RE: DIvidend and Next Update...13 May 2023 07:22
The clue to the up front funding for the 803 well is in the tender in that this is a 'turnkey' well.
If like me you have come across this term for the first time then it is a type of financing arrangement for the drilling of a wellbore that places considerable risk and potential reward on the drilling contractor. Under such an arrangement, the drilling contractor assumes full responsibility for the well to some predetermined milestone such as the successful running of logs at the end of the well, the successful cementing of casing in the well or even the completion of the well. Until this milestone is reached, the operator owes nothing to the contractor. The contractor bears all risk of trouble in the well, and in extreme cases, may have to abandon the well entirely and start over. In return for assuming such risk, the price of the well is usually a little higher than the well would cost if relatively trouble free. Therefore, if the contractor succeeds in drilling a trouble-free well, the fee added as contingency becomes profit. Some operators, however, have been required by regulatory agencies to remedy problem wells, such as blowouts, if the turnkey contractor does not. (courtesy of google :-))
Although Casp don't have to shell out any money up front once the well is completed irrespective of whether it flows or not the £5m has to be paid. How you interpret this depends on whether you're a glass half full or half empty person.
The glass half empty view is Casp are short on cash, 802 is a dud and they have gone down this route hoping to strike it lucky. If 803 is a dud they will look to pay the contractor from the revenue from shallow production and CE contract. End result no dividend for a few quarters and no money to pend on correction work or new shallow wells.
The glass half full view is that 802 is either flowing or showing encouraging signs that they have decided to drill 803. My understanding is that there is no contactual reason for them to have to drill 803. Casp are going to concentrate on 802 and shallow wells and have brought in a contractor for 803 well as they consider high chance of finding oil.
I believe it is the glass half full scenario which will play out.
ATB and as usual DYOR
Sign In
Follow the stocks
