Member Info for spike501

So basically they are still shovelling excess cash out as pre-payments.

Herbert - this well I believe has been designed as a trade off between finding an optimal spot to prove up a good level of resources but ensuring it is a safe spot that even if the sands aren't as thick as expected it doesn't miss - I'm sure the Liberator well is still fresh in mind. This well will start to give them the information to develop a field plan with production wells, but no point trying to keep this well, if they wanted to suspend it, it requires a whole extra levels of approvals and monitoring,

I'd expect any future appraisal well would be done with it also being planned as a production well, but given this could be a joint development with Tain, its not clear to me if they would need another appraisal well, they may be able to go straight to a production well as a next step and then future steps are appraisal wells for infill drilling - but I'm speculating here, maybe others could comment further.

Tony.

1. On undeveloped North Sea Reserves - how long is a piece of string, it clearly depends on a whole range of factors. Orcadian Energy as one benchmark sits with 79million of undeveloped 2P plus a host of 2C and sits at a market cap of £22million, so around $0.33 per barrel, if you assign all value to the 2P - as a counter point that is heavy oil and clearly requires a substantial standalone development for a company with no cash, hence the substantial discount. Overall if success at Serenity brings I3E an additional $1 per recoverable, I'll be pleased, $2 delighted which is 6-12p on the share price but I really can't see that upper end.

2. Agree EOG is not overall a very good benchmark due to the volatility and effectively all or nothing drill, but the risk off from EOG today is very typical of drills as traders who have tried to take a pre-spud rise take any risk off the table. I suspect EOG might have some more gamblers coming into it pre result so it might climb, I don't expect much movement in I3E.

3. I'd say my scenario is possible rather than likely - I think one of the reasons I3E trades at a discount to peers is that split between Canadian production and North Sea development - I think spinning off North Sea while retaining an interest could drive a re-rate of I3E's Canadian assets which you have shown sit at the lower end of the valuation.

4. Totally agree Synergy is an exciting well as it is low risk and offers a very quick route to development with partners with deep pockets and I3E also having cashflow to develop if they choose, its very compelling. The market however clearly doesn't recognise that now and I don't think it will after this drill - I think any tie up between Tain and Serenity and a clear timeline for first oil this can start to get interesting - hopefully I'm wrong, it has been known!

“ If we're still in the mid 20's nearer Serenity result then yes I'll be annoyed, but ultimately we're going to be valued in 5 weeks on what they discover (or not). I'm expecting low 30's in 4 weeks and intend to hold everything until the announcement”

I don’t see this going up substantially through the drill - those days seem to be gone, people try and get in for a pre drill spike but get out quickly as the drill starts so they aren’t exposed to risk. As we’ve seen with EOG today.

I don’t even expect a successful Serenity result to have a substantial impact in the short term - sure, they’ll be a spike but I’d wager good money, most on this board are disappointed at the SP a fortnight after. Undeveloped North Sea assets still don’t get valued at much nowadays especially as part of a group with substantial other assets.

Subject to success at serenity, I think it is quite possible the company will be split - Serenity and other North Sea IPO’d to raise cash for next stages of development with I3E keeping a stake, I expect you’ll get a better valuation than a sum of the parts, as I3E becomes solely Canada and cashflow for focussed and the NewCo focused on North Sea and Serenity investment. Holders of I3E don’t have the concern about cash being diverted to an expensive North Sea development and so it becomes even more of a low risk cash cow, while NewCo attracts some more speculative money.

Other alternative is that Serenity gets farmed down in a (likely in a development with Tain) for free carry to production.

Let’s see - hope first for Serenity success.

It’s an appraisal we’ll not planned to be suspended as a producer - hence plugged and abandoned.

Who cares - unless you’ve come for a pre-spud spike what does it matter?

Why would they say it spuds later this week if it doesn’t?

"...and the share buy backs continue ;-)"

Which I would agree is good news as I think if the directors had any indication there was anything fatally wrong with Montara they'd be risking future legal issues by continuing.

"Again as I said before this is not going to change reserves, there is no reservoir damage after all and despite this year being disappointing, it is transient and nav is extended not dropped."

There is an obvious concern being reflected in the SP now that there could be something fundamentally wrong with Montara which causes an extended shut-in of production and/or requires a highly expensive refurbishment job or worse an abandonment of the current production facilities.

“jollygood - yes an amazing set of results. Even after all the expansion during the period you mention and generous dividends, I3E have still managed to double their Net Cash position in 6 months to £30m ($35m). “

Net cash might have increases but a £20million net current assets position has moved to a £20million net current liability position - that is a substantial shift. A large part of that is accruals, which I assume is mostly work done but not invoiced for, but overall it’s a big shift. Essentially they have been burning cash in the first half.

Good news is decommissioning liabilities have substantially been reduced.

“ Day before rns 37000 share s purchased day of rns 265000”

They need a certain amount of volume and liquidity to trade, unsurprisingly the RNS increased both

Think you are a bit optimistic there - full year revenue last year was $50million and profit was $18million, so there is no way they have produced $20million in $32million in the first half. There will be some economies of scale but I'd be looking at $65million of revenues full year with $25-30million profit

“ and certainly no allegiance to shareholders”

He is an employee of the company, he doesn’t owe any allegiance to shareholders. He wasn’t a director at Hurricane Energy so he had no part in the decisions the board took and was simply responsible for communicating the decisions taken with investors. Whether he personally agreed with the decisions or not, he had a job and what he communicated was driven by management decisions.

Now give it a rest for FFS - this is the Jadestone board, the restructuring debacle at Hurricane wasn’t the reason for most investor losses, the reason was the massive downgrade in reserves as the fracture basement concept didn’t work.

"Unsurprisingly he couldn't get off the phone fast enough and hung up on them in a panic when asked some simple but polite questions."

He was only head of investor relations and he no longer works there - its no wonder he hung up when some obsessive crank stalked him down and tried to ask him questions that are not relevant for his current job and would not reflect well on him if he disclosed confidential information from previous employment.

Outstanding result and credit where it is due. I expect Altyn has benefitted here as the Kazakh banks are being directed to take a more active involvement in financing key Kazakhstan projects due to the substantial loss of Russian capital, but frankly who cares how and why - its the money needed to move the development on, the interest rate is excellent and repayment over a 6 year term is comfortable.

"The chances of them raising significant funds in london now are virtually zero with that qualified audit report.....therein lies the issue and is why we still sit at 90p mid."

And nothing as far as I can see to stop them making a tender offer to take the company private or simply delist the shares. The company is cash generative and the London listing isn't offering any route to capital, why bother keeping it especially if you pick the rest of the shares up so cheaply.

Agreed bald_eagle - there is a very relaxed attitude to this that its just because things are done differently in Kazakhstan and the fact that a coach and horses has been driven through any acceptable form of minimum governance is neither here, not there despite investor confidence clearly having been hit further hence this trades on a PE of 1.5, with little sign of any change and a likely long road to winning what little there was anyway, back.

I also find it unacceptable they published financials via an RNS without disclosing the qualified audit opinion - its one thing blaming the local subsidiary, but those responsible at PLC level should have been aware.

Very interesting discussion between Tony and olderandwiser - I sit somewhere in the middle, where I think Nuttall may underestimate how low oil and oil stocks could go in the recession that looks like it is coming, but in the medium term I think he's absolutely right that supply/demand dynamics have never been so tight - even saying that oil is still approx $100 and that is on the back of a supremely strong dollar and with releases from strategic reserves and OPEC producing at near capacity - Russia will continue to decline as it no longer has access to the full range of equipment provided.

As others have highlighted recessions don't usually result in substantial demand destruction - I do feel there is a risk that the coming recession could be very deep, especially in Europe which looks in terrible trouble with industry as electricity prices are utterly insane, but the US will be a big beneficiary of any european downturn and I would expect an US recession to be relatively shallow, so I don't see sustained demand destruction even if the recession is deep in places and even that will only bring supply and demand back into line in the short term and then the pressure comes back immediately - and OPEC can of course act to support prices.

I'd say in the next 2 years don't underestimate a chance that oil could dip to $40 and I3E could still go substantially south of here, so I wouldn't be gambling money need in the short to medium term or expecting quick gains, nor would I be going all in at this level thinking its the bottom, but I do agree with Nuttall that there is a generational opportunity here to accumulate good quality stocks with long term cash generation potentially through steady accumulation through the current cycle (as I am doing) as the other side of any recession supply looks very tight - and frankly if a recession is so deep it does lead to substantial demand destruction, I think we'll all have bigger problems as it will be much wider than just low oil prices.

"The best way to attract more buyers is to make the company look more attractive to invest into, I would much rather that £30m be spent increasing production and unlocking the long term potential of the company and not wasting it on short term measures that have no guarantee of success."

Except its very clear that investors in the E&P space, especially institutional and other serious investors are also equally focussed on capital discipline and return of capital. They actively don't want excessive amounts of free cashflow to be spent on capex. Its also additional questionable whether I3E have capacity to ramp up capex that much further - they already have an extensive program and more drilling requires planning, permitting, supplier management, etc etc.

Buybacks are a very useful use of excess cash when valuation is perceived to be low as it permanently increases the return of capital as there are less shares to spread the returns over.

Everyone is approaching this from the viewpoint of what can management do to try and prop up the share price short term - I'd prefer to look strategically at longer term what is going to be the best use of excess cash and right now, given the metrics buybacks look very attractive, more so than dividends or extra capex which does not meet the markets requirements for capital discipline. The other alternative is to keep some powder back for the down cycle which may be coming, to go back and pick up more assets at attractive long term valuations - but at the moment the market does want a return of capital.

Tony - Amazon and Tesla are doing share splits to provide more shares in issue and hence make each individual shares cheaper, not share consolidations, which is reducing number of shares. However, I agree I don't see any merit in a consolidation here - there isn't so much liquidity, especially in Canada so I wouldn't take any more liquidity out the share.

G_G_G - shares buybacks certainly do increase value if done at the right time and I would say now is definitely the right time. There is a big advantage over dividends as it is a one off relatively short term exercise as opposed to continued dividend increases that require long term capital planning and especially for a cyclical business like oil and gas. A 10% buyback can be accomplished in a number of months and that automatically increases dividend by 10% without having to increase actual cash paid out - its much more difficult to return that much cash quickly to shareholders unless its via a special dividend which is probably the least likely to boost share price in the long term - sharply increasing the regular dividend puts it at risk in the future if O&G prices and cashflow decrease and again the last thing a company wants is a volatile yield.

At current valuations a buyback is for me the most compelling use of some of the excess cash, the CAPEX program for this year already looks pretty full so I'm not sure there is much more room to allocate addtional.