Member Info for Moleinahole

Those of us who have been here long enough have seen patterns like this many, many times.

1. 20m shares represents what %?
2. What % was traded on the day of and days after the last RNS - 1bn+ shares?

As those days trades settle and work through the system the MM have to find the actual shares to balance the book. Add to that if there is no placing as the prophets of gloom peddled and they really did persuade people to go short then that will have added to the market turbulence. We have traders calling their positions as they come and go. We were pushed down from this price after the July RNS and we are back there again.

I'm sitting watching as the real news is not the hourly share price as MM and traders try to sort out the fallout from the last RNS.

Zyder step change is what is shown in all the presentations for a full field development plan.

Which one? I think all of them could either on their own or in combination. Besides why do you think debt of $40m is a problem once you have reserves booked of many multiples of that and an additional cost recovery asset of over $300m on the balance sheet?

Even in a go it alone option they would produce a CPR and bring in cheaper finance lending options mid to end of 2019.

I tend to agree Dan. To get to the point where we had options they had to reduce the existing debt and sort out the loan notes.

Part of the reason for listing the seven options is to show that there are seven paths that could be taken and none from this point in time require heavy dilution to fund in the short or even medium term. Of course it depends on some continued stable flows from the 2018 campaign which the company guidance remains that we should expect 1000 bopd by year end.

I think the velocity of any transaction may be driven at least in part by the Georgian government. I don't think they will revisit T45 or Dino - I wouldn't if it was my business I'd leave them generating revenue and paying off YA as quick as possible. The only reason I'd use equity at the moment would be to get rid of YA quicker should a transaction be imminent or possibly repay vendor debt if they requested and we couldn't pay from available cash balances. I simply can't see the field development being funded using equity its too big and the headroom is too small.

Time is really ticking on Niko now if they intend to drill in 2018 as service providers will want confirmation of booking the drilling.

1. Go it alone - Organic using revenue. Too slow and would likely cause issues with Georgian government.
2. Go it alone accelerate using EBRD funding package - $25m convertible loan has been mooted to accelerate work programs.
3. Go it alone with Resource based lending (RBL) funding package - would require CPR to be completed with possible converted to Proven reserves.
4. Go it alone with hedge fund type profit share arrangements on Niko on a larger scale.
5. JV - Farmout of % and retain operatorship (like the old Varang arrangement).
6. More complex Joint venture with 1 or more parties.
7. Outright sale

They have all 7 options in play at the moment.

RSI to address your original question. I would never rule anything out. Shah Deniz has a broad church investing in that field including I believe Russian interests. But initially no. The politics alone in Georgia would make that very difficult even for Ivanashvilli to get away with. SOCAR will be a better pairing with one or more US/European majors.

As I posted earlier the immediate importance of Georgia is as a market for Azeri gas and a transit to Europe. The recent agreements between various parties around the Caspian Sea shows you as far as energy is concerned there is convergence between countries as diverse as Russia, Iran and Azer. If you aren't going out through Ukraine then the southern route via Georgia is the transit route to Europe for Caspian oil and gas. With the pipeline in place one suspects SOCAR will be less worried about a renaissance in Georgia production.

If the international oil investment community were concerned about Georgia then the Georgian government drive to encourage countries like China to invest would look out of place. Imagine what would happen if Russia interfered with China's national interest once they have invested.

I think the reality is that Georgia is carefully balancing a number of interests due to its location it sits between east and west on a political as well as religious level.

Russian invasion is currently low down on my list of things I worry about. That is a bigger risk should we take licenses in Ukraine.

Dulwich if you use google earth to look at taribani there is nothing else apart from some farms between the location of the rail head and the border. Topographically there will never be a road to taribani state built - unless we build it. There are some farms up to about half way. A lot of the damage to the road is done by the farm machinery. Part of the fundraise in 2016 was to pay for the contractors who operate the vehicles and some funds were I seem to remember allocated for the roads in the field.

Mirzani is actually pretty close to the railhead and the better local roads. Basin Edge is even further away and out on a limb. Mtsare (and areas like Udabno are in a totally different location again).So developing block 12 as a whole involves development across a very large area and various infrastructure will be required to scale up both gas and oil.

Short term reinstating the pipeline to the railhead would be the answer for taribani. If the volume was really worth it you would probably look to go across the border and link into the export pipeline in Azer.

And on that subject you hit on one reason why Russian will look to influence Georgia other than via military intervention. They will continue to occupy the two breakaway regions (as they are doing in Moldova and Ukraine). But Georgia now hosts the Shah Deniz pipeline going through our block at the very top and there are many interests that mean that supply chain would be preserved.

Read 5th Sept 2016 RNS.

That gives you a bit of background on UD2 and the 2016 campaign on the wells we have revisited in 2018 as well as the update from 187 to 202 tcf gas.

The gas is all conventional and the company own estimate does not include the shale gas field at the top of the block. The difference between the 202tcf and the CPR numbers is that the CPR numbers from 2015 are based on the areas that have been drilled or had seismic whereas the formation runs across the whole block and they know from comparing the gas composition from data points ranging from UD2 and up at V18 all the way across to the far side of taribani close on the Azeri border.

Its likely the same play carries on north into the block Schlumberger is currently drilling.

The first mention of the work on landing a jv partner followed in the conference call just after this.

Timster - normal service to a point. However, the next news could come from left field as it is less predictable. As I've said before the news could come from work in Schlumberger block next door. A strike there could be the event that makes the penny drop finally. Block Energy are a little way out but make no mistake they are learning from what we are doing. If they think they can get 900 bopd from wells to the north of block 12 then why do people doubt we can do the same here?

Zeps - unfortunately any share that ends up the target of the prophets of gloom and doom experience this. We have been targeted for shorting and that has resulted in momentum and short/long traders joining in. The momentum generated by the news has not been sufficient to deliver a knockout blow - I would say part of the problem is the amount of shares held in safe hands and a reluctance to believe anything the company says without the proven results. We have many doubting Thomas here! However, that does not mean the emerging picture around block 12 is not good. Quite the opposite in fact.

If oil is flowing as looks increasingly likely then as a business FRR will be stable for the first time since they were generating revenue in Azer nearly 17 years ago and a going concern while they close out the deal. FRR are technical explorers. their objective is to uncover overlooked assets and prove them up and then close a deal.

If there is a deal to be made I would expect one early sign would be for YA preference shares to get settled in full as they have rights in the event of a deal to participate in any windfall. That could be what we are seeing with the 15m sells (persistently under bid). Equally as I have said before many times there remains $5m of debt in the hands of service providers who out of the goodness of their hearts as part of the restructure have deferred payment for no obvious reason for 2 years! If they want more than just payment but to participate in the asset at the point the value increases then they also may prefer equity to debt. Equally the last bit of YA preference shares might end up transferring to a friend!

We are in another difficult little period but the results due this month will at least show the state of the balance sheet and importantly the vendor debt and a very good idea as to whether we are indeed running at break even or not.

There has been no funds raised since the first week of February and Niko is due to be funded via a (non dilutive production profit share ) hedge fund unless plans change.

Whoever they are talking too seems to have changed a few things in June after the initial flows from T45 and Dino and possibly UD2.

Note:
1. A new focus on exploring deeper zones in preference to the easier/safer cash generative short term zone 9, 14 and 15.
2. A very clear switch after May/June when Niko drilling permit and funding was announced - coinciding with the communications change.
3. A pick up in seeking the licenses in Ukraine.
4. A playing down and quiet shift away from looking at the gas - no further mention of 3d seismic or other wells in 2018.

Pecten I talked to Zaza about this both in Georgia in 2017 and listenned to what he said at the various meetings.

When he used that term he did so in a more illustrative rather than a pure technical sense. It was to contrast the position before and the position after. Remember the first problem they had in 2015/16 was high pressure which actually caused them to have to replace the top parts on the well. The next problem was they had to fish debris out of the well. Before they knew what the debris was that they needed to fish out their chances of any success on the well was low hence the 10%. It was blocked. Once they knew what the debris was and could make a fishing tool the chances went up to 90% - high - in other words he went from low confidence to high confidence. High that they could get the debris out and test the well. I personally never read the 90%/10% as a technical chance of success of the well producing flowing gas.

What was the chances of the well finding gas shows? 100% as they had full well logs with the shows on both ud1 and ud2 going down 5000m.

The remaining challenge on this gas is how tight is it in the formation and will it come out? Given in the US they get it out of pretty tight formations I would think the data has now been gathered to confirm the soviet well logs for someone else to have a good long hard think about that problem before they commission a 3d seismic campaign over the prospect and or drill a new well.

If one or both of them are interested in the gas they are not waiting for anything on that except perhaps having an eye on her Schlumberger are progressing.

The additional testing on the oil has no time set. So I suppose you could sell and try and get back in but you will be left sweating so each to their own as the nature of the additional tests is not defined.

The longer it goes without Niko news the better I think. Backstop for now is 30th sept results for H1 accounts.

Extracting oil from the minor fields in the block and using the free carry to fund Moldova and Ukraine. That would be the strategy if they relinquish operatorship. The majors may invest a bit to start with and then complete a larger transaction only the will tell. It depends how far we are down the models. As I've said before if Schlumberger strike in the deeper zones in the adjacent block then that may accelerate things nicely.

Mcadder EVERYONE doubted the reserves in the Kura basin especially the ministry of energy. At least one of them has been engaged since 2016. We know that. And we head the same skepticism that they existed then from negativeers.

Only long term shareholders of the company and the board have believed there were significant resources there and the series of campaigns over the years that sunk vast sums of money into the fields without material results only reinforced the view that there was nothing commercial there.

The most important change was around 2016/170when the state agencies changed from resource deniers to resource promoters but interestingly promoting the blocks around block 12 and not block 12. They still have not done that.

The most important event in Georgia in this period is the presidential election. The current encumbant has met with Frontera. The timing of the next news is uncertain. Could be soon. Could be a bit further out. Part of me hopes the shorters return and get a nasty shock one morning with a leveraged trade they can't close.

Fortunately the company neither care nor know who Geoff is and neither do I.

Has he visited the company, visited block 12 or produced a research note?

If not he probably knows less than many people on this board.

Zib I think the main part of tarbani has 3d seismic. We have 2d across alot of there parts. They also have all the data gathered from the hundreds of soviet wells as well as the Frontera drilled wells. There is also some state agency data. Some areas are better mapped than others. Mtsare needs 3d to better delineate and position for a 36 well campaign.

Steve was very proud of the integrated models they have construxted and I'm sure this data has been available since 2016. Drilling just confirms what the seismic modelling shows and allows them to gain more information. I think they have a pretty good idea what is under block 12. The problem has always been the geology, politics and lack of funds.

Misterpositive - the bigger issue may be that the testing is ongoing so if you are going to spend money to update it then whilst they may have started the numbers will be more accurate if they wait. It may also be more accurate still if they went lower in Niko below zone 19 - say to zone 25 and then it would be a much more complete CPR. The deals with the majors may also be playing into the numbers as their investment in the export pipeline would be one of the key ingredients in going from Possible to Proven reserves. Production could also start to bring some of the cost recovery pool back onto the balance sheet. So I'm looking forward to the results this month as I think they could be very interesting for a change.

The accounts will give you a clue as to what Dino and T45 were doing in may and june and we may get commentary with the accounts. As I say its not impossible - I just think unlikely on a CPR at the moment.

Probably not.

The costs were $300k for the update. Zaza has talked about this and took the view last year that while cash was tight it was best tp invest the cash we had to prove the field by drilling and then revisit the CPR. Steve talked about the CPR in the 2017 conference call and said reserves in future would be booked by quarter for the production profile. So there is an outside chance they could have been updating the CPR in H2 and deliver a surprise with the results in 3 weeks time but the extended tests and NDA may make that difficult. It is however annoying we have had to spend that amount on lawyers and lobbying over the past year but probably money well spent in the end.

If you are asking do I think there will be a bidding war.

Unlikely as I think there are bigger regional considerations here and I think we want the best deal to progress the block quickly. That would align Frontera with the government and the interested parties. I think there is a mutually beneficial deal being worked for everyone.

I think both options are possible.

For the oil in taribani I think it is not big enough to warrant 2 majors. So if they are still following the strategy I posted the other day then I think they were looking for a partner for taribani with the option of basin edge.

I think it's when you turn to the gas that you get the 2 majors. It depends how well modelled the data is. If there really is large accumulations then 2 or more companies would be no surprise. The block is also large enough if you wanted to split out sat mtsare and Taribani deep gas prospects. The next phase on the gas was 3d seismic and then next well before the 36 well field development plan on mtsare. Taribani deep gas has never been proerly drilled. They are inferring garedji under taribani from what they see in the mtsare wells.

So for me gas is still early days but enough has been shown that it could be analogous with Shah Deniz. The fun would really start if Schlumberger in the adjacent block further prove the area for gas.

So I think it's possible it's one for oil and one for gas. Equally it could be one for oil and both for gas.