Member Info for Slift

haggis_trap,
I said that the "initial" offer would probably be at 50% premium.

I don't think you understand the risks. This is a high risk high reward play.

I'm neither an optimist or a pessimist. I'm a realist.

Haggis_trap,
I think you're forgetting the $230m bond and the future prospects.

LTH have had the opportunity to average down.

Thanks fandg2 and adoubleuk for answering the question.

Strange, wouldn't it optimise the process if the the storage facility of the FPSO can be used for storage of both upstream untreated crude and downstream treated crude? The upstream storage being an intermediate storage before it is pumped through the process facility.
Would allow room for inspections and increase output (in the event of maintenance).

I'm sure there's a reason behind it (whether that's weight, or having to remove water from storage, etc.) but yeah, just find it strange as I've come across intemediate storage in almost every other industry.

"Given the traumatic last 6 months I think many might reluctantly accept 20p."
I think you'll find that many might accept even 8 or 9p.

Any initial takeover offer right now is likely to be 7.5p (at 50% premium).

With the current circumstances, $35/barrel for 10k bopd is a great result. Although, I think maybe they could have added 5k @ $35/barrel, and then added a further 5k later on when oil price recovers a little.

As an example for comparison, Tullow added to their hedging circa. 3k barrels for $33/barrel in Q2.

So $35/barrel isn't a bad hedging arrangement at all for the current oil prices and when compared with the industry.

Slift.

Tim,
"unlike the last one which seemed more like a lousy update with no details - as if the whole co. is working from home and can't be bothered with RNSing the same format as last years TU."

Made me lol. I can relate haha :')

Regarding Kenya, I think buying time as they have done is good for Tullow. Better to wait for oil price to recover before they dispose of this. But yes, agree that somethings brewing in Kenya, see what the interim results say regarding it. Right now, what matters is getting Uganda deal completed. One step at a time!

Following last years disaster with production guidance, It's only natural to set a conservative guidance. It's better to set a lower conservative guidance, and beat that guidance on results day for a uplift in SP... than to over promise and fall behind. I'm happy with a 70k guidance as long as Tullow beats that guidance each year. Having said that, I'd like to see 90k+ production when oil price hits $65+/barrel.

Also, i disagree with this: "And market has seen that they have given up on working hard to get back to 90kbpd"
Remember, Tullow's guidance for this year was 70-80k, and so far they have been achieving their their higher end of the target at circa. 79.6k for Q2.
I think it's good that Tullow are not overpromising like they did last year. The current guidance is 71-78k for the year. Even if Tullow produces 71k for the year (means that for Q3 and Q4 production would be 64.3k bopd), the market won't be that much disappointed as it's still IN LINE WITH EXPECTATIONS.

One of Tullow's business strategy is: "Implement greater control of operations and improve production forecasting" through the appointment of new COO.

All IMO. Slift.

10. Can't comment too much here at this stage, but I dislike the way they are going with this. E.g. sacking CEO, then completely disregarding the ex-CEO's ideas, research and also past results so they can put the blame for the performance on ex-CEO and pretending that they're turning the company around (especially when management/directors also had an input to this in the past years). This is politics and happens all the time in the industry. I definitely don't trust the management.

11. Sentiment is at it's lowest yes. But at the same time, a lot of the negatives have been priced in, with a conservative strategy going forwards.

You're not wrong that there could be more downside, but there could also be upside. I still think this is a risky investment - High risk, high reward.

Ofcourse, all in my own opinion.
Slift.

CaptainSwag,

Good points. Just thought i'd provide my opinions for the issues you've highlighted.

1. Having worked on a top-tier COMAH chemical site, I can comment that from how it reads in the RNS - The inspection was likely a weekly, or a monthly safety critical visual inspection of safety critical equipment. These inspections are there to ensure that hazards or risks to these safety critical equipment are minimised and to also initiate reactive maintenance. The inspection has identified issues that required reactive maintenance - therefore, the company has taken steps in order to prevent the issue becoming bigger and/or requiring a longer period of maintenance (and hence shutdown/disaster). These inspections are usually done in-house with by a competent person and are also checked by HSE and other regulatory bodies (COMAH).
Regarding production - As someone with no experience in offshore O&G, I'm unsure of some things and hopefully someone can clarify the following:
The RNS does not mention that the wells were shut in. Can i assume that the AM has a storage facility upstream of fluid processing? I.e. a tank to store the crude prior to being processed by the AM processing facility? Or is it safe to assume that both wells have been shut in?

2. As mentioned before, uncertainty, no idea of what the impact or how much of a downgrade it will be for the reserves. But for the EPS, from the estimated figures I used regarding production (I.e. 15k 2020, 12-13k 2021, average. 6-8k 2022-2025) - we can expect up to 25% downgrade in 1P reserves. Any more and it won't be pretty.

3. I thought Spirit would have committed to this following farm in, and Hurricane are in discussions on the best route forward with this. We already know that the resources will be downgraded for Lincoln, but again the question stands - How much of a downgrade?

4. No idea.

5. I don't think this is an issue any longer. If what HUR are saying and that it's a shallower OWC, then this would explain the increase in watercut. Reserve downgrade will essentially downgrade the production rate. At the end of the day, it's the rate of production that matters, not water cut. A lot has been priced in already.

6. COVID19 is affecting all stocks.

7. Oil price is affecting all companies in this sector. HUR has mitigated the impact with $35 hedges should help if there is more downside in oil price.

8. Yup, uncertainty, but i'd like to believe HUR have means of funding this (or at least at the current moment) with existing cash, RBL, rights issue etc (or a combination of all).

9. I don't think weather window/time will affect the value of this company. It's the forward strategy (for the future prospects) that's important. This also includes the forward guidance of oil production.

Hi mazik,

I wouldn't say all negative news is out. There are still uncertainties regarding how much of a reserve downgrade etc.

The CFO post has been filled.
The CEO and COO are still vacant, with no details of whether the company is recruiting.

Interim CEO and Acting COO may be promoted, but not been confirmed.

There is a (higher) chance of a takeover until at least the CEO position is filled.

Slift.

Lol, I don't understand why so many people (incl. LTHs) sold out after last RNS.

I feel more optimistic about this company with that last RNS than I did prior to it. Not because that the last RNS was good (it was shocking), but rather future updates are now derisked and majority of HUR's mistakes and future prospects are now priced in.

I'd disagree that the current mcap is priced in for chapter 11. Chapter 11 mcap would be when production is no longer viable, HUR's future is questionable, and when HUR cannot fund the 7.5% interest payment.
Right now:
- Production is ongoing at steady, better than expected rates.
- Future of assets (in terms of reserves and resources) identified by management and possible improvments. Though no details, but it's not quite "game over".
- Enough cash in bank to fund the 7.5% interest payment
- There is still doubts about the $230m bond, but i'd like to believe HUR have options for this going forwards.

I'd give it more than 70% downside before Chapter 11.

Slift.

No, hedge prices will not affect impairments.
Impairments (and write offs) are just for assets and it's simply for the balance sheet.

It makes the balance sheet look bad, but unless there are proper write offs, impairments are recovable as oil price shifts (and as a result the values of assets goes up).

Hi Longish,

Potentially.

The long term oil price assumption is what the oil price may be in 5 years time.
Even a $5 drop in long term price assumption will only attribute circa. <$250m impairment.
I don't believe Tullow will decrease this long term price assumption any further unless there's evidence for depressed oil prices for a longer period of time.

I think the bigger factor is the short term forward curve price. Currently at $38/barrel for 2020 and $42 for 2021.
We may see some of the impairments recovered before the end of the year when there's upgrades in these forward curve prices.

If there is a downgrade to $55, an upgrade in forward curve prices will offset the impairments.

CaptainSwag,

Yes, the cost to operate and produce from wells 6 and 7z. If production exceeds 7k, then it is covering the cost.

The total costs covers the wider business, rather than production from 6 and 7z. These "excess" costs are on the company, but obviously any company would like to cover these costs using proceeds from other parts of the business (in this case, Lancaster).

Hi Dive,

Yes DiveCentre.

As a good estimate with how the wells have been behaving, 7k bopd can be achieved with maximum watercuts:
60% watercut from well 6 and 90% watercut from well 7z.
Or circa. 74% overall watercut.

Slift.

"What is the maximum oil / water percentage for the BOD to state the well is no longer financially viable."
This is more limited by number of barrels produced and brent price. Obviously there are limitations to oil/water percentage too, but bottom line is production of oil.

At $45/barrel oil price, approx. min of c.7000 barrels of oil from the wells need to be produced to still be economically viable.

Slift.

Nic7760,

I'm not contesting here but just thought I'd provide my opinions.

I disagree that perched water would be uncommon. But I don't believe that perched water in a FB can produce such a high watercut, due to the way/formation that perched water would be trapped.

As Pecten11 said, I don't believe coning can occur here. It's more that the draw of water from aquifer would fill the entire "tight formation/matrix" due to cohesive and adhesive forces exerted by the fluids.

Hi Nic,

"So what could explain such a difference ? Simple : 7z sits deeper than 6 and therefore has its "feet" in the water. That's why it's been sucking so much water all along. 6 is horizontal and at 1220m TVDSS, ie 160m above the OWC. 7z heel is at ~1300m TVDSS and its toe is at 1370m TVDSS, just 10m above the OWC.
So if the OWC is shallow, at ~1380m TVDSS, it should be absolutely no surprise that this well is sucking a lot of water from its toe."

Whilst I agree that the OWC is probably catching up with 7z well, I think perched water is also playing a part here.
7z has been drawing water and increasing it's watercut overtime, I believe it's evidence that the OWC is rising. Therefore, I think we should be careful in defining the OWC for FB.

Slift.

"You would assume that it would allow water to drain down but how much is pure guesswork."
4 days residence time isn't a lot for the water to settle.

But we're talking along the whole fractured basement, where the fluids are left to settle with no disruption from pumps or pressure.
So could be something.

Regarding planned shutdown, I don't think that will have changed. It's normal for companies to shut down operations for a week, and that is usually planned well in advance. Hurricane can't be changing that now since operators would have booked holidays etc and their shift patterns would be a mess.
But again never know, they could still keep a few operations staff to produce through shutdown.

I wonder what the watercut would be like on well 6 now that it's been shut in.
Will it have increased? decreased?

Probably no change, but you never know.

JoeSoap,
"I think you are confusing the amount of oil HUR might still get out with the technical status of 'Reserves'. If they cannot get the volume from their wells because the rate is reduced, then they will not get to the current Reserve status. Edison only had 36mmboe in their 16 June update, for 10 years. The EPS is for 6 years. Current exploration licence extension was for 5 years from December."

I suppose that's one way of looking at reserves.

The CPR attributed 28mmboe 1P and 37mmboe 2P reserves to the current Lancaster EPS on a 6 year basis.
This works out to be on average 4.6m barrels/year on 1P, or 6.2m barrels/year on 2P.

Now, to the end of 2020 (c. 1.5 year of operating), assuming 15k bopd on average for the year:
Hurricane will have produced c. 8.7m barrels.

Going forwards to 2021, at the current rates of increasing water cuts (and only production from 6 and 7z), i estimate production to be c. 12-13k average.
In 2021, I'm expecting Hurricane to produce 4.5m barrels.

Going forwards from 2022 to 2025 (again above assumptions), I think it's safe to assume circa 6-8k bopd on average.
That would meant that for 2022-2025, production will be 7.6m barrels.

With that estimate, on a 1P basis, HUR's Lancaster EPS reserves will be downgraded to c. 21m barrels from 28m barrels.

Slift.