The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Suresh: 'from where funds will come for FFD?'
Honest answer is we don't know (and this may be one of the question marks suppressing the SP) but there are a number of options and the most likely is a combination of one or more of the following:
Farm in by a major. This could be a 50% farm-in for full carry, which would at a stroke cancel all our funding requirements and give us and the market assurance that FFD will happen. Of course the Farm-in may be for less % or for less reasonable terms, in which case one of the following would come into play.
Senior debt backed by our ability to continue making money (requires some definitive clarification from the BoD that their modelling of the system is correct and the oil will flow for many years, I'm hoping this will be clarified at March's CMD or in a CPR sometime this year)
Fund raise through new shares (not likely at this SP as the numbers just wouldn't make sense)
Use the free cash from present production to develop a slow staged FFD over a number of years as and when sufficient money has accrued.
It's this last option that the BoD have to convince any major suiters that this is a valid plan in order to bring them to the table as otherwise they wait for us to fail like SXX and pick off the bones. Given that we are producing quantities of oil at a price far below the current PoO I am confident that this is an option we could, if no other option were available to us, develop, but I see that questions mark as what is driving the SP lower and feel we may bounce around for a while until such time as the CMD (or CPR) gives some more clarification, though of course I'm hoping that I'm worng and that something else, such as hire of the rig to drill another Lancaster well, will push the SP higher.
Rev.
Agreed, but that requires someone to farm in or give us a loan. Keeping the cash keeps us in control of our own destiny.
WW: 'Could the comment re share buy back be in relation to the bonds rather than stock in issue perhaps? It's the only thing that would make sense to me.'
That occurred to me too, but it wouldn't make sense to buy the bonds back direct as BE is correct, they would have to buy them at a certain price (something like 56p/share I seem to remember) but what they could do is buy back an equivalent number of shares at today's price and then when the bondholders do buy back at 56p there is effectively no dilution as we'd be back to where we started but slightly richer as effectively we would be buying our own shares at 27p and then selling them at 56p.
Not saying it's a good idea, as I think we have better things to do with our spare cash such as putting holes in the ground, just that I can kind of understand the reasoning.
Rev
MS:
'I doubt it is the real AS'
My thoughts precisely - 1st post ever on LSE and he comes here trying to 'defend' himself (though in truth doesn't actually defend himself, just stirs it up a bit). My guess is EV in disguise.
Rev.
Ash, very funny. I think I will use that in my Christmas sermon.
Rev
MCB
'not sure why it was horizontal though, maybe to check the amount fractures encountered and hence prove the FB theory a bit more.'
That's my theory - drill three like for like wells and then you can compare the flows (or lack thereof) at the top, middle and bottom of the fracture system.
There's been something that's been bugging me since the WW result and I've come to a theory that may be good news.
What I couldn't square was the P&A on WW when the flow wasn't that bad, and also the rumour mill that said DrT was pleased with the result and that Spirit were still looking at FFD of the whole GWA. Here's my theory;
WD was drilled first to test the hopeful theory that the highly fractured network continued right through the basement rock (lets call this 'Cont' for continuous). If that had been the case then the STOIIP and 2C would have gone through the roof and WD would have been the tie-back for the AM. It didn't prove this theory, but left the possibility of the fractures gradually opening from the bottom to the top (like an inverted melon slice as one poster put it - we'll call this 'IMS' theory). The fact that WD showed some oil was a sign that IMS was a possibility.
WW is not called WC, not for toilet humour reasons, but because it's depth is half-way between LC (1780m TVDSS) and WD (1964m TVDSS) at 1879m. It's also drilled at the far end of the Warwick prospect, so if WW flows somewhere between WD (not at all) and LC (9,800 bpd ESP assisted) then that could show that there is IMS fractures all the way across the GWA. Flowing at 1,300 bpd natural flow shows exactly that. Moreover the API is the same as LC at 43* and with some further testing they may find that the chemical makeup of both are exactly the same, which would prove that case even more so.
So why did they P&A WW? Because that was part of the deal with the OGA my theory goes. It was never about being a producer well (unlike the shoot for the stars and hit the moon WD was) which is why the 2 RNSs have different wording - disappointment in WD but 'we had to P&A for legal reasons in WW.
What I guess we'll find out at the CMD in March is the answer to this theory and what that means for 2C estimates (is the current 2C estimate for Lincoln based on a Cont or a IMS fracture system? for instance). I'm hoping they'll also be able to more accurately guide on RF% following 6 months continuous production from Lanc EPS.
What I'm now wondering is whether this theory makes sense of the change from drilling 3 producer wells next year to the sub vertical wells, or is that just the OGA playing difficult?
Any answers please?
Rev.
I've had a good read of the RNS twice and read a lot of the threads here and on TLF and have decided to post my own 'positives and negatives' resume of where we are from the perspective of a non oil professional, which I'm happy to be challenged on, but thought it made interesting reading.
Firstly the works over the next 3 years so long as the OGA and Spirit play ball;
2020:
Lanc EPS ramps up to 20 kbopd, which by my reckoning gives us somewhere in the reagion of $300mill free cash flow at $60 oil (which interestingly is about the same give or take as both PMO and TLW who also have billions in debt and so substantially higher EVs)
CMD March 25th - we wait to see what lies in that box.
3rd Lanc well
Sub vertical well(s) on Linc delineating the size of the field.
Tie back linc to AM, tie in WOSP and mods to AM
2021:
Lanc 3 tie back to AM with FOIL by end 2021.
Debottlenecking work
Sub vertical well(s) to show the extent of Lanc
2022:
ramp up to 40kbopd
Positives:
1. We're not going bust. Seems a strange one to begin with, but there were some derampers who were suggesting this not so long ago, and RT has clearly shown that it's perched water not coned so, while there are certain concerns about the amount of water, we will still be making money for many years to come.
2. At 20Kbopd we're making £300mill for the next 2 years and then in 2022 with 40kbopd we'll be making nearer $0.5bn, which, suggests 2 things; a) our share price should be substantially higher and b) with around $1bn in the bank by end 2022 (accounting for some moneys spent on tie backs etc.) we could, in the absence of a farm in, start funding a staged FFD out of our own funds and minimal debt. This puts us as masters of our own fates.
Negatives:
1. No mention of Warwick or Halifax, which shows they are either disregarded or at least on the back burner.
2. Additional water cut from 7z while not fatal is an ongoing question mark (this taken from TLF discussion more than my own opinion, but DSPP generally seems to know what he's talking about so it's worth at least voicing his concern).
3. lack of 3 additional wells on the GWA shows the bod have less confidence in that acreage than previously hoped.
That said I quite like the idea of the sub vert wells to delineate the extent of each field, after all, if a farmer wants to sell a field the buyer wants to know 2 things. How big it is and how productive it is. The EPS is showing us how productive it is and the sub verts will show us to a better degree of accuracy how big it is.
Is this being done as a precursor to offering the GWA and then the GLA for sale, or is it to better plan for the FFD of each area? It could be for both.
Rev.
JIffy, I'm not saying that there IS coned water, just that IF there were to be coned water then it's not a case of we're all doomed.
Personally I don't think there is coned water (following what the co have already put out there as your post references) and that the SP reaction is herd mentality to a big drop. But just because I think something doesn't make it true, so I always look at the opposite view dispassionately and what the implications of that view being reality would be. My post came from me waking up in a cold sweat a few nights ago thinking I could lose the whole amount I've invested here (which to me is quite substantial) and so I set about working out the possible worst case implications given all that we already know.
Rev.
I should also add that Bach Ho is now pumping out around 250kbopd with a similar sized set of reserves (1.0-1.4 billion barrels) as currently the GLA is assigned 2C.
Let's say that there is an RNS saying that the formation water is coning up. What does that really mean for us in the short, medium and long term?
As I understand it the same happened to Bach Ho because they were 'sucking too hard'. We're not using our ESPs but it could be that the two wells in Lancaster are acting as one big well and drawing liquid (both oil and water) up through a massive, vertical fracture system to such an extent that water is also being drawn up as far as the wells.
If this is the case then my non-oily but slightly researched brain suggests the following (happy to be shot down, but I'd appreciate knowledgeable posters' opinions on this);
It doesn't mean game over, but rather is a case of well management - we need to suck a bit less hard, so instead of ramping up to 20kbopd we stick at 10kbopd. This has short-term implcations on how much we earn next year and medium term implications on how we plan the FFD, but it will also give us a wealth of data helping us to do that planning.
It also doesn't affect the tie-in plan for Lincoln but may mean we need to drill a further well (further out) on Lancaster next year to fully appraise the Lancaster fracture system and make use of the AM's full capacity.
Further out it may mean putting back FFD on GWA and GLA by a year each to give us time to better appraise each system, but doesn't, to me at least, negate the existence nor the retrievability of the oil in place.
So in short, IF the next RNS is as bad as the SP is suggesting, given what we definitely already know about the EPS, the fracture system it is drawing from (well fractured with mobile oil with a good API), and the Lincoln Crestal well, I still see many positives, albeit possibly further out along the timeline than I previously hoped (but isn't that the case with HUR right along!)
Rev.
I seem to remember in the question and answer session Dr T or AS mentioned January, but in all the official slides it says 1Q20. It's possible that they're looking towards Jan, but that official communication errs on the safe side. A bit like the FOIL debate where someone (DR T?) mentioned in an interview hinting that FOIL could be early, but the company guidance remained 1H19.
Oh great. The Street is back. LW, I'm going to need that freezer space sooner than expected....
LW if I promise not to wake up until the first bid comes in can I rent some of your freezer?
Plus I'll bring my own communion wine so the drinks bar won't be disturbed.
Rev.
Dear Longwait, Can I thank you for giving me the best laugh I've had all day.
Blessings upon you and your ministry of caring for the syntactically challenged.
Rev.
OK so I'm not an oil worker or a financial Whizz so I've probably got this completely wrong, but I was looking at the Hannam & P report and noticed that not only do they have a risked NAV of 135p but the unrisked NAV is £4.85.
Then I noticed that this unrisked NAV has Lanc, GWA, Halifax & Whirlwind 2C values at around $5/boe it has the 2P of EPS 10yr extension & the GWA tie back at around $15/boe and the current production from the EPS at around $30/boe.
If the FFD plan submissions for GWA and Lanc in 2021/22 turn their 2C into 2P the unrisked NAV heads up to around £10/share. And when we get to first oil in around 2025 that goes up to £15/share.
Does this mean that there is a possibility that sometime around 2022/25 we could be edging that way (so long as we haven't already had an OI event before then) I recognise that unrisked NAV does not take into account the CoS%, but if the CoS is around 50% that would still mean a share price in 2022 of around £5 or am I being completely stupid?
Responses from bears of greater brain than me requested.
Rev.
Well done SIPP, you have won the sweepstake. You put as your chosen charity our own charities X2.
Martin House thanks you.
Rev.
In the report Dr T says that ' it will take at least six months of steady state production before we are able to confirm our reservoir model.' My questions for oil workers out there is - Are we at steady state now (in which case they'll be ready to confirm the reservoir model in 1Q20 CMD) or does that only happen once we're up to full capacity working of 17k/day? (in which case we won't know reservoir models until late 2020)
So here are the final numbers for this evening's sweepstake. Not looking positive for my guess.
Bobrad 42
InJamesWeTrust 44
SIPPn00b 46.54 everyone's own charity x 2
Chablard 46.55 Macmillan
Jonnygoodfella 47 The Walton Centre
MarkA8178 47.36 PDSA
DickyH 47.95 Great North Air Ambulance
Petethestreet 48.25 RUH Forever Friends
SpruceGoose 48.46 Smile with Siddy
AdoubleUK 48.75 Mendip cave rescue.
DiveCentre 48.95p Parkinson UK
Beerbull 49 Macmillans
Spedders 49.62 Motor Neurone Disease Association
Cmonyoublues 49.68. RNIB.
Sonofthebull 49.75 cystic fibrosis
Cebo-456 50 Help4Heroes.
Wellwell 50.2 NAS
DrBruceeBonus 50.21 Myeloma UK
Cherryvale. 51.25 Cancer focus NI
Missdosh 52p. Oracle Cancer Trust
Entangled 52.5 Martin House children's hospice
MrToad 53.1 Mind
El19 53.22 Macmillan Cancer
DRUSS 53.5 Alzheimer's
Ecosselibre 53.85 Highland Hospice
Pickswinger 54.8 St Gemma's Hospice, Leeds.
jiffyBag 54.82 The Salvation Army
Feelinlucky 55.00 British heart foundation
Albi1 56.50p Pilgrim's Hospice, East Kent,
MrWilks 56.68 – whatever
Extrader 57 Loros Hospice
johnpwh - 58p. Cystic Fibrosis trust
MrSmyth 59.6p Nystagmus Network
Luckcounts 61
Mallye 65p 'Medicine Sans Frontieres'
Yuyus - 67p Maxis Mates Dog Refuge
Reverandy - 76.00 - Martin House children's hospice
Albi 'I'll match my £5 donation to the winner with a £5 donation to your chosen charity, St Martins.'
Thanks, though it's actually Martin House Children's hospice - a hospice for children with life-limiting conditions near where I'm a vicar on the outskirts of Leeds.
Pete 'I think if the rev’s comes in we should all bung £20 to St M’s'
Thanks, but that's looking increasingly unlikely right now!
Current guesses are;
Bobrad 42
InJamesWeTrust 44
Chablard 46.55 Macmillan
Jonnygoodfella 47 The Walton Centre
Petethestreet 48.25 RUH Forever Friends
SpruceGoose 48.46 Smile with Siddy
AdoubleUK 48.75 Mendip cave rescue.
DiveCentre 48.95p Parkinson UK
Beerbull 49 Macmillans
Cmonyoublues 49.68. RNIB.
Sonofthebull 49.75 cystic fibrosis
Cebo-456 50 Help4Heroes.
DrBruceeBonus 50.21 Myeloma UK
Cherryvale. 51.25 Cancer focus NI
Missdosh 52p. Oracle Cancer Trust
Entangled 52.5 Martin House children's hospice
MrToad 53.1 Mind
El19 53.22 Macmillan Cancer
DRUSS 53.5 Alzheimer's
Ecosselibre 53.85 Highland Hospice
Pickswinger 54.8 St Gemma's Hospice, Leeds.
jiffyBag 54.82 The Salvation Army
Feelinlucky 55.00 British heart foundation
Albi1 56.50p Pilgrim's Hospice, East Kent,
MrWilks 56.68 – whatever
Extrader 57 Loros Hospice
johnpwh - 58p. Cystic Fibrosis trust
MrSmyth 59.6p Nystagmus Network
Luckcounts 61
Mallye 65p 'Medicine Sans Frontieres'
Yuyus - 67p Maxis Mates Dog Refuge
Reverandy - 76.00 - Martin House children's hospice
Rev