The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
Good summary ODR. Most likely for me is 5, just popping a combo of 1 and 2!
What’s your plan to replace him then bigboffer? Always easy to push for change, much harder to define what any future CEO would need to do in order to make this company grow. In a country like Georgia relations with the institutions that matter are so important. We have that and whatever we all feel about lack of progress with drilling and PH’s ludicrous remuneration scheme, we don’t know if we’d be better off with a new chief.
I don’t see the point in voting him out now. There is clearly an excellent relationship between Block and the relevant Georgian institutions, and all the recent press releases point toward a busy period of drilling, financial arrangements and possible deals with other O&G companies. Despite the poor track record and sporadic approach to shareholder relations and communications I’m prepared to give the board my full backing until the current phase of the strategy is either proved successful or otherwise. If that means taking a risk with PH at the helm I’m prepared to do that as it feels like we are closer than ever to a transformational period for the company.
Hi Hepseal
I partly agree with your statement but also think it’s worth building in some flex on higher flow rates initially when 38 was turned back on. So it looked great for PR for the q1 ops update but the reality was the flow rate was always likely to ease off before it settled at a stable production figure. That’s an alternative take on your view, and would help to back up PHs comments. But I can see it both ways. As ever, insufficient detail on specific flow rates linked to each well leaves us guessing, and when that happens with the track record of Block it’s easy to jump to the conclusion you have.
1. All oil producers experience declining production over time if they don’t drill new wells.
2. Finance to support an accelerated programme of drilling will provide opportunities to arrest that decline and shift the dial to a regularly increasing set of production numbers, if a good proportion of those drills produce at commercial rates.
3. We have the support of the institutions that matter in Georgia
4. We acquired gas opportunities from Schlumberger that are well recognised and offer game changing prospects if they can be monitised.
5. Visible progress towards our new drilling plan is slower than expected, leading to share price weakness.
6. Actual progress on non-sexy (I.E. spud) elements of the drill appear to be well advanced.
7. Money talks
8. So do flow rates
Really happy with that update. Stable production is the most important aspect as without that we can’t move forward. We’ve achieved quarter on quarter stability - don’t think we should underestimate how important that is.
I’m also very excited by the fact that project 1 and 2 will be running at the same time. That’s huge for a company that is looking to accelerate growth (and market cap).
And gas later this year .
Things are going to get very interesting with Block!
Today’s interview was best Ive heard from PH (aside from the ‘can’t see Brent dropping below hundred’ comment, on the day it breaks 100 for first time in months!)
Acceleration of drilling pace is key to us growing as a company and to hear him say every 60days for a sidetrack is really encouraging. Whether it’s cash flow or kit supply issues we are obviously nearing the point where we start drilling again, and from there we could be in for an exciting period of growth
The annual report confirmed shares in lieu of salaries would continue until we are financially on a stronger footing. So we are set for the scheme to continue for a good number of months yet. Perhaps earliest we can expect a winding down is when we sell oil from sidetrack. End of year? 2023 promises to be big. I’m anticipating oil prices staying strong for a couple of years yet, even a 50% reduction would see us selling at a healthy profit anyhow. We just need to get the damn stuff out of the ground!
Jv123 - I haven’t posted for a long time on this board but still look in on a regular basis. Your question around lack of communication…… my view is there are two logical explanations.
Firstly, the legal web the company finds itself in means they don’t have the appetite to communicate out formally in case this can be used in some way against them in legal proceedings. I’m not a lawyer and dont profess to know a great deal about corporate law but I can’t convince myself a company could ever be in that much of a legal quagmire that it can’t manufacture a basic update to its shareholders. A simple ‘we are unable to comment further at this stage but remain committed to securing a future for FRR and it’s shareholders’ would do - how can that possibly be used against them? My answer to to is that it can’t, which brings me to my 2nd logical reason, which is a little sinister…..
Shareholders of FRR that were invested prior to the company going private no longer hold equity of any value in the reformed company. The longer the company leaves it between the delist and and future reinvention, the more likely it is that the original shareholders will have (take your pick): died, lost interest, lost appetite for a legal fight etc etc.
So I fear that the the titbits that Looed gets fed are simply statements Aimed to reduce the likelihood of a mass shareholder action/rebellion. And date I say it - it’s working.
I hope so much that I am proved wrong but I just cannot come up with another explanation that makes sense. Why communicate with a (no offence Looed) unknown individual shareholder but at the same time be incapable of issuing the most basic of shareholder updates.
This was communicated as the (delayed) spud date on this forum. I wonder if the delay (if that is correct) and revised date is linked to the point at which block expect to receive proceeds from oil sales. That in turn (plus successful spud) will likely be pre-conditions for financing. I’m still expecting this to come good and shareholder value increase, and delays in this industry are commonplace at the best of times. The company has done well to get through to this point without another raise - am sure the oil price has been a factor! - and I hope that the next few months enables block to put itself on firmer ground financially. I would be happy to plod along for a few months, complete next drill and then lock in finance if the alternative is to complete the financing deal now but on more punitive terms as we are less financially secure. Whatever happens the next few weeks and months are likely to be news-filled which is always helpful in generating PR. If the news is good then the PR is good and away we go!
Expecting some news next week. The end of year results are due imminently and we should see some comments as part of that release on progress being made in the field. Or we get a separate more detailed interim ops update to confirm spud. We are due an explanation as to why things are taking longer than standard to kick off the next drill. Credibility will be getting questioned (again) if not careful and there’s no excuse - even if we aren’t ready to spud a simple update confirming why would be appreciated by all shareholders. I’m writing this thinking we are also on the cusp of potentially company changing financing news so I am willing to show more patience than normal as the board may be laser focused on concluding that at present, but still it doesn’t take much to draft an update, and it demonstrates they are close to shareholder concerns and expectations.
Thoughts on why things are taking longer than most expected for the new drill:
1. Shipping / transport route could be impacted due to Ukraine war
2. Oil sales to fund purchases could be impacted due to Ukraine war
3. Non-dilutive funding terms having to be renegotiated due to rising interest rates
4. Ordering enough kit for two drills likely to take longer than one drill
I’m not hugely surprised by the delay and anticipated things potentially slowing down due to the war - who knows how Block or it’s suppliers is impacted by sanctions/shipping routes/funding issues.
I do however hope to hear from the company soon with an update on non-dilutive funding plus the two drill programme (that may be me a multi will programme if funding is secured).
If I’ve done my calculations right that’s around £750k of options, so 10% of our mcap. Some will vest in future years as part of the LTIP but others vest straight away. Maybe this is what the gang last year were kicking off about - the reward for senior staff seems hugely disproportionate to what has been delivered in 2021. I’m sure they’ve worked hard but a bonus is a bonus - and rewards success - failure at the well head, and a miserable share price is not success.
My only solace is that if they’ve agreed to take shares rather than cash - maybe they had to as we only have 800k in the bank, but either way the more options our CEO gets the less likely he is to dilute via other means.
Bring on the next drill and the finance package - success with both of those and we should be able to finally look forward with confidence.
Decent update - steady away and primed for bigger news to come, both in the form of another drill (and potentially a second one soon after given they are procuring kit for 2) and financing to support further expansion. All good and we can’t be far away from the monthly share for salary scheme finishing - suspect when next well comes online.
Hi Tony
I’ve been in invested here too long to get excited by a pending quarterly update! I’ve started fearing them rather than looking forward as they tended to always underwhelm, and occasionally contain nasty surprises. HOWEVER I am starting to make my peace with Block and I do think we are entering a period (in my mind probably running for the next 2 years) of stabilisation and consolidation. Now it might be that the stabilisation arrives at a lower BOPd figure than I was hoping for, but what I want from Block is stability of production so we can all make meaningful cash flow forecasts. I’m an oil bull and strongly believe we will have buoyant oil prices for a couple of years if not longer. So once we get stable production we can consolidate in a high oil price environment and continue to drill for oil at a steady pace, with an improving balance sheet.
The challenge for Block is to get ahead of the natural decline curve we see with the wells. If you take a figure of 2,500 BOPD the natural decline on that over a year would reduce to production to say 2,000 BOPd. So Block would need to do drill new oil of 500 BOPD during that year just to flatline at 2,500. I think that example helps to demonstrate why we are likely to need funding or support from another source - we can’t continue to drill 2 or 3 wells a year as unless we hit a monster we’ll be bobbling along around break even.
My thoughts on this are that Block need to get their head down for 2 years, drill say 8 sidetracks, move production up to a more meaningful level and then look for an injection of cash. Otherwise we risk becoming a company that offers nothing to investors if all we are able to do is increase production to offset natural declines.
I remain optimistic Block will become a bigger player in the region, and and the gas intrigues me also. Lots of upside but I for one don’t see anything incredible happening over next couple of years, but I’d take slow and steady stabilisation and consolidation, supported by a high oil price. Next well is critical although with current Brent prices it’s not quite as do or die as it was a few months ago.
One other point - I’m not sure we should get too excited about the average price we’ve managed to sell oil at in q1. Most sales have a lag on them so I expect q2 update in July to be where we notice the big kick on to 100dollar oil. I think q1 update in April will obviously represent sales at a good price but not sure we’ll see the figures some are hoping for. I’m happy to be proved wrong though!
Whilst acknowledging the geopolitical uncertainty and the tragedy unfolding in Ukraine, the fact that most of the heavy hitters in NATO are pushing for oil and gas sanctions will clearly put upwards pressure on what is generally recognised as an already tight market. There have been questions for a number of years around some of the ‘spare capacity’ we are told OPEC plus members have and it now seems there are doubts around the Iranian nuclear deal. All this points to an increasingly tight market, and while Georgia might not be high on many peoples list as a safe place to invest right now, there is an argument to be made that some of the majors (in concert with national governments) might be looking in as part of their hunt for new sources of oil and gas as the trend continues for companies to thankfully exit Russia.
I would suggest there is a realistic chance some of the proven (and unproven) resources that Georgia has will be on the radar of these companies more so now than before. A company that has demonstrated it can produce oil but lacks funding to scale up at pace….. whether the climate exists for BLOe (or FRR) to ‘do a deal’ remains to be seen but if the market remains tight for much longer I’m sure there will be a few looking in.
Haven’t looked in on the share price for a few weeks. Must admit was expecting a rise north but obviously the market isn’t won over yet. Agree with others that next drill proves it wasn’t a fluke, although we also need confirmation of sustained flow rates from current drill - the rhetoric around that sounded much more positive in recent communications so I’m expecting the rates to have stabilised at a healthy rate.
I do wonder if the ruski’s military activity is putting off investors as well. Hard to tell what putin’s intentions are but not sure Georgia poses the same supposed threat that Ukraine does, but any instability in the region can’t be positive. Holding and hoping for another successful drill, sustained flow rates from current drill, and a calming of tensions from-politically. If those three things happen and Brent stays strong we should be well north of here in six months time.
Looking at timeline for jkt well, drilling commenced second half of November and we have interim results 8 weeks later. So once maintenance on rig is completed and new well identified we shouldn’t be waiting too long for a repeat. If oil prices stay around this level looks like we can self fund the next couple and if they are a success that approach can continue but probably speed up as more money available to ramp up. Key period between now and end of H1. If oil price stays strong throughout then we should hopefully make a much more compelling investment case by then if we’ve had another 2 wells drilled.
If you are invested for the long term i don’t think that much has changed over the past 2 years to make you genuinely question your investment. We’ve had failed drills and declining well performance, both of which are part of the game in O&G exploration. Offsetting that we’ve had a massive expansion of acreage and increase in net asset value, we’ve laid some solid infrastructure to support future growth, teamed up with baker hughes and recruited some tech experts. If we had £10m in the bank and another 3 drills lined up we’d Be in a different place sentiment and SP wise.
But it only takes one small success to change the tide. If we get decent revenues from jkt and go back and succeed with a sidetrack at B1 then we are in a different place.
If we don’t succeed with jkt then big questions will be asked about our strategy and where we go next.
All this is normal for an small cap O&G explorer. The difference with us is we have zero debt - that is a materially different position than almost all our peer in this sector. So we have options - maybe we get bought out, maybe a farm out / in. Who knows but I don’t think the investment case is hugely different to 18 months ago, it’s just higher risk (hence declining sP) as this is our last shot with current funds.