Member Info for KeithOz

For clarification, I'm not predicting anything, just passing on that there is a lot of whispering going on suggesting an announcement on 8th or 9th. If I post facts, I reference them; if I post calculations, I show my assumptions & workings. This is not inside information, purely gossip, which may be incorrect, so I will not reveal the source(s). I put this on another channel a few minutes ago concerning the possibility of an accretive placing instead of cash from a deal with Afriquia - the latter still being a possibility.

"Even if there was, it would be better than a Novum placing - it is likely that Jerry [Keen, Oak Secs] would invite his chums to take part, some of them are already big PRD shareholders, so there would be little selling down of placing shares. It could actually be a good thing, if it was only for a few £M and the proceeds were applied to drilling MOU-5 straight away, rather than leaving a question mark hanging over operations [until next year]. Some people seemed very happy the last couple of days - perhaps they will turn out to be beneficiaries."

I can't get back to sleep, so:

*I suspect Sefton 82 is rather fond of horses. Google: Sefton / Horse of the year / 1982. Presumably ex B & Rs?

*Spuds has written sense for possibly the first time.

*A little old fox is whispering secrets under the oak tree.

*They say tomorrow never comes, but it is already tomorrow here. C U @ 7.

@Jimmy.

I think you misunderstand, I did not write the Oak Securities note. If you have questions about the content, I suggest you contact Jerry Keen on 0207 488 7964, Jerry.Keen @oak-securities.com.

I tried to address the Oak valuation issue yesterday, let me repeat the bit about valuation per share, then waffle on a bit more how they have applied risking to the valuation.

"Oak Secs have failed to mention that their valuation per share is not a calculation of gas price x gas volume / no. of shares. While many of their numbers are just such valuations of gas in place, the value per share is based upon an NPV10 calculation. As an example, the value of 1 mcf is given as $7, whereas the discounted value (NPV10) is closer to $2. While the NPV10 per share they have given is the correct result from this calculation, a potential buyer will not pay this amount - as I said a couple of days ago here, the buyer is taking on execution risk, financing, and still needs to make a profit. Based on similar deals, I would expect a buyer to pay somewhere in the 25 - 50% of NPV10 range, dependent upon royalties, stub equity, competition from other buyers & Paul's negotiating skills."

Now, what is the effect of risking? They have gone with a 12% c.o.s., based on the original ITR which was issued before further work by PRD on defining source rock & reservoir characteristics, which has raised PRD's internal c.o.s. estimate to 50%. Oak have then halved the overall c.o.s. for helium to 6%, given the greater unknowns. So the value of their P50 recoverable net to PRD has been reduced 8.3-fold (100/12) and their helium P50 recoverable net to PRD has been reduced 16.7-fold (100/6).

In the event of drilling success, the risked value per share has to be multiplied by 8.3 for the methane component and by 16.7 for the helium component. So: a success case gives an UNRISKED value per share of £9.25 for the methane (£1.11 x 8.3), plus £6.00 (36p x 16.7) for the helium, giving a total unrisked NPV10 value of £15.25 per share. Using the likely buyer range from my 2nd paragraph, that gives a purchase price of £3.81p to £7.62p per share, of course just for MOU-5.

Please note all assumptions are Oak's, not mine. I am just trying to translate their poorly-articulated note.

BRV - re T & T, a reminder that in the Interims, under New Ventures, was "Onshore Trinidad - Acquisition of producing fields", contingent upon cash generation from a sale of Morocco assets or cashflow from Cory Moruga.

AGD62. Folks on other channels have raised the same issue. Oak Secs have failed to mention that their valuation per share is not a calculation of gas price x gas volume / no. of shares. While many of their numbers are just such valuations of gas in place, the value per share is based upon an NPV10 calculation. As an example, the value of 1 mcf is given as $7, whereas the discounted value (NPV10) is closer to $2. While the NPV10 per share they have given is the correct result from this calculation, a potential buyer will not pay this amount - as I said a couple of days ago here, the buyer is taking on execution risk, financing, and still needs to make a profit. Based on similar dea;s, I would expect a buyer to pay somewhere in the 25 - 50% of NPV10 range, dependent upon royalties, stub equity, competition from other buyers & Paul's negotiating skills.

I'm not overly impressed with the Oak note - it is not at all clear in places, and contains numerous mistakes - do they really think by-product is spelled biproduct? They did it twice, so not just a typo.

Folks concerned with the lack of quantified announcements may have come to the conclusion that there is a problem with MOU-3. I agree that there is a problem. To help clarify this issue, pull up this interview with Paul Griffiths from 14th July 2023, and concentrate on the section from 1.30m to 4.20m.

https://www.youtube.com/watch?v=thyYwq0VXTA

"What was amazing about that well was that every single target that we passed through there was an indication of gas. That confirmed to us that the overall structural picture that we had decided to test in that well was valid right from the top of that sequence to the bottom of that sequence. Importantly it showed that gas had migrated all the way up to the top of that section at 339m. So anything in contact with that charging system would be charged with gas ... so a phenomenal well"

We know that there was overpressure at the top and at the bottom, but not in the middle. PRD had initially decided to perforate just the two Middle Sands sequences. If the formation damage could not be penetrated with Sandjet, every one of the 17 horizons would have been finished after the first two weeks of the planned 5+ weeks programme - most of the time would be spent testing, not perforating. So if it didn't work, you wouldn't keep the expensive Sandjet gear and operating specialists on site for what is now 8½ weeks.

It has been clearly stated that the programme has been extended. That means perforation of additional horizons, not repeatedly trying to perforate a horizon that has proven to be irresponsive to Sandjet. My guess is that flow rates from the Middle Sands were very good, quite possibly in excess of that required to service the initial CNG offtake requirements. So what should you do? Leave valuable gas in the ground waiting for the market to grow? Or perforate the hell out of all the horizons in the hole with the objective of proving up the maximum sustainable flow rate, knowing that there will be sufficient gas to kick start the gas to power project in advance of starting to evaluate MOU-5?

My view is that the problem is that there is too much gas, compounded by the issue of balancing and intermingling of multiple flows of greatly varying pressures. You solve these issues by bringing in external expertise that PRD does not have. Their advice is specifically stated to be well engineering and flow assurance - how to get the best sustainable flow, and the best way to get the gas to the final destination. It would seem that Zenith are advising on both CNG and gas to power.

PRD were very clear that information would not be released until after the conclusion of work on MOU-3. I expect that is still a couple of weeks away, they will then move to MOU-4. Data from two wells will be necessary for any gas sales agreement, and testing of the carbonate horizon in MOU-4 is a sensible precursor to drilling MOU-5.

Nice problem to have.

For those who are asking why the MOU-5 prospect is not being de-risked by testing the carbonate horizon in MOU-4.

RNS 06 June "Following completion of the MOU-3 rigless well testing a decision will be made to move to either MOU-1 or MOU-4 next to perforate the TGB-2 Sand and the Moulouya Fan sequence respectively. A carbonate interval in MOU-4 has also been selected for possible perforating with Sandjet in order to calibrate the NuTech petrophysical log interpretation over this interval which is located at the extreme edge of the Jurassic structure to be tested by MOU-5."

RNS 07 August: "The MOU-3 testing programme remains as announced on 6 June 2024. A further operations update will follow once the MOU-3 rigless testing programme is completed."

RNS 17th September: "The rigless testing programme is being extended based on an initial analysis of the 2024 rigless testing data that is currently being carried out by Dr. John Tingas Petroleum and Chemical Engineer."

Since they are using the 12% risking, I should point out that using their methodology, a successful drill would remove the risking, giving a valuation of £12.33p per share. Don't complain we didn't give you the heads up on this.

Here's the text of the report. Add to this the value of the Morocco CNG business, T & T, and Corrib South.

"With this report we are solely focusing on the exciting potential of the MOU-5 exploration well in the Guercif licence, onshore Morocco. This well is targeting a 5.9 TCF gas prospect with the potential of additional value added from helium being present. Using a RENAV we derive a value of 111 p/share from the natural gas and 36p/share from the helium. This gives combined value and target price of 148 p/share.

MOU-5 Natural gas

With this note we are concentrating on the drilling of the MOU-5 exploration well in Q1 2025 with a target spud in January. This is probing a very significant structure with potential P50 recoverable resources of approximately 5.9 TCF of gas. The well is only 3 km from the Maghreb Europe Gas trunkline (where there is significant spare capacity) and so should prove to be a much simplified and less costly development to bring on stream.

Helium upside

From a gas sample taken at the MOU-3 well it is believed that there is the potential of the natural gas containing helium which would become a very valuable biproduct given its high sales price (of over US$400/mcf) compared to natural gas. Helium concentrations could be in the range of 0.11% - 4.06% based on global averages. By example, the Hassi R’Mel gas field in Algeria has concentrations of helium of 0.19%. Using a global average concentration of approximately 1.3%, this would imply 76.5 BCF of gross recoverable helium resources in the P50 upside case.

Valuation

For this note we are looking at the valuation of the MOU-5 structure (with the helium potential). This is done through a RENAV (Risked Exploration Net Asset Value). Using a US$7/mcf gas price and a chance of success of 12% (which is below Predator’s internal risking) we derive a value 111 p/share. On top of this, the helium would add a further 36 p/share. There is a small adjustment to reflect the net cash. These combined would imply a price target of 148 p/share. Investors should be aware that this is a relatively high risk well.

Financials

The company is in a stable financial position. At the interim results released on 25 September, Predator had cash balances of approximately GBP 4.4 million with no debt. Management believes that this cash is sufficient for its committed work programme over the next twelve months."

More heat than light here today.

The 7.5M lapsed options were issued 3.85M each to Paul Griffiths & Ron Pilbeam on 27th (not 7th as in RNS) October 2020, conditional upon certain CO2EOR milestones for T & T. Those conditions have not been met within the lifetime of the warrants, so they have lapsed.

The 7,855,486 were issued to Lonny on 31st Jan 2022, as part of the above option scheme, exercisable at 5.66p (don't know why it says 8p in the RNS), vesting July 2022.

If he knew in advance that he was leaving, he would normally have been able to do a cashless exercise deal through the company broker whereby the sum payable to exercise would be offset by a partial sale of the acquired shares. This sort of arrangement is common, I have done it myself, it involves no cash payment. However, since it involves a sale of shares, it would not be possible to do such a cashless exercise if it was a close period, or if he was in possession of insider information. The only possibility would be to borrow the money to exercise the options, then only be able to sell the acquired shares once the relevant information became public. I suspect he did not have enough notice to organize such a potentially risky arrangement, and presumably the grant conditions were that the options expire on leaving the company.

I can't read anything significant into the terms of Steve Boldy's option grant, similar terms have been applied to previous options issuance including the 7.5M above just lapsed, and to those granted to Moyra.

Hi pv72. I understood your specific question to be how accurate are resource calculations, rather than how are they calculated. The answer is, surprise surprise, there is a tendency to overestimate. You might find this of interest:

https://www.sodir.no/contentassets/8851d435388440d79f53fd967ec0ffb0/kap-7-eng.pdf

@BRV.

* GIIP as per Interims = 8TCF

* 75% net to PRD = 6TCF as per 8th August RNS " the Jurassic MOU-5 structure gives net P50 upside Prospective Resources for gas of 5.916 TCF to the Company"

* 70% recoverable = 4.2 TCF

I note in both 8th August RNS and today they have used the odd phrase "P50 upside". P50 is the best (i.e. most likely) estimate, with a 50% chance that the resource will reach or exceed that number. To me, P10 is the upside, with a 10% chance that the resource number will reach or exceed that figure.

I still can't reconcile the percentage concentration with the volume numbers today.

@BRV. This from the Interims RNS "Preparations to drill the MOU-5 well to test the large 187km2 Titanosaurus Jurassic structure have been progressed and refined based on new desktop seismic modelling of potential reservoirs which has increased gross gas-in-place estimates to 8.036 and 14.729 TCF" From this I assumed the figures to be GIIP, and applied a 70% recovery, which is conservative for a shallow prospect with high poroperm. You could argue that all the assumptions I used are on the conservative side - does that make me a de-ramper? 😏

I ama little puzzled by the maths in this statement:

"The potential conventional prospective gross recoverable gas resources for the primary reservoir target in MOU-5 were previously reported as being 5.916 TCF (P50 upside case), as announced on 8 August 2024. Potential gross estimates of in-place He for the P50 upside case are 104.31 BCF based on a global averaged scenario of 1.298% He and 598.88 BCF for the P10 upside case based on a global averaged scenario of 4.066% He."

and for that reason, have just gone with a 1.3% helium concentration in my calculations. Any physical chemists and/or mathematicians able to shed some light on this?

Titanosaurus is too large for Predator to develop, so the stated intention is to prove up and sell, or perhaps farm out a majority to a large O & G company who would also be operator. How would such a buyer value the project, and what would PRD be likely to receive?

All professional outfits use a net present value – the value of future cash flow today. For those who are not familiar with this, a number of inputs are needed – capex, pricing, sales over time, opex, taxation; and a discount value reflecting the time value of money. Think of the NPV discount as the opposite of compound interest – for example, $100 compounded at 10% over 10 years gives $260, but $100 discounted at 10% over 10 years gives $35.

Paul Griffiths has previously suggested an NPV10 value of $2M per BCF of methane. That values a P50 6TCF GIIP @70% recoverable = 4.2TCF at $8.2Bn without the helium, net to PRD. (CHAR was using $4M per BCF!). Let's do a more detailed assessment, feeding these conservative assumptions into an NPV spreadsheet.

*P50 methane 6 TCF GIIP net to PRD.

*P50 helium -1.4% concentration.

*70% recovery = 4.2 TCF recoverable, so a 23-year life at max rate 500mmcfgd, = 180 BCF per year, we will use a 20-year life. There is potential to double output per year for a 10-year life.

*$8 per mcf methane (half the current import price from Spain).

*$225 per mcf helium (current long-term ex-producer contract price $225-250).

*Methane sales - Year 2 -100 mmcfgd. Year 3 – 250. Years 4–20 – 500.

*Helium sales – Year 2 – 107 mmcfgd. Year 3 – 267. Years 4-20 – 530..

*Opex (guess!) $1 per mcf methane, $10 per mcf helium.

*Capex (guess!) - 30 wells @ $3M = $90M; 5km pipeline and ancillary equipment - $10M; helium separation & compression - $50M, equal expenditure over 2 years.

*Tax – 5% royalty throughout, plus 31% corporation tax after Year 10.

*Discount rate - 10% - interest rate environment is improving, but Morocco has risk.

This gives an NPV10, or what it is worth today to a buyer, of $11.4Bn with helium, $7.65Bn without. Since they have to finance the project, take on execution risk, provide the staff to operate, and of course make a healthy profit, negotiations might fall in the range of 25-50% of NPV, depending upon a royalty or stub equity. How about if PRD receives 37.5%? - $4.28Bn. At a GBP:USD rate of 1.338 and a fully-diluted 600M shares in issue, that would be equivalent to £5.33p per share in a P50 success case.

To get to purchase-readiness, PRD would need to drill & test 4 wells – cost around $15M. An O & G major would do their own flow assurance & FDP as part of their due diligence. $15M outlay for a potential $4.3Bn return seems like a decent risk/reward to me. My opinions, my calculations, others here will disagree – they have already told us that I haven't a clue what I am talking about, and that there is no gas.

Iago.

That brings back memories - I played that part once. My favourite line: "I am one, sir, that comes to tell you, your daughter and the Moor are now making the beast with two backs".

Here's a 2nd opinion: https://www.akapenergy.com/helium - AKAP is a leading energy company consultancy.

"How is helium priced? Market pricing for helium is difficult to ascertain as it is not a traded commodity and pricing is normally based on long-term, confidential contracts, resulting in opaque pricing given there are only a few key suppliers and industrial gas buyers. Many helium users tend to be price insensitive as there are no substitutes for helium in many cases, making them price-takers. This is another reason for long-term contracts as security of supply is crucial to many users. Therefore, spot or current pricing is not overly relevant for producers and means production is more bankable given security of cash flows. "

"Helium market size and opportunities? The helium market is around 6bcf/y. Based on an upstream price assumption of US$250/mcf it is worth around US$1.5bn pa to the producers but based on end user pricing it is likely a 3-4x larger market."

There appear to be some misconceptions about the price of helium, and the expected grade. We will know the latter tomorrow, and I will post some more detailed info once the announcement has been released. With regard to price, the sky.com article just mentioned contains quotes from two small companies trying to promote themselves by claiming helium prices of up to $550 per mcf. There is no way on earth that they will sell the helium they produce for that - this is the spot price at which end users too small to have contracts will pay to a gas wholesaler. Gas wholesalers will be the purchasers from helium producers, and they do so on a contract basis at a much lower price. I posted this on 17th September:

"I wasn't going to go down the Helium wormhole, but just a quick clarification on prices. The vast majority of Helium is sold on contract to the big specialist gas distributors such as Zephyr (the biggest), Air Liquide, Linde & BOC. Current contract prices are in the range $225 - 250 per mcf. You will also see much higher spot prices quoted, especially by small Helium producers trying to ramp up their prospects. In reality, almost no Helium is sold at spot, and then only in the US.

In summary, assume 20 - 25 x the price of natural gas. I have no idea about separation costs, I am not an engineer."

My source for detailed helium market information was Phil Kornbluth (look him up). I am sure that nothing has changed over the last fortnight.

There were some recent questions as to why some people had executed share trades, but these did not show up on this website. I don't know the answer, but it is happening again today. I just checked with the official London Stock Exchange feed to see what was going on, and trades that are not reported here today are shown correctly there.

https://www.londonstockexchange.com/stock/PRD/predator-oil-gas-holdings-plc/company-page