Gordon Stein, CFO of CleanTech Lithium, explains why CTL acquired the 23 Laguna Verde licenses. Watch the video here.
There isn’t a single body of oil and a single body of water.
It’s a multitude of vertical fracture all with different depth tops and bottoms and connected at different horizontal depths.
Each fracture has its own little structural closure, both up and down. The fractures will have HC in the attic and water in the bottom.
Some fractures might connect to the aquifier or Trice might have open that connection back In December with his aggressive well testing.
But using a single value for OWC is ridiculous and is clearly not representative of the actual reservoir.
Let them do it. I will be comfortable to complete disregard such a poorly applied model.
I will instead be using the cash flow as the acid test.
Shhhhh.
"FB only works where you can keep drilling cheaply and get more revenue than cost. Its the cost that will kill this IMHO. Water will come up the fractures and each well will not produce enough to justify full field development. Every well is its own pool effectively and so you never know whether you are going to win or lose. Every well is exploration in effect. "
And yet here we are... with $70m per year of free cash flow from just 2 wells...
... AND at a time when all the rest of the North Sea is in negative cash flow.
Define "viable".
Very inconvenient how that cash flow just keeps on disproving all the doubters.
It just keeps going, it hasn't even dipped, in fact it has gone up!
Are we even up on the plateau? Let alone coming off it. Lol.
But the sky is going to fall!.. Any moment now it will all end!.. Any moment now... or now... now... now... any moment... now...
What news are you waiting for?
All the news has already been put out. They have been busy setting expectations lower.
They are going to assume the OGA model on OWC, wipe the OWC commitment wells from the schedule, and rev their cash flow a bit more.
They won't declare a commitment / FID decision on forward workscope until they have kicked the bond into the long grass with refinancing. To refinance the bond on good terms they need to demonstrate reliable cash flow. So the primary objective just now is cash flow stability, which so far is going rather well, even though a lot of people are claiming the cash flow is going to stop dead any minute now... or now... just watch... now... or now... it's going to stop now... errr... now.... oh... how about... now... grrrrr... now... stop... now... ah look now it's starting to stop... oh it's gone up... now it's stopped...oh it's back... how about now?.. no... this is the time... now... now... now...
At some point you just have to accept that the cash is flowing and HUR just need to find 1 or 2 financiers who will accept that cash is flowing (it is), they don't need to convince every prospective bond holder in the universe.
Interesting that they frame the new CEO this way.
Obvious not looking at winding this up.
"I've taken another look and I think I should query your conclusion.
If you look at the graph on the left and on the right they start from the same point. If you were right surely the initial pressure on the right graph would be above 1900psia?"
Come on man, when will you get it?
One of the charts is a MODEL (a best guess) the other is EMPIRICAL (actual real world results).
Guess which one is the important one!
Who cares about models when you have real world results?
If the model can't predict reality you don't throw away reality!
There are 3 models on the table here. But today only 2 exist.
1). Trice dry FB model
2). DSPP wet conventional model.
Trice's model can't explain the water, DSPP model can't explain the BHP.
What they need is a wet FB model (a fully worked perched water model), this has always been just a hypothesis.
*****
The technical committee are about to move from model (1) to model (2), but I suspect (in view of BHP data) model (2) is also wrong. I suspect that HUR are savvy enough to know (2) is wrong but it has the Bucey bonus of getting them out of the 2020 commitment wells.
In 2021 (If they don't get taken out in Q4) HUR will suddenly produce model (3) using "new data".
In the mean time retail investors can sweat bullets, and cash leaking majors and big independents can run the ruler over HUR as a nice cash pot to paint shiny gloss over their horrible year end numbers.
But WTF do I know?!
You would expect the line to form a curve (exactly as it is doing), because the density of the produced fluids is changing (it is getting wetter), it takes more pressure to lift a wetter barrel to surface. But the immiscibility of oil and water and the difference in viscosity can get complicated with transient flow regimes such as slugging and plugging and can produce weird dynamic behaviours such as well bore flooding.
This is a ***** to manage in real time, because you don't have the right data to hand.
So people go for a production completion solution. Hence the ESP's.
Now they can manage the wetting with configurable operating modes. Which they have already done and reported as a success... stability.
The biggest problem here is the one I have said again and again.
This is a complex reservoir being appraised by simple models. This leads to lots of spurious interpretations. This is only the first big one, but there will probably be more scares along the way.
Let the cash flow do the talking.
If it looks like a duck, and it sounds like a duck and it walks like a duck. It's a duck.
If this Lancaster EPS setup is producing free cash flow whilst all the rest of the North Sea (see Premier today), is losing money hand over fist... that tells you a lot more about viability than any spreadsheet or fancy computer model.
The whole point of all the models is to try and forecast the cash flow.
But never forget that nothing can forecast cash flow like cash flow itself.
slift, grey line is the flowing pressure and is more dependent on the tubing size and the choke setting than the reservoir fundamentals.
Bigger tubing with more open choke results in a much lower flowing BHP.
The difference between BHP and flowing BHP is what provides the hydrostatic head to actually lift the fluids to sea level.
Prolific wells like these have a big drop between shut in / start up pressure and flowing pressure.
Here is what the market is pricing in...
https://ibb.co/Rc3N4QB
Here is why it is wrong...
https://ibb.co/R9hZTTD
OWC at 1380m gives a Gross Resource Volume of 1,490m barrels and STOIIP of 335mm bbl.
Resource is going to be around about 335m. But this is very delineated now thanks to the EPS, and is closer to moving to reserves. Hurricane probably know enough to progress with FEED on the field as defined by this criteria.
This remains a very large oil field. One that can produce ~$3bn of free cash flow on development.
One that would require probably 8 decent wells to produce (40m STOIIP/well).
The market cap is £100m. The field is already producing profitably.
Not sure if you are asking "what it is" or "what it is"!
The 200MDA is the 200 moving day average and it is currently 17.1
Take overs are almost never completed outside +/- 50% of the 200DMA.
Likewise takeovers are almost never completed outside +100% premium over the closing share price.
That gives a takeover window just now of 8.5p - 10p
But large shareholders would probably want something closer to the 200 DMA which itself is falling every day.
Buyers might wince at such a high premium to the closing price.
Both sides would be stretch to reach a deal price today. But the share price and the 200DMA will continue to converge and the TO window will open up, shareholders and a buyer will not feel like they are stretching as much and make a deal increasingly becomes much more likely.
I would be surprised if we get to Christmas without seeing an offer.
Slift,
Points on the grey line are flowing pressure. Edison (wilfully?) misread that.
Q to slift: Why does -6 have a greater shut in BHP than the deeper -7z? Check it out yourself.
A: Perched water (what possible alternative explanation is there, for this geological abomination of a data point?)
People can claim whatever they want on paper, and can produce paper to meet whatever their legal obligations / contracts are or whatever gig they are doing.
But reality is real and eventually everything collides with it.
I'm relaxed about it all.
Bmbear,
Yes, that 200 day moving average is important. When it drops below a 100% premium offers will be made.
Too much positive cash flow here that can be used as glossy paint to hide the cracks in other much larger balance sheets.
To me the question is much much closer to; what price will Hurricane be taken over at? or can they escape take over?
Than it is to ooohh, that 2022 bond is scary.
And the reasoning for my view on that based on the operating climate for other oil and gas companies much more than anything happening at Hurricane.
Cash flow is oxygen and Hurricane has it for 2020, whereas many other much larger oil companies do not.
If you look at the broker report, and the two charts side by side, Exhibit 1, shows BOTH the flowing bottom hole pressure and also the bottom hole pressure (because it shows the pressure even when the wells are shut in).
If you draw a curve along the peaks of exhibit 1, this is what you need to compare with exhibit 2.
The top of exhibit 1 is shut in BHP, the bottom of exhibit 1 is flowing BHP.
You can also get a feel for the pressure build up times and what that means for the reservoir, but I won't go into that here/now.
I am just pointing out that the shut in bottom hole pressure on exhibit 1 is consistent with the low case in exhibit 2.
The oil column is probably somewhere around 380m. You can argue over the rounding I don't care much, but I think they might declare a lot less in order to escape OWC commitment drilling.
But the EPS data so far points strongly to a 380m oil column +/-40m.
380m oil column now becomes the base case and we can set new upper and lower bounds for new high and low cases (but there is less error now as we know more). The new lower case can then be used as the basis for reserves calculations.
Difficult to see grounds for a nuclear 80-90% downgrade on this basis, although I would like everyone to EXPECT a huge downgrade... so yeah, could happen. Maybe they will errr on the cautious side? But these are paper reserves, they are drawn up for the balance sheet and also the OGA. Actual production follows reality, not reserves.
Again, I don't really see any need for alarm if you are buying at these levels. I can see how the market consensus was reached, and I think in all probability the consensus is way off the money. As a result there is significant investor capital sitting on the sidelines waiting for the technical report. That money will flood back in so long as HUR does not declare themselves as unexpectedly pursuing immediate liquidation in the same RNS.
Just sit back and let the cash flow do the talking. All the data points on this point to things being OK.
The discounted cash value 3-4 years from now is somewhere around 20p. That's a lot of growth goodwill if you are buying at 60p, but it's a bit of a no brainer at 5p.
Pretty obvious now that Trice was too rose-tinted (he genuinely believed) which is OK (we need more of that in the UK), but his unnecessarily aggressive well testing schedule for December 2019 has caused some problems, resulting in production disruption / remedial work and there isn't much room for it with other commitments and COVID and this is probably the reason he was ousted.
A more cautious Trice would make an excellent CEO.
He has unfinished business here.
Allow me show everyone how appallingly clueless you are.
Look at the RNS
*****
On 2 August 2020, the Aoka Mizu FPSO underwent a controlled shutdown to undertake an inspection. The inspection identified necessary repairs which have been ongoing in recent days, with production expected to restart imminently.
*****
Does that sound like Hurricane ordered the wells shut down or Bluewater ordered the plant shut down?
Would the shutdown be at Hurricanes expense or at Bluewaters expense?
ngms,
But you have them going from...
Total fluids
-6 = 13,600 bpd
-7z = 10,640 bpd
= 24,240 bpd
To what exactly?
< 20,000 bpd?
In the space of 7 weeks? Because of the reservoir?
Not a chance. I would put that at less than 1% probability.
Why do you expect this sudden drop in total fluids? It makes no sense at all.
We are already in year 2 of production and total fluids has never done anything like that. Also the pressure gradient was still flattening out in April.
From the IPR plots the wells still haven’t seen their maximum extent of reach, so there is still scope for further surprises yet (both good and bad).
I expect Total Fluids will not change much at all over the next 12 months. Or even over the next 5-9 years of the EPS.
There is no mechanism for the total fluid rates to fall off, that would only happen if we were depleting the reservoir and we can’t do that here because a). the EPS is too small and b). This reservoir is still being charged from below.
The reservoir (one of heterogeneous fluids) is vast, we know this as the IPR of the wells was still flattening in April even after 10 months of production!
The only question is the ratio and distribution of fluids (oil and water).
Total fluid rates might change of course IF they experiment with different choke / ESP settings. But that isn’t indicative of reservoir extent or content and I think most of that experimenting with different configurations is mostly behind us now.
We already know the rate limits that draw up water from the various well tests. HUR have published this with their well testing data.
Some of the expectations I see in numbers people post here are way off the curve. Not trying to be rude.
There is enough data available to plot out production forecasts with sensible confidence bands.
The water cut will creep up in an S curve profile. -7z might water out and be abandoned because facility capacity will be preferential allocated to -6.
Can’t see -6 becoming uneconomic though. Looks fine on all my projections of past points.
The existence of the -6 well on this license also makes the whole license extremely interesting. -6 cannot be disappeared from history now.
A well on this license flowed 10-14,000 barrels for over a year and it’s still thundering away. For that reason alone it is the most prospective license block in UK waters.
Today you can buy into it for free (equity is valued at cash).
I secretly like the scary stories and the swirling fears of doom, because without all that I wouldn’t be here.
“ I’m expecting well 6 to have water cut above 20% in the late September update and around 10k oil max.”
It doesn’t even make sense to operate the EPS that way.
You expect -6 to produce...
10,000 barrels of oil and 2,500 barrels of water?
I presume you expect even less fluids from -7z?
But total fluids capacity of AM is 30,000 barrels and water handling capacity (prior to any FWKO mods) is 22,000 barrels.
Why would they choke the EPS back to 60% of throughput capacity? They will not.
If you think -6 will be down at 10k oil by September then you must also think the watercut would suddenly be rocketing from 12% and rising at 1% a month to >50% and rising at 30% per month.
I don’t think the water cut creep is going to suddenly accelerate 30 fold.
Haha, it’s just absurd, but I guess that is why the opportunity here is so juicy now.
People expecting all kinds of crazy nonsense.
DiveCentre,
I have access to the exchange on which the bonds are listed. I can see the bid price and the ask price in real time.
-34.34% is not the discount to principle, it is the change in price between the last two trades.
44p is the last price at which the bonds traded. That represents a 56% discount.
I quoted a discount of 45% because the ask price is 55 pence.
The spread is approximately 10 pence (it varies), which is about 20% of the mid price.
If HUR push up their own bond price with open market operations this is not a bad thing!! I agree the bonds are illiquid and probably not for sale in large volumes.
As I said previously HUR should have a 'purchase and cancel policy' on the bonds, they should purchase aggressively at any discount, but also purchase at par as this saves the coupon.
Why pay the coupon when the capital is not employed?
HUR should use free cash to support the bond holders liquidity and keep the secondary market for the bonds at close to par, this policy would make the bonds much more attractive as financial securities.
HUR can now refinance the bonds to a longer maturity, as of 14th August 2020 (today) they have the right to redeem all of the convertible bonds (at par plus accrued interest) and replace the debt with longer dated bonds.
These actions are a sensible route to avoid a 2022 cash crunch and avoid shareholder dilution. It's just good business.
IAmNotAnAnalyst,
Nope, the bonds must be redeemed at par, or converted at par, but they can be purchased on the secondary market at whatever price they are offered for sale. They can do this now.
Once purchased by the issuer the bonds are treated as cancelled (in theory they could be held to maturity in treasury but this complicates voting rights and under normal practice is forbidden in the terms).
Bond purchase and cancel benefits shareholders by increasing shareholder equity on the balance sheet.
It does this because every £1 of cash (current assets) spent purchasing bonds will reduce the bond (long term liabilities) by £1 multiplied by whatever the discount to maturity is. Currently the bonds yield 7.5% and are discounted by about 45%.
So Hurricane are in a position to purchase £1.15 of their long term liabilities for just 55p
The difference is added straight onto the shareholder equity on the balance sheet.
Some people might consider failure to do this, as negligent of fiduciary duty.
It is interesting but Hurricane's path forward looks like this:
1). Move OWC parameter to enclosure depth
2). Formally write off, reserves and resources (already valued by market at £0.00).
3). Renegotiate commitment wells
4). Purchase and cancel the bond
5). Reassess position in 2021 <-- should look significantly more favourable (+250 - 400% shareholder equity).
6). Remodel the geometry on cashflow defined reserves
7). Refinance remaining debt
8). Go again.
It looks like they are preparing to present some format of this. It looks good.
Don't confuse your bond mechanisms.
1). Redeem - Hurricane can elect to redeem the bonds, the bonds must be redeemed at par plus accrued interest and across the entire issue, (in practice this means the entire convertible bond issue can be refinanced by Hurricane at any time after 14th August 2020, today).
2). Convert - Hurricane can elect to convert the bonds, Hurricane can settle conversion by delivery of ordinary shares, or by a cash equivalent (determined by VWAP), or a combination of shares and cash (settling in shares dilutes existing shareholders, this is the last thing shareholders want). If cash reserves + operating income fall short of the amount required to convert the bonds at par, the equity will be diluted by the extent of the shortfall.
3). Purchase and Cancel - Hurricane can elect to cancel any bonds that are owned by Hurricane, but first Hurricane must purchase them (when the bonds are trading at 50c and Hurricane is generating free cash flow, this is a no brainer. It is by far the cheapest way out of the debt).
These three different mechanisms are specifically mentioned in the "Results of Convertible Bond Offering" document.
Bonds that are purchased by Hurricane are considered cancelled, this is so that Hurricane cannot accrue controlling voting rights among the outstanding bondholders (avoids a potential conflict of interest).
Given that Hurricane are making money hand over fist (whilst the rest of the industry is not), and that the bonds are trading at a material discount, this is one of those very rare situations where it makes perfect sense for the issuer to purchase their own issued bonds and cancel them.
It is likely that the bond market is very illiquid and that not many bonds can be purchased, DO IT ANYWAY. The bond price is an important proxy for the health of Hurricane and is used by institutional investors AND SUPPLIERS to determine the financial health of the company.
This should be the primary objective for the use of the companies (otherwise idle) cash reserves. It improves the balance sheet by £2 for every £1 spent (at current bond price) and creates space for recapitalising if/when the EPS is successfully navigated.
The only potential hurdle to this is the OWC commitment drilling. But existing cash reserves should already cover the expense of these commitments. Some meaningful quantity of the uncommitted cash should already be available for addressing the 2022 bonds.
Given the growing uncommitted cash position, there should exists a purchase and cancel policy to take advantage of the current bond discount. Even without the current discount, purchase and cancel reduces the ongoing cost of the 7.5% coupon and therefore is a mechanism to improve the post-2022 uncommitted cash position above what it would otherwise be.
The fact that this glaringly obvious use of the uncommitted cash hasn't happened, is why I believe there are talks around someone else acquiring that uncommitted cas