The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
https://www.telegraph.co.uk/investing/shares/telegraph-questor-share-tip-buy-barclays/
Never heard of them before....again nicked from III....take with a pinch of salt "We believe an oil price shock is looming as early as 2019 as several elements combine to form a ‘perfect storm’," said Westbeck Capital. It predicts $100 crude in short order, with $150 coming into sight as the world faces a crunch all too reminiscent of July 2008. The fund warns that the investment collapse since 2014 is about to deliver its inevitable sting. Declining fields are not being replaced. Output from conventional projects has until now been rising but the cycle will turn this year and production will fall precipitously by 1.5m b/d in 2019. By then global spare capacity will be down to a lethally thin 1pc. US shale cannot plug the full gap. "The mantra after 2014 of 'lower for longer' has lulled oil analysts into a torpor," it said
Definitely last bit :) Hurricane is a well managed and well-funded company. But with a concept that still needs to be proven in anger, it is hard to justify an enterprise value 7 times that of Rockhopper. Interestingly, Rockhopper is barely above the market valuation that it closed at on the day of the discovery (equivalent market value then is at a share price of 36p today). At its height, when Rockhopper surged to 500p plus after the successful Sea Lion flow test, it reached a market value of £1000m, which in today’s prices would be about 240p per share. Since then, we have fully appraised Sea Lion and discovered Isobel, very little of which is currently priced in. If Hurricane proves a consistent and acceptable return from the Lancaster EPS then it could one day be a multiple of today’s price due to the size of the potential resource base. But for me it has too many echoes of Excite Energy, which had the Bentley heavy oil find that was successfully flow tested but simply found no takers (though, no doubt, poor management and terrible industry conditions did not help). In my view, Rockhopper offers far better value than Hurricane and will be a multi-bagger from here by the end of this year. 100p by December 2018 might prove too conservative as market confidence returns.
Last bit Conclusion: all other things being equal 1 barrel of oil in the Falklands generates the same after-tax profit as 2 barrels in the UK North Sea. Of course, the all-other-things-equal is an important qualification because this does not take account of relative OPEX per barrel, the likely 5-10% discount of Sea Lion crude to Brent and tax reliefs available in each jurisdiction. Reservoir producibility and complexity Sealion has been fully appraised and flow-tested, and is a relatively straightforward reservoir from an engineering design perspective; for example, Premier have likened it to the Catcher oil field. Lancaster while potentially a very large resource base would be the first development of a naturally fractured basement reservoir in the North Sea. Lancaster had a successful initial flow-test but, because of the nature of the reservoir, it requires prolonged production to demonstrate its sustainability. From the Schlumberger website: “Natural fractures and faults are the primary pathways for hydrocarbon migration and production in many reservoirs. Unfortunately, they can also act as channels for water breakthrough and gas coning.” Hurricane’s EPS starting in H1 2019 will gather invaluable data, refine the engineering approach and demonstrate the ability to achieve an acceptable return on capital. Comparing the two, Sealion seems much the simpler of the two reservoirs to develop and, while, Lancaster is attractive (not least because of its proximity to North Sea infrastructure) the fact that an EPS is required to demonstrate an acceptable rate of return must represent a material risk to investors. Logistics and infrastructure Here Lancaster has the advantage being close to North Sea infrastructure and end-markets. If Hurricane can prove the concept through the Lancaster EPS then that engineering design can be repeated for the FFD of Lancaster and the numerous other naturally fractured oil fields in the portfolio. Key risks With Rockhopper the key risk has been that Premier Oil would not sanction the project or would continue to delay it. That risk is surely receding with the oil price steady at over $75 and Premier desperately needing to replace production in the medium-term. Nothing in the Premier portfolio comes close to the quality and potential of Sealion (Zama is still unproven, Premier is not the operator there and fiscal terms are not nearly as attractive). However, Sea Lion FID is still subject to Premier securing funding, of which UK Export Finance remains a key component. I expect we will hear more on this in the coming weeks. After Sealion FID, there will, of course, be the usual project execution risks affecting budget and timelines. No doubt, we will also continue to face the periodic sabre-rattling from Argentina. With Hurricane there is still the risk that extracting oil from naturally fractured basement reservoirs in the UK North Sea does not prove to be commercially viable. That risk will
Rockhopper has $51m of cash and no debt. It has a market value of about £156m and enterprise value (i.e. less cash) of about £118m. Rockhopper is required to pay its share of costs prior to FID. Thereafter, it is fully funded to first oil by Premier Oil PLC with a phase 1 development carry of $337m and $750m standby loan from Premier. Rockhopper has production assets in Italy and Egypt, which broadly cover general and administration expenses (but they are ignored for the purposes of this overview). Hurricane has $360m of cash and, as part of the equity raising in July 2017, issued a convertible bond for $230m (coupon rate: 7.5%). Hurricane has a market value of £925m and an estimated enterprise value (i.e. less cash plus debt) of £829m. Therefore, Hurricane has an enterprise value that is 7 times that of Rockhopper. Fiscal terms Fiscal terms in the Falklands are much better than the UK North Sea. Each barrel of oil extracted in the Falklands will attract a royalty of 9% and 26% corporation tax. Each barrel of oil in the North Sea attracts a supplementary charge on ring-fenced profit of 32% plus corporation tax on ring-fenced profit at 30% therefore a total of 62% (before any reliefs). By way of example, assume Brent is $100 a barrel. As a simplification, we assume no OPEX and no discount to Brent for Sea Lion crude. Falklands tax per barrel: $100 - $9 (royalty) = $91 pre-tax profit. Deducting corporation tax at 26% = $67 post-tax profit. North Sea tax per barrel: $100 - $62 (supplementary charge plus corp tax) = $38 post-tax profit. Conclusion: all other things being equal 1 barrel of oil in the Falklands generates the same after-tax profit as 2 barrels in the UK North Sea. Of course, the all-other-things-equal is an important qualification because this does not take account of relative OPEX per barrel, the likely 5-10% discount of Sea Lion crude to Brent and tax reliefs available in each jurisdiction. Reservoir producibility and complexity Sealion has been fully appraised and flow-tested, and is a relatively straightforward reservoir from an engineering design perspective; for example, Premier have likened it to the Catcher oil field. Lancaster while potentially a very large resource base would be the first development of a naturally fractured basement reservoir in the North Sea. Lancaster had a successful initial flow-test but, because of the nature of the reservoir, it requires prolonged production to demonstrate its sustainability. From the Schlumberger website: “Natural fractures and faults are the primary pathways for hydrocarbon migration and production in many reservoirs. Unfortunately, they can also act as channels for water breakthrough and gas coning.” Hurricane’s EPS starting in H1 2019 will gather invaluable data, refine the engineering approach and demonstrate the ability to achieve an acceptable return on capital. Comparing the two, Sealion seems much the simpler of the two reser
Rockhopper Exploration PLC v Hurricane Energy PLC While such comparisons are not always helpful given different geologies, fiscal regimes, and risks they can nevertheless serve as a useful guide to develop a sense of relative value. Key Assets Rockhopper has 40% plus working interest in Sea Lion in the Falkland Islands. This includes a 40% working interest in phase 1 that will recover 220mbbls of reserves gross (88mbbls net to Rockhopper). Further, Rockhopper has between a 40% and 64% share of phase 2 that will recover 300mbbls gross (120-192mbbls net to Rockhopper). Phase 3 (Isobel and Elaine), while it is potentially as large again as phases 1 and 2 put together, needs to be satisfactorily appraised before any firm estimates can be made of reserves or contingent resources. First oil for Sea Lion is anticipated 3.5 years from Final Investment Decision (FID); FID is targeted for end-2018 with financial close in H1 2019. Hurricane Energy potentially has a wide resource base that comprises naturally fractured reservoirs including a 100% interest in the Lancaster, Halifax and Lincoln discoveries in the UK North Sea. Lancaster, which is by far the most important in the near-term, has 2P reserves of 37.3mbbls and 2C resources of 486.1mbbls. Across Hurricane’s full portfolio, it may have upwards of 2,600mbbls of recoverable oil. First oil is scheduled for H1 2019. This will be a two-well tie back known as the Lancaster Early Production system (EPS), which is essentially a large-scale pilot for a wider development of the oil field. The EPS will gather data to incorporate into a full field development (FFD) plan and aim to demonstrate “an acceptable return on invested capital” (see Hurricane’s recent results and website for more details). This will be the first production from a naturally fractured basement reservoir in the UK North Sea. Enterprise value and financial position Rockhopper has $51m of cash and no debt. It has a market value of about £156m and enterprise value (i.e. less cash) of about £118m. Rockhopper is required to pay its share of costs prior to FID. Thereafter, it is fully funded to first oil by Premier Oil PLC with a phase 1 development carry of $337m and $750m standby loan from Premier. Rockhopper has production assets in Italy and Egypt, which broadly cover general and administration expenses (but they are ignored for the purposes of this overview). Hurricane has $360m of cash and, as part of the equity raising in July 2017, issued a convertible bond for $230m (coupon rate: 7.5%). Hurricane has a market value of £925m and an estimated enterprise value (i.e. less cash plus debt) of £829m. Therefore, Hurricane has an enterprise value that is 7 times that of Rockhopper. Fiscal terms Fiscal terms in the Falklands are much better than the UK North Sea. Each barrel of oil extracted in the Falklands will attract a royalty of 9% and 26% corporation tax. Each barrel of oil in the Nort
I agree...this is a 3 yr turnaround now. Dividend will remain frozen ( just like rdsb, gsk etc...quite normal in tough times), when interest rates rise, Bond yields move up then the pension starts to get eaten away in addition to the extra payments ...the company is still making profit ( indeed just increased it) but is very much unloved. It was similar 3 yrs ago when BP hit 350 and rest hit 1350.....they too were going out of business.......look at them now. In 24 months when this starts to turn after efficiency drives kick in then the increase in eps, profit etc will look astonishing.......you just need the patience and stomach for the next couple yrs to put up with the mongers of doom and crap press.....but turn it will
Page 6 of the earning transcript call ..Du Plessis on record as saying the board intends to hold the dividend at 15.4p for 2 financial years due to increase investment plans......could be worse....makes it harder ( not impossible) to row back from.....happy with that....topping up next week Transcript worth a read (64 pages on iPad)
I think the market will be reassured. The retained dividend, smaller pension deficit with an agreed plan ( when rates rise this will accelerate the deficit reduction) and profit up.......the worst is behind us.....slow climb north from here :)
RNS showing 3 large director sells- Come 132k, Hanifan 89 k and Hodges 89k to cover statutory withholding liabilities for Tax....really in mid May? Just before results and ex dividend date? All received under the long term incentive plan so no requirement to sell. I am long here....but a smells a rat!