Member Info for Stu255

Just to add to my last post...

I get 10,750bopd to b/e at $35

And the companies recent hedging strategy seems to fit this within +/-10%

Buying $35 puts for 1.8m barrels for H2
= puts for ~10,000bopd

That sits pretty much on my b/e curve.

The annualised cost can be extracted from the CMD Presentation.

I did this the other day and found it was $146m this include the whole group. No doubt lots of contracts are fixed cost.

This assumed 18,000bopd but the slides also show the costs are about 85% fixed.

You can therefore go further and break it down as

Annual fixed cost = $124m
Process costs = $22m or $3.40 / bbl

You can all try the following
1). Guess the oil price.
2). Subtract the process cost ($3.40) from your oil price.
3). Divide the annual fixed cost by your answer from 2).
4). Divide answer from 3). by 365 days.

I get ~9,400 bopd, assuming $40 oil price.
I get ~8,100 bopd, assuming $45 oil price.

A few noisy variables at play.

But the company recently hedged 1.8m barrels for H2, they obviously expect to produce those!

There are plenty of options.

But killing the deep OWC commitments is the primary objective and explains much of the current messaging from the BoD.

As I posted elsewhere. It seems obvious to me that interpreting the OWC to be 1350m or shallower completely eliminates the need for the commitment well.

From the April Presentation: https://www.hurricaneenergy.com/download_file/force/526/221

Page 8 final paragraph reads...

“On Lancaster, a commitment well is required to be commenced by the end of 2021 to demonstrate the presence of mobile oil at Lancaster below structural closure (1,350m TVDSS), following which the Lancaster field may be subject to re-determination.”

The CMD Presentation suggests that is another $20m added to uncommitted cash.

The best way to delineate the OWC, is by extending the EPS.

If the OWC is shallow then the OGA should insist HUR continue shipping lots of oil until they get to the bottom of this perched water / OWC question.

Some investors are zipped up the back, others not so much.

From the April Presentation: https://www.hurricaneenergy.com/download_file/force/526/221

Page 8 final paragraph reads...

“On Lancaster, a commitment well is required to be commenced by the end of 2021 to demonstrate the presence of mobile oil at Lancaster below structural closure (1,350m TVDSS), following which the Lancaster field may be subject to re-determination.”

Hmmm.

How can Beverly Smith, negotiate with Andy Samuel to find a common ground for HUR to successfully seek to amend the P1368 license extension commitments and thus save HUR the expense of organising an expensive and unwanted drilling campaign, to drill a well that has no spare facility capacity?

Hmmm.

Maybe everyone can agree the oil below 1350m just isn’t there? If it’s not there, nobody needs to delineate it.

Hmmm.

Perhaps if HUR can find a way to disappear the primary question that is answered by the commitment well, then the OGA could be much more receptive about reducing the drilling commitments?

Hmmm. Can a committee look into that?

What about extending the EPS?

Well the whole purpose of the EPS is to reduce uncertainty. As the uncertainty is gradually reduced so to is the need for the EPS. Whereas the greater the uncertainty, the greater the need for the EPS.

Hmmm.

If the EPS keeps throwing up all these new questions then HUR are just going to have to keep shipping all this oil until they can get to the bottom of it. Which apparently is somewhere above 1350m (even though they have already produced half the oil above there, and are still on the plateau and under natural flow).

Hmmm.

What would shareholders prefer?

1). Some bullish CPR paperwork that massaged your ego.
2). Boat loads of actual cash in the bank.

Hmmm.

Hopefully the OWC is moved (easy to move it up on paper) and then the commitment well is taken off the table.
= +$30m cash to HUR shareholders.

Hopefully the EPS is extended by another 12 months in light of all these new water cut questions.
= + $60m cash to HUR shareholders.

Meanwhile the bonds are trading at 48c on the dollar, might also be an idea for HUR to start acquiring those via some proxy.

Before you know it HUR have improved their hand by $100m+ cash, all with some savvy book keeping.

They wouldn’t have spent $3.5m on 1.8million puts if they didn’t expect to produce 2-3million barrels in H2.

That’s another $30m cash.

If Beverly buys back her own bonds at 50p she is a ****** genius.

You can value this in two ways.

1). Bottom up, you appraise the geological assets. You try and figure out what the geology is worth and what value can be extracted from them.

2). Top down, you look at current cashflow and liabilities. You figure out what the cash flow needs to look like for the company to pay all liabilities and buy the equity back at the current market cap.

1). Involves trying to determine exactly what is happening inside some rocks miles underground, below the Atlantic seabed and hundreds of miles from the coast of the Shetlands.

2). Involves looking at the company financial statements.

*****
At the moment everyone is using method 1). because everyone is thinking this is an exploration company still.

I think HUR under the new CEO is e&P rather than E&p.

That's right garyn, but the current price reflects that.

People still arguing about the 2019 picture are lost (and there is a lot of that still here).
The portfolio was overvalued, it was priced to defy the odds. There is still a huge amount that is unknown and plenty of prospects get re-evaluated and re-interpreted later on only to be proven hugely valuable. This is normal for exploration.

Back to today, there is plenty of value here at this price.
HUR are still producing 17kbopd at sub $30 b/e.

Cash is flowing in, that's valuable. There is no better indicator of the future than today's production numbers.

The company have a liabilities hurdle to get over, but they are chewing through it every day, and if/when they can clear that everything above is equity. Personally I think you have to take a very gloomy view, to assume the wells will water out and be abandoned before HUR has made an armful of free cash.

The -6 well is currently the single most prolific well in the entire UK sector and we are talking about it being abandoned? Come on.

If they change the commitments and extend the EPS, it helps HUR test the WoS play and that in turn is good for UKCS.
I just don't think the OGA will kill the play when they can afford to be patient.

If the OGA go ahead and kill HUR with onerous commitments then nobody else is going to restart an FB EPS any time soon. Everyone is watching Lancaster. The unspoken truth is that the OGA are desperate for this EPS to succeed.

I'm just not sure it's correct to talk/think about OWC as a concept in a fractured reservoir. I think as a concept 'OWC' is misleading in this type of "reservoir" application.

Conventionally you have fairly uniform porosity and permeability and then yes, you have a reservoir wide OWC and it can have some contours, but it is basically a neat way to describe two distinct bodies of fluid (one oil, one water) with a single contact surface, all organised by buoyancy.

In a fractured basin I just don't see how that terminology is even relevant.

You have oil and water both present, but there will be upward seals and downward seals and lots of fluids trapped in quasi-equilibral buoyancy locations (perches and umbrellas?) the whole thing will be full of permeability dams and dykes and all sorts of stuff because it is fractured rock.

You can have water above oil (perched water) and also oil below water (dunno what they call that?). But the existence of both kind of invalidates OWC as a useful concept because it is too simplistic.

I think it is now very clear that the OGA should give HUR a lot more time to run the EPS to see how the early years of WoS fractured basements perform and how the mixtures of different fluids go up and down as the drainage area expands from the well bore to draw from different fluid accumulations.

All of the super majors are taking licenses in the WoS region, it doesn't make sense to push HUR into difficulty with hard commitments when there is still a lot of potential and appetite in the WoS basin and the industry wants to know how much water knock out capacity it might need to specify should this stuff get seriously developed in future.

Delaying the commitments and extending the EPS is in everybody's interests here.
Including the OGA. Including HUR shareholders.

The industry and the BGS are still learning from this EPS. It should be extended.

"Give it a rest Stu, repeating the same thing incessantly. By the way, it's August not September, and if you really think this RNS is somehow going to push the SP here to the moon you need your head testing."

My post even predicted your post...

"Able to buy/sell shares easily sub 5p.
Well Stu it seems that this isn't quite the flash crash you envisaged.
On your significant set of bells and whistles can you see any sign of waves of new buyers for your New World Order or is it just our happy shorters closing their positions?"

And this one too.
Just how explicit do you expect me to be?

Go and read the flash crash thread.

^^ This thread from Tuesday is interesting.

Yeah so this thread is really and is 2 days old.

Can't buy right?

Read the flash crash thread from 2 days ago.

I warned about this 2 days ago.
I hope those on leverage made deposits.

This news is / was already priced in.

This is a clearing out of the old view of HUR.

This news just crystallises what was already known.

It is largely priced in, it is why HUR is not 60p.

However... a year after first oil the -6 well is still the most prolific oil well in the UK. The company is regularly shipping a lot of oil, making a good profit and sitting on a mountain of cash.

The finances stuff is real. That’s what the serious people care about.

Oil spot prices are extremely volatile. The price can move 50-100% in a single month. Analysts tend to put far too much emphasis on prevailing market conditions and give far too little consideration on the full cycle price range.

For example...

Brent has been below $50 for only 96 weeks of the last 780 weeks (780 weeks = past 15 years), this includes 22 weeks below $50 during the 2020 pandemic.

That is to say, of the past 15 years, Brent has been above $50 for 88% of the time.

It would be fair to assume that inflation adjusted oil prices will be above $50 for approx 88% of the next 15 years. As this will likely include multiple full cycles.

When you strip out the short term bias, and historical (inflation adjusted) prices of oil are plotted over a probability distribution curve it shows two very distinct artefacts (quasi-stable price ranges).

Brent spends 13%of the time at less than $50
Brent spends 49% of the time between $50 and $80
Brent spends just 10% of the time between $80 and $100
Brent spends 25% of the time between $100 and $120
Brent is above $120 for just 3% of the time.

The two quasi stable ranges are 50-80 and 100-120.

The median price is $65 the mean is $79.

But if you can’t survive below $50, you will go bankrupt very often. If you can survive below $50, you stand to do very well over 1-2 cycles.

Why is it murky?

There’s nothing wrong with shorting. Quite often it is a sensible hedge.

The outstanding short position on HUR is very small compared to lots of other companies.

I honestly do not understand the obsession?

/ / Wouldn't it be interesting if... / /

Quite likely there will be a mini flash crash on this in September (or maybe sooner).
If you do witness it live, do NOT try and trade it via a retail broker platform (how cute), you will not be able to buy back in.

During such events the spread is always huge (the ask might actually go up! as MM's back off and pull liquidity from the order book) and most of the volume will happen inside SETs auctions and SEAQ anyway (most of you here won't have access to either of those).

It doesn't take Einstein to figure out that HUR is a ripe flash crash opportunity (for a trading house) for one very particular false rumour. That one particular rumour can provide enough of a cover story for a flash crash (one which nobody would bother to investigate). Such a flash crash will flush out the weak over leveraged positions, if this sounds like you(?) then I suggest you shore up your trading accounts with deposits BEFOREHAND (during August).

If you put some limit orders on the bid early in the morning each day from here on, you might get very very lucky (I doubt you will get filled, but certainly possible). Whole thing will be over in less than 20 minutes before it fully recovers and goes on to close much much higher on the day. After the high volume flash crash event the brakes will be off and I doubt you will see these low prices again (I guess it's possible way out in the future).

This window has been open long enough, but soon it is going to close, just watching the last few lemmings jump off before the reversal patterns start being painted. Cheerio! Lulz. Don't want Camel's noses under the tent.

If you are not using leverage relax, you can use August to stockpile popcorn and wait for the fireworks.

But big reversals need big volume and big volume is drawn to big volatility. <- Herein lies the truth. When the fast market starts and the volatility expands the spread will blow out, so waiting for the volatility expansion to happen before buying is a mistake that you will regret.

Sort your positions out now. Some traders know how to manufacture big reversals, most don't.

If you see such a flash crash.
Do NOT fight it.
Do NOT trade it with a retail broker. You will get shredded by a giant spread.
It will be scary at the time, but you have been forewarned.

Just remember... This is the volatility that will draw the volume that will drive the reversal.

This "shared musing" is not financial advice!

I am pretty confident from past experience that nobody will act on this post. Even after half of the events mentioned herein have actually happened, people will queue up to decry why this post is wrong.

DYOR, etc, etc.

The $230m convertible will be repaid by Hurricane not from cash reserves, but by simply issuing a new bond. The bond market is rampant with base rates fixed so low for the foreseeable future. We are in a bailout climate, the Bank of England has a very active Open Market Operations calendar as they inject waves of new money into the bond markets (nowhere else).
https://www.bankofengland.co.uk/markets/bank-of-england-market-operations-guide/information-for-participants

The new bond will be non-convertible.
The new bond will likely have a cheaper coupon (interest rate) as HUR is profitable now.

It doesn't really make sense to pay down debt when the base rate is just 10 basis points. The board will just refinance on more attractive terms. If anything they might borrow well above $230m and expand the debt position to match the greater equity position (in 2022).

The whole CB debate is a red herring... Refinancing the CB is akin to getting a new fix on your mortgage.

It is a complete fallacy that HUR have to go to zero debt for even 1 second.

Meanwhile HUR own 100% of the most productive oil well in the UK.
It has been producing for over a year now. It even made a healthy profit whilst it was troubleshooting.

The penny is falling and the window is closing.