone could really see what a disaster he made of this drill – it was certainly not clear at the time.
Since that time though I think that he appears to have learned his lesson. He (and the company) are much more cautious about their public statements and there is much more fact and much less hype – with all of the good and bad that goes with that. His reputation has also IMO been deliberately (and at times unfairly) damaged externally by the various articles published by Malky at the behest of the Scottish mob during their two year takeover attempt. These articles were deliberately designed to paint him as incompetent and responsible for all of the companies ills and for all of us at some point or another they have succeeded.
rxdav - what do you perceive as being the elephant in the room?
Hepseal - There are two reasons for the current position of the share price. The first is that after the good news about the success of JKT-01Z somebody (or a group of somebodies) were selling into the news in a very significant way. This went on for ages and had the effect of repressing the share price just at a point when it normally would have been flying up on the good news. Although they seem to have stopped selling now these sales have had to be absorbed and we need another good news event to drive sentiment and prices up (without the seller this time).
The second reason is that there is an element of doubt in the wider market that Block have really cracked the geology of the reservoir. At the moment they have had one successful drill and a number of unsuccessful ones and while they say that they have now unlocked the geology the market wants to see proof that this is the case and that JKT-01Z was not just a fluke.. This proof will be delivered with the next successful sidetrack. If it comes in and flows like JKT-01Z then the company will have proved their point and the market will believe that they have cracked it.
Of course all the other points that you make are also true. The fact that the company is cash flow positive is massive and Block are now producing decent production figures at a time when the oil price is at record highs.
What I think will ultimately happen is that we will get a combination of positive events that will combine together to send the share price soaring:
(1) The company will successfully drill a second sidetrack proving that they have cracked the geology.
(2) The seller will be gone and so on this good news the wider market will see how undervalued Block and will pile in.
(3) The company will explain how they are able to get a debt deal in place to conduct a multi-well drilling programme serviced by existing production.
(4) The company will publish the next quarterly report proving that with production rates as they now are combined with oil prices remaining high that they are making a very significant amount of money.
I sincerely believe that all of these things will happen and it is just a matter of time before they do. Once these events combine we will see a share price that finally represents the true value of where Block are now – but still leaves a lot of room left for expanding in the future by exploiting the rest of the license that we acquired from Sclhlumberger.
A farmout is not a good idea unless we get desperate as it gives away a massive amount of the long-term income stream to another party and since much of the difficult work has been done now, why would we want to do that?
The best way to proceed, as I have said for a while now, is to drill the second sidetrack and prove that they have unlocked the geology. Then we need to go out and get some debt finance for a multi-well drilling programme which could be paid for out of the two sidetracks (JKT1 and the one still to be drilled). This would mean that we had the capability to drill 5-6 wells without needing each and every one of them to be a success and as long as those ones that were successful flowed at approx 300 bopd then the company would very quickly start to generate very significant income which could be used to service even more debt etc.
My second option, if debt financing were unavailable, would be to drill new wells funded out of the budget of existing wells. THe drawback of this is that it would take much longer and the company would be vulnerable to two dusters in a row but it would still have a massive advantage over a farm-out in that we would not be giving up a huge proportion of future income.
Only if we drilled 2-3 dusters in a row and were going to struggle to pay for new wells out of existing cash-flow would I advocate going for a farm out. Quite simply, it is short-sighted. Why do all of the hard work and suffer all of the hard times only to give a huge amount of it away just when the finish line is in sight?
@Chesh, yes your point absolutely makes sense. The only thing that I would say against that is that if they have a finite amount of financial capital then they may consider that it is better deployed in another opportunity now rather than later and that the losses on Block are more than made up for by the profits on another project. It could also be that radx is right and that 3XF are not finished with Block yet. All we can do is speculate based on the evidence at hand. As rxdav says, if and when TR1s start to appear then we might get more clarity at this point.
@rxdav, in relation to Somerset Hippy’s question I completely concur with your reasoning of WHO is behind the selling and it is definitely the Scottish contingent (or the 3XF crew as you refer to them) for all of the reasons that you have mentioned – nobody else has enough equity to have kept selling for this long and, given that we have not had any TR1s released for any individual entity, it is probable that the group as a whole is downscaling their holdings rather than any one individual.
For the WHY, I have a slightly different rationale in that I think that they were hoping that JKT01 would also be a failure. The Block share price would then have collapsed but also more importantly so would any desire amongst investors to back Haywood and his existing board to stay in place (I certainly would have wanted them gone) and in this circumstance there would have been little resistance from retail investors if 3XF had tried again to seize control.
With the successful drill though a takeover attempt becomes much more difficult. Since they failed in their putsch back in summer their position has bee weakened significantly as they no longer have their own man on the BoD who could be appointed to an executive role the instant that they vote the Chairman/CEO out and without that it is very difficult for them to easily exercise any real control. The fact that the current BoD have the budget to drill another sidetrack without having to raise money is also very important IMO. Assuming that the next drill is successful, not only will the share price rise significantly but the BoD will have proved that they have absolutely acquired the necessary knowledge to successfully develop the field and there would be no support for a hostile takeover by a murky group who many of us believe would not want to develop the field but would instead simply wish to sell it off.
The 3XF crew put a lot of effort into trying to acquire control of Block but the failure of their attempt to appoint their own man as chairman in summer and the success of the recent sidetrack have put them many months behind where they were this time last year. Consequently, I am hoping that they have simply decided that they no longer think that they can easily get control of Block and are slowly unwinding their positions to go elsewhere and try again with a different company. But maybe I am being too optimistic, time will tell.
Boobyrash – I think that you are right and wrong at the same time with regard to just being able to wait 3 months. Technically, yes of course we could do this but I think that in reality it would be much more difficult to do. If the next drill (from now) was a duster then sentiment would be low and I think that it would be 6-8 months before we drilled again.
If the next drill was a success then it would matter less if the one after that was a failure and obviously the more successful drills we had in a row then the more quickly we could afford to raise the cash for another drill in the event of a failure. But I do think that an early failure would cause long delays.
This is why I would be so keen to get a debt financing dela in place as then we could plan to drill 5 wells and as long as three of them were a success then we would be golden. The important point to remember IMO is that even if the company truly have unlocked the geology of the reservoir then not EVERY drill is going to be a complete success. Knowing that we were funded for 5 wells would enable us to look at the success of the entire well programme rather than feeling like we were on a knife -edge every time we drill.
But you are absolutely right – if the next 3 wells were successful then we would not need any debt funding and Block would generate enough money overall to drill a new sidetrack every month. It is getting to the stage that we have those 3 successes in a row that I would like to have the security of the debt though.
I loved today’s podcast. For me the key messages were that: we are now cash flow positive and this means that:
1. There is no chance of any raising in the near future and
2. That the company kicking off enough cash that this can be recycled into operations.
3. Because of this we are going to drill another sidetrack in the near future and he is just waiting on the technical team to propose the safest next option before we go ahead and drill it.
The next sidetrack is the most important drill in the company’s history imo. If it is successful then we know that they have cracked the geology and JKT1 was not just a fluke. This will mean that we as investors and, more importantly, outside agencies that are willing to provide debt finance can trust that the company is going to be successful with the majority of its drills from now on. But we have to prove that JKT1 was not a fluke and the geology really has been unlocked. Drilling two successful wells on the bounce will prove this beyond doubt.
The other reason that the next sidetrack is so important is because a successful drill (and I define successful as delivering more than 300 bopde) means that the next well will generate another $500k per month in net revenue. This will give the company the money to go out and drill the next well (a third sidetrack) without having to return to the markets. In essence, each successful well helps fund the next well and this means that the company can develop an entire multi-well drilling programme that is simply funded by the success of the wells before.
However, the key issue here is that this needs constant success – hence me saying that the next drill will be the most important in the company’s history. An early failure if the company go this route could once again lead to a halt in the drilling programme due to cash-flow.
What I would really like to see is the company deliver the next drill successfully and prove beyond doubt that they have indeed decoded the reservoir geology. The I believe that they would be in a position to finance a multi-well drilling programme funded via debt. This would be advantageous to as it would mean that there would be economies of scale in knowing that they had the budget to drill multiple wells from the off.
If we can do this and get financing for the next 5 wells then we would only need three of them to be successful to not only pay off the debt but also deliver is an additional revenue of $1.5 million per month. But this all comes off the next sidetrack. If it is successful then Block will have so many options open to them then the share price will fly.
I always said that drilling well JKT1 was the last chance for Haywood and the rest of his crew. They needed to deliver in excess of 300 bopd to deliver on their claims that they had cracked the reservoir geology and if they did not deliver this then their time at the company should be over.
They delivered on this and for that all shareholders should genuinely congratulate them as this means that the company is actually in quite a good position going forwards. However, the success of JKT1 was the minimum that they required to stay in their jobs and now they really need to start delivering thereally big value to shareholders.
The company are now profitable which is amazing news, but what we need to do next is to as quickly as possible start putting together a drilling programme which can be carried out without diluting shareholders further. The company have already said in their 11th Jan RNS that they are planning to go back and drill a sidetrack at WRB01 and that this will be funded by production revenue. If they deliver on this in the near future and can prove beyond all doubt that they completely understand the geology of the area then the share price should rocket, especially with the oil price doing the same. We would then be able to drill a next well and a next well etc.
So, well done Block for the successful drill of JKT1 and now let’s go on and successfully drill a new sidetrack at WRB01 to deliver us another 300+ boe per day. Then we put together a full field development plan and start drilling constantly!
I reckon it will be another 4 weeks until we get the flow test results.