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Belisce, you are right to factor in a delay because the CEO has stated there may be drift in the timescale.

Rift, Why promote the CEO as saying that the Service Provider deal 'will' be agreed within the month or the next two weeks as you now put it. You know Arthur wasn't responsible for the title of that youtube, its not his its LSE's even though the interviewer acknowledged in the interview that the timescale could slip. Are you wanting to mislead people, given this has been brought to your attention before, by only quoting part of the sentence at 5 minutes. The two bits you continually miss out are 'hopefully by the end of this month' and 'but things do take time'. Now I may have things wrong here but those qualifiers mean to me that it may be this month but it may not and there may be a stretch on the Service Provider timescale. Why am I writing this? Unfortunately some won't be bothered to view the interview and will just take your posting as gospel. The problem with that is that if the Service Agreement doesn't appear by the end of this month we on this board have to put up with a whole lot of diatribe about how Arthur promised it would be this month and hasn't delivered and it also has the potential to create a period of negative sentiment, just what we don't need anymore of right now.

Hopefully we get the Service Agreement within your timeframe but I am unsure as to whether that now exists with the Essar Mauritius dispute. It could depend on whether all the info re the dispute was in the hands of Arthur/Kola and the Service Provider when the timescale was considered and subsequently put out in the interview.

Jiving, I thought about the impact on percentages held when the lSE podcast was first aired. I always steer clear of making certain predictions in my posts so didn't include my thoughts. But Arthur did say that the Service Provider would be given a small stake in the project and I had to give some consideration to what that term actually meant or could mean. My own upper limit for 'small' was 15%, that would result in in a 6% loss of ownership in the project for each of COPL & Shoreline and 3% for Essar Mauritius. Clearly my small may not be the same as Arthurs small but it cannot be far off I think. It could indeed be less.

I would be happy for Shorecan to absorb Essar Mauritius's 3% loss if that is what it takes.

Pretty clear we are both basing our views on nothing more than intuition and experience Pijoe.

Good to have a non-argumentative discussion even if I disagree with aspects of your posts.

I hope you stick around.

Jiving/Jay in particular, but others also, its been good to read your constructive and reasoned thoughts over the last couple of days. Thanks.

For me I keep coming back to the reply from Essar setting a date for compliance with obligations under the agreement.
These guys sit on the same board. The Essar guys know how much has been spent by Shorecan in getting this to where it is now, so the question is why do they assert Shorecan has not commenced funding of the $80 million agreed cumulative funding.

Essar are focussing on this and know what the present situation is re funding and getting the first drill done. They have given until 9th October 2018 for Shorecan to remedy its alleged breaches (plural), a single drill no doubt being one of them.

(Essar) know there is no way a drill can be started in eight weeks.

Why set a date, 9th October 2018.

The timing of this either puts pressure on Shorecan to finalise funding, but my view is that that conversation could easily be had outwith of a formal dispute, or alternatively the timing is designed to negatively impact upon the imminent funding that Arthur appears to be close to finalising.

Do Essar (Rosneft) see see an opportunity. Clearly they are signalling no confidence in the Shorecan management and it is entirely conceivable that they see COPL as the weak link, who also happen to have double Essar's stake in this project. A project they could seize control of. COPL have done well to raise a war chest I think it could well be needed.

'The oil and gas industry is highly competitive, particularly as it pertains to the search for and development of, new sources of crude oil and natural gas reserves, the construction and operation of crude oil and natural gas pipelines and facilities, and the transportation and marketing of crude oil, natural gas, sulphur and other petroleum products. Competitors include major integrated oil and gas companies and numerous other independent oil and gas companies, many of which have greater financial and other resources than the Group. The oil and natural gas industry is intensely competitive and the Group must compete in all aspects of its operations with a substantial number of other companies which may have greater technical or financial resources.'

Arthurs words.

Pijoe you asked four questions and it seems no one has answered them. I was going to politely ask you to answer them yourself but I'm not sure that would be wholly constructive.

Q1. Basically you asked what service provider would drill with Shorecan when they do not have the right to drill?

Difference here between not having a right and not having a right, we await a signposted sign-off with DPR consent already in the bag and NNPC asking us to expand our plans. However I suspect what you are really saying here is that Arthur Millholland was in fact misleading investors when he stated the company are in such advanced talks with a service provider that an agreement could happen within four weeks. The only other cogent explanation, If that is not the case and Arthur has provided a truthful account , is that the Service Provider in getting to late stage is not aware of the position regarding permission to drill from its own due diligence. Nor for that matter is the Bank of Mauritius or Trafigura aware of the situation in agreeing a $30m-$50m facility two weeks ago.

Q2. a) What slice of the project return would the service provider require and what's left for COPL?

I am sure that you have looked at previous examples of service provision, have listened to what the CEO had to say in terms of deferred debt and the size of the stake to be taken by the service provider.

b) Why even deal with Copl/Shorecan?
Probably the same reason the Bak of Mauritius and Trafigura are doing so.

Q3. Copl's cash burn has been stupidly high for ages...why?

We don't know if money has been wasted but it appeared we were on the cusp of finding out. Throughout the CEO's many utterances there has always been the mantra of leveraging his teams technical expertise to punch above their weight when looking to secure oil and gas licences . Does this mean that he keeps paying the wages when they are not overly employed? Who knows. But if his leverage is the team and its ability to do the right thing at the right time in respect of off-shore drilling and field development it would be a misstep on many levels to disincentivise them when viewed against what they are worth to us shareholders in getting this project pumping oil.

Q4. How much cash is needed for costs, fund Shorecan and pay lawyers for the Essar farmout legal battle.

We know the costs for point 1 and 2 as they have been fairly consistent. Point 3 ... There is no battle and more likely than not neither will there be one even if the other sides lawyer does for once decide to turn up. Worth noting also that the NNPC and DPR have asked Shorecan's lawyers to represent them in dismissing what they call an ill-founded action. So not all payment from Shorecan and as an aside also a good sign of the relationship between the government agencies and Shorecan.

Rift, On 2nd August he stated '...our target is to get that concluded, hopefully, by the end of this month but things do take time..'

Its no good ignoring what Art say's to suit our own feelings as that is usually responsible for problems later down the line when investors self imposed timescale don't materialise. The message was that it was imminent with some leeway.

Cn100/Herts, Probably not the hardest decision you've had to make, all the best going forward guys.

Was an interesting day. Its fair to say we can as usual only do our best to understand the issues here by reference to our own broad interpretation rather than provided detail as always.

There is no doubt that Shorecan's compliance with obligations under the Essar Nigeria Shareholders Agreement have been delayed. Essar Nigeria’s allegations centre on 'the assertion that ShoreCan has not commenced funding of the $80 million agreed cumulative funding in Essar Nigeria while ShoreCan categorically denies this with factual evidence of substantial expenditure to date. ShoreCan also alleges that any delay in securing mainstream long-term project funding is due in part to the failures of Essar Mauritius to comply with its obligations under the Shareholders Agreement.'

Points:

1. Will the expenditure to date by Shorecan ($8-16m?) on such things as consultants, professionals and equipment to assess environmental impact, geophysics, geology, reservoir and production engineering, infrastructure, well design and construction, completion design, surface facilities, economics and risk assessment be classified as 'commencing funding' towards development of the field.

2.The figure they (Shorecan) have to expend under the Agreement is 'up to' a maximum of $80m. There appears to be no minimum figure specified that has to be spent.

3. The obligation seems clear that the expenditure by Shorecan was to cover work program obligations, including the costs of drilling one well under Phase-1 of the PSC. That hasn't happened and Shorecan has failed in that obligation under the Shareholder Agreement.

4. The key bit it seems is not only that it hasn't happened by why it hasn't happened. It seems to be that is because the Minister hasn't signed off on the acquisition or that the PSC extension ran out and NNPC are still dealing with a further extension or there was no funding secured. Therefore no drill.

5. The next thing to consider is why the NNPC and Ministerial consent has not taken place. That could be down to Nigerian bureaucracy or reading into the second paragraph above, funding and the delay in securing mainstream long-term project funding in particular, is the crux. That appears to land firmly on Shorecan's toes but they retort that delay is due in part to the failures of Essar Mauritius to comply with its obligations under the Shareholders Agreement.

The position appears to be a failure by Shorecan to carry out Phase 1 of the PSC and whether Essar Mauritius's alleged failings were of such sufficiency as to render the meeting of the drill timescale, which appears to be by 31st Dec 2017, impossible.

Its not COPL forcing this so its all down now to what the other party want out of this; Movement on financing, a bigger percentage or the whole lot. We cannot know yet.

Jiving great post re your interpretation of the Agreement. Pijoe your point about David v Goliath and funding is very pertinent.

BigBear good injection of balance earli

'It was two weeks ago in the interview he said within a month.'

No he actually said 'hopefully' within a month.

pijoe, You seem to miss pertinent points, is that by design? The release yesterday makes clear as did an earlier post today that the juridiction for any formal dispute rests in the English courts.

In respect of the service agreement Baserite no I don't think it will in all honesty although it could have the potential to do so.

I suspect this hasn't just come up and I also believe it wouldn't be hard for the ratification of any service agreement to be subject to an agreement being reached between Shorecan and Essar.

I'm trying to look beyond the verbals and look at what Essar really want. They certainly want more of the company but they don't want to see this pushed into the long grass by the NNPC. Given their previous history they know there's a real chance that could happen if they try to go it alone. There is a balance to be had particularly given the financial commitments already made by both companies and it would seem of mutual benefit to have this sorted amicably.

That seems reasonable to me but I long learned reasonable doesn't always mirror reality.

On the point of warming to Arthur this episode has been good to get an understanding of the platform he negotiated.

The insistence that the Shareholder Agreement be subject to English law is absolutely critical. There is no chance of a back hander being paid to a Nigerian court official to provide a perverse determination if it ever gets that far. Given that by my reckoning somewhere in the region of $16m has been expended by Shorecan on OPL226 since Sept 2016 it would indeed have to be a perverse decision for any agreement to be rescinded more so when you take into account Essar's hand in the delays.

I wondered at the time why Arthur went public and therefore on the record with the time it was taking to resolve the problems they had inherited of Essar's making. Surprised mainly becuase they were partners and because two of Essar Mauritius directors sit on the Board of Essar Nigeria, Shorecan holding the majority of seats on that board. It could be argued that Shorecan would have negotiated a different agreement had they been given proper notice at the time as to how long it was likely to take to undo such issues. So elements of the delay can be laid firmly at the feet of Essar. They will know that.

I'm actually warming to this whole 'we want more' issue now I've had time to think about it. Bodes well going on what others think we have.

Good post Jiving.

"My hunch is a deal has to be done but it will be dilutive to Shorecan." Whether that happens or not and like you I suspect it will

For me this 'disagreement' is all about renegotiating the Shareholder Agreement. Essar had sunk $60m into OPL 226 but hit rock bottom in their relationship with the government/NNPC. That resulted in their licence being rescinded but it was won back after the threat of litigation. I wonder how far up the in-tray their applications for progressing this block would be right now if they had continued to go it alone. Only they didn't want to go it alone they felt they needed a Nigerian presence hence the frankly quite astounding farm-in agreement they made with a total non-entity.

What happens when a company with potential is at an all time low, the situation is often legally taken advantage of by entrepreneurs. Step up Art and Kola. So Essar have paid $60m into OPL 226 and get 20% while Shorecan (COPL/Shoreline) have to pay in $80m but get 80%. Probably seemed a good deal to Essar at the time given the relationship they could expect going forward with the government. But and its a big, big but, the deal was based on the potential then not now. What Shorecan did, and this is where Arthurs experience shows (I'm really warming to him now), was to revisit the seismic and use techniques that were not available to Essar at the time and they demonstrated the potential for 5 billion barrels in the combined 7100' and 8000' zones. A conservative estimate of 25% being recoverable. The potential just got massive.

So now every extra 1% of the company that Essar can claw back is worth a huge amount either as a joint producer or leverage when being bought out by Shorecan.

Knew I had read the conclusion re Agamore before. Page 54 prospectus http://www.canoverseas.com/wp-content/uploads/2017/06/COPL-Prospectus-2017.pdf

On 20 December 2010, Essar Nigeria entered into a commercial agreement with Agamore Energy Limited ("Agamore") ( a private Nigerian company) styled a 'Farm In Agreement'. Under the terms of the Agreement Agamore was to receive a 37% participating interest in OPL 226 in return for the provision of certain services including facilitating obtaining all necessary governmental approvals and taking responsibility for community affairs and other matters.
The Company understands that approval was sought from the Nigerian authorities for the transfer of the interest but was declined on two occasions. Agamore did not provide the services to Essar and Essar, latterly on at least two separate occasions, wrote to Agamore seeking to resile amicably from the agreement. No response was received to these letters. Shorecan, in its due diligence before entering its sale and purchase agreement for 80% of the issued share capital of Essar Nigeria, identified that Agamore had no active presence in country, no web site presence, and no operational activity and no discernable in-country infra-structure. Shorecan and the Company formed the view that Agamore was in material breach of the Farm In Agreement and accordingly, insisted as a condition precedent to the transaction that the seller was to terminate the Farm In Agreement. In the event, the condition precedent was waived by Shorecan on the understanding that the matter of termination of Agamore be referred to the new Board of Directors (following the appointment of the Shorecan nominees). By way of written resolution the directors of Essar Nigeria resolved to write to Agamore giving formal notice of termination of the Farm In Agreement . The notice of termination was properly delivered on the 13th of March 2017. The termination letter referenced the failure to provide services and the failure to secure consent to the assignation as grounds for termination. The thirty days notice required has passed and the Farm In Agreement is now considered by Essar Nigeria, Shorecan and the Company as terminated.

BigBear plenty talked about yesterday so would have been easy to miss but Eskki did raise it in his 1000hrs post and Jiving replied. I guess it didn't get much more attention because people were either wary of being seen to deramp (which they shouldn't be) or, as in my case, I considered it a sub-level issue at this time (hence its inclusion only in the management discussion doc) with either the process of good faith discussions being employed as per the Shareholders Agreement or it later moving to litigation at which point it certainly becomes more of an issue.

BigBear the management discussions are an excellent source of material and anything in there shouldn't be considered as buried. That document is not something they have to put out and it would be worthwhile for others if they haven't done so to read previous ones that accompany the quarterlies. The issue we are discussing here was not contained in yesterdays RNS because it is not at a stage where it impacts upon the companies finances etc. There will always be disagreements in business and they don't normally come to the fore unless/until they move to litigation. Good to see that we have access to such a document.

What is realism is that this mornings discussion proves some just cannot be bothered to read what the company puts out. Not at all surprising that some are just not aware that this issue was conveyed and consumed by the market yesterday. Wake up call for some in terms of their research.

I read them as well Oilberta and my views are exactly the same as in Jivings excellent post. I would also add that Essar Mauritius know, given the problems they had with the authorities, that they are indeed on a sticky wicket in Nigeria. As are the ways with these things it will be resolved appropriately.

"I had a vague memory from a couple of years ago that Schlumberger had begun to take direct stakes in some projects."

Jiving, Pretty much what Arthur stated in his LSE interview, that the preferred service provider would be getting a small stake in the company.

No you are right we don't Rift. But Art was clear that they (COPL/Shoreline) have a 'preferred' service provider. Art has stated that Schlumberger is engaged in the block next door with service provision and that there would be key synergies (cost reduction) in using them. Additionally our partner Shoreline have a 17% stake in Schlumberger Testing & Production which provides field development services, precisely what we are after. So I am going to stick my head above the parapet with a reasonable amount of confidence and say that if they have a preferred service provider then Schlumberger is it.