Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Peteb rollocks indeed :-) On the Sealion being encumbered I was not saying it won't be developed by any means, I was merely saying that the current valuation attributed to it in the Fogl/Rkh share price is very low due to how it is perceived in the market. Pmo have made a complete @rse of Solan and it has had a negative knock on effect in terms of how Sealion is valued in Rkh's present day share price. On the Sealion development side I think in terms of today's industry the €1.8 billion estimated pre-production Capex is well out of date. This number is from 2014 and if ran with today's rates I think could easily be 25% lower. I will look at Ophir's rns for details on the lease and toll approach, I think PMO have already said they will look at leasing the subsea production system (SPS) which was never done traditionally. Another point I haven't seen discussed in terms of the Sealion development is that PMO have said they will not do a traditional engineering house FEED followed by EPCI/T&I awards to contractors. They have said they will bring on the installation and SPS contractors to do the FEED and then execute the project (post FID). I see benefits from this approach in that it has to shorten the overall project timescale in that complex post feed bid documents don't have to be generated, contractors bids would be less qualified, time for post feed contractor tender, negotiate and award exercise is removed, contractors detailed design time is lessened as they don't have to validate the FEED of a third party given they did FEED. Furthermore this approach should allow PMO to lock rates (with mechanisms to vary) from the contractors at the time of FEED award. If FEED is awarded in Q1 2016 and oil price increases later in 2016 as I for one hope then they would effectively be locking in contractors to execute a contract in a few years time but at the very bottom of the cost cycle. Contrast that to the traditional approach of award engineering house FEED in 2016 and then going out to tender for the SPS and installation contractor in say Q1/Q2 2017. It could prove to be a master stroke Final point at current published estimate €1.8b for Sealion gets 160m barrels, if Issy comes in as hoped development cost should be lower and recoverable barrels for a phase 1 development higher.
Peteb, just lost a long reply with a computer glitch so here is a shorter one. - Q3 is July to Sep...only being pedantic to point out if you are trying to tie transits to this - No way the rig would be off hire for transits, or waiting on weather given its a day rate. - Off hire would only result from the rig not being able to drill, my guess is BOP issues or similar - Don't remember seeing the neutral cash position statement from Rkh regarding Fogl - Agree on the Rkh being a done deal given the institutional ownership. - Think both shares are being manipulated down at the moment. One obvious example can be seen by looking at the closing auction each day, multiple sell orders well below the Bid appear each day in an attempt to lower the closing price. Defensive buy orders appear on the Bid in response which are somewhat reducing the effectiveness of this tactic. - Based on logic and Rkh ratification of the merger, if on the day of the Fogl vote, the Fogl share price was even at a slight discount to the offer then it should be voted through. This fact should offer some protection to the downside. I did say "based on logic" so I don't take this for granted. - very much agreed on the Fogl shareprice not going to zero, post Monday I think we will stay within a 10% ratio of the Rkh offer until Issy news. - I don't think it is fair to say oil in the ground is valued at zero at the moment. A lot of people argue Issy will have little effect on the SP of either Rkh or Fogl given Sealion (an already discovered asset) is worth so little in terms of value to either party. What this misses IMO is that Sealion is an encumbered asset with the elephant in the room being PMO and their development carry to Rkh. PMO's share of Sealion is encumbered by the fact any buyer would have to stump up Rkh's development carry. Rkh would only sell their share at development carry value plus a premium for oil, no one would pay this as they don't see PMO honouring the carry. Fogl's share of Sealion is encumbered due to the Rkh-PMO dynamic. Issy would be different in that is totally unencumbered. It should be valued at a multiple of oil in the ground. With this current drill if other targets come in, OWC is deep and reservoir characteristics plus pressures are favourable as expected from the original well then it has to be worth a lot. The better the result no only the more oil in place but the lower the development cost should be per barrel and hence the more attractive it would be.
Thanks Peteb, I look forward to hearing what your geo mate or anyone else has to offer. Another snippet I have from the last 3 Ocean Rig quarterly results is: Eirk Raude Utilisation 2015: Q1 100% Q2 90% Q3 82.9% I would guess the Q2 and Q3 numbers are Ocean Rigs view on/provision for off hire duration during these periods. It would be interesting to know if these numbers tie with those of the well operators (Premier and Noble). From field development experience I would guess the operators are claiming higher off-hire durations and final number would be agreed between both parties later in the day. I mention this because of its potential effect on FOGL's cash position. For example the Noble loan was "up to a limit of $15m" which indicates the number is tied to final settlement with Ocean Rig. Given the merger, the cash position is less relevant, but the point is while it looks very bad at this moment with a favourable settlement with Ocean Rig and some pay outs on insurance claims the cash position could have been much improved in 6 months time. I would stress a very big COULD in the previous sentence. Regarding share price in the last few days it decoupled from Rkh's and offered a discount to Rkh's in terms of the post merger share split. With Rkh's ratification of the merger on Monday, assuming it is successful then surely we will not decouple from Rkh's to the downside again. Given Rkh's shareprice has been falling this may not be too reassuring but Rkh are cash rich and I can't see their price going below cash, crazy it would be if it even approached it. Roundabout point after Monday the chance of the doom mongers mantra of Fogl going to zero has to be nil. In the event of an Izzy blockbuster then we may well decouple from Rkh to the upside on the basis that the market foresees that in that event a better offer than Rkh's may be forthcoming.
One interesting thing I haven't seen mentioned, is the new data presented by Rockhopper on slide 7 of their Merger with FOGL presentation. I think this was Rockhopper hinting just how good Isobel Deep could be. The figure on the right of this slide shows the sand thickness in the greater Sealion complex including satellites and in Isobel Deep (ID). The thicknesses shown for ID are for that prospect alone and don't include any sands from the other stacked prospects (Isobel, Elaine etc) located in this part of the complex. I can tell this by comparing the shape of the sand body shown to the prospect stacks shown on slide 8 and 9 of this presentation. This is further corroborated by the fact as per RNS's the sand thickness expected in the original ID well was 80m (penetrated only a third) and on the figure this area shows a thickness of 80m at the location of that original drill. The take away from this figure is the sand thicknesses at ID are much higher than Sealion which has to make it more economic to develop in terms of requiring less wells, potentially only vertical wells vs. horizontal. As an offshore field development professional this coupled with the following facts may make it the real jewel in the Falklands crown moving forward: - Crude less waxy, assume its pour point is lower than Sealion's and hence flowline heating requirements less onerous, flowlines should be shorter anyway given more compact field footprint. - Water depth marginally shallower than Sealion, small benefit in terms of development economics. - Pressures and therefore flow rates much higher than Sealion (blow-out flowrates projected for ID ~8000 bopd vs. ~2000 for Sealion. Less wells, less water injection/gas lift, no requirement for ESPs The above doesn't account for the huge potential upside in the other stacked prospects in this part of the basin. The 3 takeaways from this well for me are: - will the other prospects come in - what is the OWC, for ID I think they know the sand properties and model is good so this is key - if the OWC is deep, the other prospects come in and all are in communication (plot on the same pressure gradient) then this part of the basin will dwarf Sealion. Regarding pressure, I am not a geo but struggle to understand how some have argued that the pressure encountered on the original well may have only been elevated locally due to the up-dip and inclined nature of the sands at that particular well location. Surely if the sands are laterally continuous, with good permeability and porosity the whole field would be in pressure equilibrium? If this argument is correct, then could it be argued that less encouragement can be gleaned from the deep, oil bearing but thin F3 sands found in previous drills to the north? I say this because if they were in communication with ID surely they would have had high pressures and therefore the pressures encountered at ID would have been less of a surprise. Geo opinions welcome..