RE: The SWP27 Feb 2019 12:42
emilyt16
Put it this way: CERP has disappointed (and will seemingly continue to disappoint) on both production and profitability and both of these issues feed into the timing of the SWP.
Production - The MEEI Bulletin is due in the next couple of weeks. This will only shine a light on the IPSC assets and only up to the end of January, but it will be more significant than usual on the back of December’s (forced?) production peak. Will there finally be some evidence of Goudron WF (remember that and the hopes that LK had for it?) and/or something else carrying that momentum through into January, at least for the IPSC assets? I suspect not and that we will have a little more evidence that 1000bopd is far from being the new normal. After all, that is what LK is signalling - the last update was an exercise in expectation management in a number of respects and included this sentence about production: “We will now focus on a level of production within that figure that will allow us to high-grade our operations and well activities to achieve better financial results, focussing on a level of production that optimises profits ("better bang for our buck"), as opposed to chasing production targets per se.” I suspect that “within that figure” means quite a bit within that figure.
Profitability - Another piece of expectation management in that update was “operational profits forecast to cover all Group costs in Q1 2019.” In other words, LK still hopes to have around $2.6M in the bank at the end of Q1 but is not promising anything more than that. Over-optimistic even then, I think, but if there is around $2.6M in the bank at the end of Q1, how is CERP going to fund its initial foray into the SWP at $2-4M per drill without leaving the tank empty? It is unlikely to add much more to that bank balance in Q2, so the answer has to be a punishing partnership, holding out for an unlikely Predator windfall, a delay (perhaps a lot) further into H2 or (let’s use a different word this time) issuance. Issuance which took the form of a cheeky one for five with an excess facility would be nothing to be scared of. For example LK could explain it away as an acceleration of the SWP programme by bringing the first well, which has lately slipped into H2, back into H1.
Timing - As I said, it is nearly March. If LK doesn’t get a grip the SWP will recede further into H2, in fact towards Q4 and possible weather issues. My impression is that CERP has nothing in its portfolio that can offer the same excitement as the SWP, despite the initial focus on the shallower SWP formations, so if LK wants 2019 to be CERP’s transformative year he needs to make it happen by prioritising (and funding) the SWP.
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