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Blissful
Thank you for publishing details of the link to the Utah Geological Survey article about the Paradox Basin. I am sure that many members of this forum will find it a helpful read.
Thebhoys
I take a strong exception to your both doubting my integrity and to your persistent failure to face up anything other than positives when commenting on ZPHR. As Grahamesme points out 'ifs and buts are important'. For the record, have 1,920,000 shares, bought in at a bit over 3p and have an average cost of just under 4.5 p as a result of topping up on several occasions. I also have better things to do with my retirement than waste it commenting on shares that I do not own.
As regards evidence of potential issues I refer to the following sources:
Utah's Northern Paradox Basin unconventional oil play (Utah Geological Survey).
As Setanta 1 helpfully points out this is a must read report for new investors here as it explains the difficulties experienced exploring for oil/ gas and extacting it in the PB. It is also very clear about the context in which they helped to fund the current ZPHR well. Early on the report notes ' the drilling history of the Cane Creek play has been fraught with challenges and disappointments'. The report notes that using new seismic data and horizontal well technology Fidelity initiated a
major drilling program ' but the results of that programme were not up to par' (see also below).
Overall the report points to the need for further research given the problems encountered in exploiting what is known to be a major hydrocarbons resource.
Information about the Paradox Basin -Nationsl Gas Intellegence
This site gives more information about the Fidelity debacle. Fidelity's 2014 budget allocated $140m mostly to drilling an additional 17 appraisal and development wells. The site comments 'But the results were not up to par'. The CEO of Fidelity commented on the need for fracking and noted that wells that had been producing 500-800 b/d had seen output fall to 300-500b/d.
On a positive note I assume that our 3D seismic is an improvement on that used by Fidelity and that we are of course using fracking. The better technology is helpful but does not by itself guarantee that problems will not occur from time to time.
Results from the well so far do point to multiple stacks of hydrocarbons of which from memory 8 out of 17 were thought to be exploitable. Similarly, better technology and sorting out leases may lower costs but Fidelity's budget does suggest that a 22 well programme will either raise significant funding issues or take a long time to implement.
Thebhoys
I agree with you that CH has said that he wants to fund opening up our Canyon Creek lease by funding it from the profits made from non operated assets. That said, the modest drilling programme so far announced for next year suggests that unless something changes this could be quite a slow process. We may hopefully be able to grow non operated assets by persuading sellers to accept shares in ZPHR in exchange but otherwise growing non operated assets still requires funding.
ZPHR is by far my largest holding and I would not be invested here if I did not believe that it has very good prospects and is likely to grow on value. However, sadly there is no such thing as a share that is absolutely risk free and it is always important to identify risks and decide whether or not they are acceptable.
In the case of ZPHR I think the risks are acceptable at the moment. The two key risks are the prices of oil and gas and the technical risks involved in exploration and production.
As I have already said on this BB all that CH can do about commodity prices is either hedge future output or sell the company whilst prices are high. Fortunately I do not think that oil and gas prices are a big issue at the moment, they are simply a watch list item to be aware of.
You asked for evidence about technical risks. If you Google Paradox Basin there are quite a few entries about the geology and the history of exploring for and producing oil and gas in the PB. It is particularly worth reading 'Utahs emerging Northern Paradox Basin unconventional oil play' (Utah Geological Survey) and 'information about the Paradox Basin -Natural Gas Intelligence'. These sites record a long history of exploration/ production in the PB including exploration expenditure that was a commercial disaster and wells where output fell suddenly. It is probably this experience and the fall in activity when prices fell in 2015 that prompted the public subsidy for the research element of our well. My take on the position is that all concerned hope that modern 3D survey techniques and fracking will prove to be a game changer in this respect. ZPHR is of course using modern survey techniques and fracking. Consequently, technical problems should be less than in the past but I have not seen any claims that they have been completely eliminated. As you know, I think that if we only have a few wells potential technical problems are a non trivial risk. Hence my preference for a rapid build up in the number of wells,so that the odd technical problem with a well gets averaged out across a large output from multiple wells.
Setanta 1
In an ideal world I would like to see the company larger and the share price significantly higher before ZPHR gets sold. If that were to happen I would also like to keep track of what CH does next with a view to investing on the basis of following good management.
I am not a pessimist but long experience of AIM and oil/mineral exploration companies in particular has made me very aware of some obvious risk factors e.g. country risk (Ascent), delays (TXP), and very dilutive fund raising (UJO). Fortunately country risk is not an issue with ZPHR and so far CH has under promised, over delivered and met date targets- a considerable achievement.
That said, the price of oil is beyond ZPHR's control except in so far as they can hedge future output or sell out whilst oil prices are high. Similarly good management can minimize technical problems but cannot always avoid them. It does not always work but I do try to look at the strengths, weaknesses, opportunities and threats re the companies in which I invest.
hedging future output or selling out at the right moment
Papaduke.
I enjoyed reading your very positive posting which I mostly agree with.
Clearly there is a finance issue to deal with. If we rely on internal cash flow to fund future wells in the Paradox Basin progress will be very slow even if the prices of oil and gas remain high as at present. So yes, we either need a fund raising (with the risk of a price fall as those in the know sell shares that they can buy back at a discount in the placing) or a joint venture. We know that CH does not want to do a placing at a discount but a placing at a full price with either a rigged share price before hand or warrants attached amounts to the same thing and is all to common on AIM. A joint venture is also likely to involve some dilution as the partner(s) will want an incentive to get involved.
That said if modest dilution is needed to grow quickly then so be it. I think it is important that we develop the Paradox lease quickly. There may be over a billion BOE in the ground but the hydrocarbon deposits are immature and technically difficult to exploit. Some time ago CH told us that without fracking only about 8% of the hydrocarbons could be recovered and from memory, that with fracking about 12.5% could be recovered. Thankfully sorting out the number of leases will have cut the capital cost of opening up the Paradox. Two key points follow. Firstly, despite not having a billion plus BOE the CP report should show that we can ultimately hope to recover upwards of 140 BOE. Secondly, other operators in the Paradox Basin have had a long history of technical problems causing production disruptions. Whilst we will have the benefit of better technology we probably remain very likely to face such problems sooner or later. With a lot of wells production delays will even out and not cause big cash flow fluctuations. However, with only a few wells production disruptions are very capably of having a disproportionate impact on cash flow. Hence my preference for rapid development provided we don't get too much dilution or corners being cut.
Thank you Monkey_Junkey for your helpful correction to part of my earlier posting. One of the positive features of this BB is the helpful spreading of knowledge and experience. I find this more useful than the endless infighting on some other BB's that I can think of.
McCangts
Thank you for the reminder about FinnCap and the presentation to analysts. Clearly if new 'inside' information is to be released to analysts, TXP will need to also provide the information to shareholders via an RNS. If so, then as you say, we should hear something very shortly.
I have three reasons for suspecting that Kracken bill will significantly more than $1.5-2 million.
1. My recollection is that the Royston exploration well was optimized for gas exploration - hence the very modest oil flow that reached the surface via an over large well bore.
2. Given the above I assume that the Royston drill will get converted to a gas producing well and
that even if the location is optimal for exploring Kracken a well designed to bring oil to the
surface in commercial quantities will be needed.
2. Depending on what the geologists tell us the Royston well may not be the optimal location from
which to explore Kracken.
55018
The discovery of pool of oilmat the bottom of the Royston drill is clearly good news and no doubt we will need to do more work to establish its likely size. I have seen references to 100million barrels of oil on this board but the estimate is not mentioned in the RNS or the recent Proactive Investors interview with Paul so I have no idea how reliable it is. I presume that at some point TSX will need to follow up this discovery with more exploration.
Whether or not this discovery de-risks Kraken I do not know. On the plus side the deep drilling that Kracken needs will be a lot cheaper to do that if a similar drill were to be done at sea. However, despite all the successful maritime drills into the relevant geological formation we also need to be aware that the number of non commercial wells drilled is also quite large. In short, having a bit of the same geological formation within our license areas is not a cast iron guarantee that our bit will contain oil. We have to hope that all the usual pre drilling exploration procedures soon give us a clearer picture re the realistic chances of success at Kracken. In the meantime we have plenty of low risk exploration leads to follow up on.
Not withstanding a modest dip on profit taking I like the steady way in which TXP's share price rises in response to good news. I first invested late last year and made the mistake of adding too much to my investment as the share price rose. As a result it has taken until the recent operational update for me to be in profit again.
All too often on AIM both good and bad news leads to a price spike up or down during which it is impossible to deal, whereas the market for TXP's shares seems more orderly. We have had a frustrating year in many respects but progress on the ground does now appear to be real and there is a genuine prospect of positive news for some time to come. What I want to see in the next few operational updates is a steady move towards production and a consolidation of the results from earlier exploration. I think long term this will do more for the share price than making a start on big headline grabbing projects such as Kracken , where a success would be stunning but may have a low probability of being achieved.
'IOS' should be 'is' - apologies for the typing error.
Setanta 1 and Theboys
I agree with both of you that simplitying the lease structure makes the company more attractive to a potential buyer or investor and that this iOS likely to be better than the go it alone self funding route. I also agree that in terms of quick capital appreciation the former is the quickest route and the latter (a partner) might be as almost as good provided excessive dilution is avoided. The advantage of putting down a marker about the next steps in a self funded Paradox development is that it makes clear that we do have an alternative. It also implies that we will not be running out of news and prospects once production figures from Paradox are known and the CP resource update is completed.
Agreed. I regard the formation of the WSN as a useful bit of tidying up that will be helpful going forward either on our own or with potential partners. However, i thought the brief details of how the drilling programme at Paradox will develop and be funded going forward was of more immediate importance.
One possibility has always been that interest in the share will sag a bit post production figures from our well, unless of course , shareholders know a bit more about what is coming next. We all probably buy into the proposition that with proof of concept achieved, a partner/new investor will hopefully soon be found that will help us to exploit the WSN quickly. However, it is good to know that we have steps being taken to progress a self funded repeat of what has already been achieved. Clearly the second of these options will help the share price rise but on its own is probably unlikely to get us to the 20-40p range for a while yet. What it does do is confirm yet again that CH is doing the right things well and adding to our credibility with both regulators and potential partners.
Thebhoys
Like most people I have better things to do with my life than wasting my time posting on bulletin boards about companies that I do not hold shares in. For the record I have just over 1.9 million shares, my largest holding by a big margin. Like any shareholder I do have doubts and/ queries from time to time but in this instance they are not sufficient to dent my faith in the company as a long term investment. The odd doubt/question is healthy and helps to ensure that BB's are useful and are not dominated by rampers, de-rampers and endless in fighting between posters (see Union Jack and Reabold as examples of the latter form of self destruction on BB's).
On rechecking the 11 February RNS I note that the 780 barrels per day was said to be an initial rate so the lateral may last a bit longer than I implied as the daily rate will presumably decline over time.
Looking back at past RNS also shows just how good the company s at communicating quickly and frequently with shareholders. The steady flow of news is encouraging when I think of shares I have held in companies that stay silent for months at a time.
I have just had a look at the 11 February RNS that set out the investment case for the lateral. It talks about ultimately recovering 550,000 barrels of oil and 1.8 billion cubic feet of gas and expresses this in terms of 780 barrels of oil equivalent per day. Clearly a relatively short lived lateral. Though closer to the upper end of today's estimates it should be recalled that the original investment appraisal was based on a price of $55 per barrel of oil and that prices are now higher. It will be interesting to see CH's next video prentation re today's RNS.
Papaduke
Interested to hear your 45 day estimate for testing. I seem to recall the same figure but could not find it when I looked for it. I am not an expert on oil wells but assume that over time more laterals can be run from the same drill and as pointed out the company has talked about doing a lot of wells in the Paradox.
We have been told already that the investment case in the Paradox is based on the recovery of 7-12.5 per cent of the oil in place. Today's RNS talks about 1.2-4.5 million barrels of oil equivalent in place and hence within reach of the lateral. Consequently, recoverable oil from this lateral presumably ranges between a low estimate of about 84,000- 150,000 and a high estimate of 315,000- 662,500 barrels of oil equivalent. I have no idea of the extraction rate and duration but my initial impression is that we are probably talking about a long term position of a few hundred barrels a day at best. Though not the instant 'wall of money' that you sometimes see talked about re oil companies it is a useful cash positive start. I
I am encouraged by the lack of hype and the straightforward publication of information about the range of possible outcomes based on the information available to date.
I agree with you Sentetal about the free cash route being too slow. I also suspect that at the moment a buy out might not do a lot for the share price and would not be what most long term investors want. If we remain a quoted company and liquidity is to be improved we need institutional investors who will mix keeping a holding and letting the rest be placed on the market over a decent timescale. The danger then is postings telling us that the price is being held down by institutional sellers! Ultimately it all comes down to our faith in what seems to be a good management team to create value for us either by skillful drilling or some very good acquisition deals.
An interesting analysis Setental with which I mostly agree. The lack of response to news also probably reflects what has happened so far as being expected of a well run company and hence being already in the share price. Given the very mixed past history of the Paradox a lot of both investors and potential partners are probably waiting to see whether good management and modern technology are sufficient to avoid past disappointments here. I suspect that the next modest but sustained rise in the share price price will come when the oil is seen to flow. Beyond that such investors will want to see that extraction remains trouble free and that operating with low recovery rates is a viable commercial proposition.
As regards somebody buying the business your argument also suggests that the share price will adjust beforehand to whatever a handfull of large shareholders decide is an acceptable price for the business.
Another way of looking at it is if the status quo re shareholders is to be maintained and partners are not involved then the business can only grow by spending free cash flow directly or indirectly on more wells. A scenario that probably implies a slower share price rise than many long term holders currently hope for. Alternatively, share placings will increase the liquidity of the shares but will only raise the long term share price if, as we hope and expect the management make good use of the money and the price of oil is favourable.
What we do not want is a billion dollar company where the market capitalisation reflects having a lot of shares rather than a high share price.