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Wyoming encourages spend on drilling by offsetting tax against the drill cost.
Some other further incentives aswell
So tax savings to be gained on rising production
Equally CNOOC contribution on 2 of the 3 wells planned in FD
so c $8M for two wells = $1.2m back to SWP
Interesting COPL are going for a Cole Creek well at 100% WI first off the rank, so pay more up front drill cost, but gain earlier full revenue.
CNOOC contribution of 15% also :
$12m gas gathering cost upgrade, all the pressure, wax etc issues
$11m - nine BFU vertical drills for 2022 intent
$3.5m payment in period.
The chance of success is a percentage of finding oil in an exploration drill and it being commercial.
The oil is already found, with reservoir extent mapped and independently validated by RS.
"The BFU 14-30VF (100% WI) discovery well drilled in August 2021 intersected 140 feet of net reservoir sand in three (3) Frontier 1 sands and the single Frontier 2 sand. Light oil (40° API) was recovered from the lowermost Frontier 1 and the underlaying Frontier 2 sand on perforation. "
It is high API light crude so is commercial quality and scale at over 1 Billion OIP
The discovery well is in production from Dakota.
In a production development well as planned, you are drilling PRB known field and known Frontier reservoir. Production of Frontier in PRB is established.
COPL have seismic, geo modelling and recorded offset historical well logs that give the subsurface composition and can be tied together to interpolate the expected conditions at the new well sites being drilled. In these cases, it is almost certain, approaching 100% that you will have a economically producing well. And the drilling costs are lower because they know the geology, no surprises.
Primary recovery at 10% is standard
The enhanced recovery by gas flood provides a 40% tertiary recovery factor
Its why COPL are starting the 3 horizontal drills on the east side of the field as they can use the topside in place to expedite the gas flood.
steel casing - they will source this in time
RBL signed - expected in Q3 and draw down in Q4
Increasing BFU production - a process ongoing
SP £1 next week? no
by March 2023?
and BFU field issues addressed
RBL finance in place
Three Frontier wells drilled and online
c 6000 bopd production
Each to their own view
AM made a key statement on dominos falling as they progress
FD drilling campaign
reserves booked - enabling greater RBL scale
Allowing increased field delineation...
Stay the course
AM did not sell his North Sea asset when it reached 30k bopd
He has already said he will develop COPL into a producer of scale
Its going to be slower without a Major partner to lead, but he has the fund manager backer and soon RBL of scale c $60m as Ryan outlined
Debt paid - $45m
Gas gathering - $12m
BFU drills - nine in 2022 planned = $11m
Discovery drills - 3 planned in period to March 2023 - each short lateral H drill may cost $4m as benchmarked = $12m
MF costs to March - ? - assume $7m
G&A - $3m
Spend of c $90m until Mar 23
Also exit of current hedge, at unknown future cost and timing
cash on account ?- assume $10m
Revenue in period estimated scale
Hedged BFU first 1000 barrels = $3m net profit in 6 months
Unlock BFU capped flow towards c 3000 bopd by March = assume $12m net profit in period
3 Frontier wells online at 1000 bopd each average = assume $7m net profit in period
cash in potential after costs and tax to Mar 23 = $32m
Potential RBL drawdown in period = c $60m
From March c 6000 bopd assumed may be achieved.
Providing over $7m a month net profit after costs.
End 2023 10k bopd is viable
end 2024 30k bopd - as longer lateral H drills are average 2000 bopd = ten drills
without a Major on board
As AM delivered pre global crash at Oilexco, with offshore higher costs.
30k bopd achieved
Revenue $41m in quarter
All to play for
"It added that “chronic underinvestment in the oil sector has reduced excess capacities” in all major sectors.
The group also sounded a note of caution that “insufficient investment” in the upstream sector – finding new oil reserves – could negatively impact the supply of oil “in a timely manner” to meet increased demand beyond 2023."
1 Billion barrels OIP resource estimate onshore USA established PRB with route to market
Exxon are to the north
"The Frontier 2 sand has significantly better porosity and permeability rock characteristics compared with the Shannon sand and could be used as a potential miscible gas flood."
40% recovery rates on 1 Billion barrels OIP
400m barrel reserves potenital
COPL have a 1 Billion oil in place resource estimate, independently confirmed by Ryder Scott on a conservative basis, pending the forthcoming drilling campaign.
Further analysis may establish c700m or 1.3+ Billlion barrels - either way this will be sold - its firmly on the radars of Majors now - expect SP games.
Light & sweet crude discovery of this magnnitude onshore USA in an established basin is as good as it gets - globally.
Anyone who is saying differently has an agenda, is being paid to cast doubt, highlight risks or otherwise attempt to marginalise what is indeed one of the biggest oil finds in decades.
There are always sector risks, however SWP has active risk management. One drill = 1 Billion barrels is unheard of, its down to thier skills.
Alaska similar scale of a discovery, made in 2017 as recently highlighted by Illusion:
"The contingent resources currently identified in the Nanushuk play in Alaska amount to approximately 1.2 billion barrels of recoverable light oil."
Note - contingent - exactly where COPL are now with their discovery.
This example is Alaska however, takes time due the the terrain and weather, challenges on transportation and route to market:
"Phase 1 of Pikka is an estimated $3 billion investment...80,000 barrels per day."
Stating first oil in 2026, over 9 years on from their discovery , albeit C19 impacting.
COPl Discovery confirmed Jan 2022 , Frontier drills planned in Q4 - just 9 months to first oil , can be booked via the existing pipelines, at overall low cost.
AM has done what he has to do to move this fast in the right order.
How to finance ?
RBL is being negotiated - unsolictated offers of finance AM mentioned, how about RBL company interest now?
Debt will be managed, oil will flow.
As to the move from contingent to booked reserves?
Drilling is planned = reserves booked as field is delineated, it will be rapid and unstopable.
The Dakota discovery vertical exploration well in production - has booked 97,000 barrels reserves
AIF document finals March 2022
page 62, Table A6
COMPANY GROSS RESERVES
refer to discoveries in column 3
Gross Proved Plus Probable (P2)
97,000 barrels reserves booked
"Discoveries was the exploration well in the Barron Flats Federal Deep Unit ("BFDU")"
RBL enables drilling, revenue and development.
"Following on from the recent financing and completion of the Cuda Energy acquisition, this Report is another step forward as we transform into an oil producer of scale."
Same team, same pivotal point with oil found, waiting on RBL coming in Q3, easier and lower cost onshore compared to their Oilexco North sea adventure.
They do have the bonds a tap facility to run alongside the RBL, an unspecified cap at this time, this total may change over time as field development continues, confidence grows and the lender re considers their position.
The Bonds/tap wont be paid back by RBL , they could be paid back by cash or shares
So if production rises within 2 years for first half then cash more likely perhaps.
If not so much as expected or not expedient at that time, then shares,
Then another year to pay back the next half so allow production revenue to grow.
Its a good construct for both, also the lender wins either way.
COPL get to offset bond re payment for 3 years during a period of very high calls on capital to grow.
The time period would have been a key negotiation topic since May, this 3 year block is probably what AM wanted for maximum flexibility, lender got the warrants as a sweetener.
Why three years? Its co incidentally what he took to grow Oilexco from junior explorer to mid tier cap - 10c to $16.44 a share - also so I get to mention this 160 bagger again.
"Oilexco ...has become a bit of a Canadian hydrocarbon darling of late, morphing gracefully from junior explorer into mid-tier producer. The disciplined and methodical deployment of capital that has become the company’s trademark have got both individual and institutional investors smugly satisfied with the share price appreciation, which recently touched a high of $16.44 back in November last year."
We have to take AM as he is, I thought Baggys ten commandments pretty accurate.
AM is an oil man, not a fluffy hand holder and will be ruthless, do what he has to do to grow the company .
He could do with a PR course or bring in others front of house, but at the end of the day if he pumps the oil the value will flow.
How do you think BP develops their oil fields?
Thats right - with RBL debt
Its the industry standard approach, so debt when managed is fine.
How else do you think COPL may develop the field otherwise?
As to the current SP - its utterly irrelevant as the field is not yet developed, key aspects not yet in place - to assume it will remain lacklustre is not taking into account news to come.
I gave you an example of what SP growth was actually achieved by AM and his team, given funding and oil in place.
You then gave a £28 a share inference, not me - you ramper :)
Mcadder - your not focusing on whats important old chap
global financial crisis of 2008 and all else that followed.
Oil is found in Wyoming,
Finances stage 1 complete with Bond
Finance stage 2 RBL in Q3
COPL same Team ability - past experience of rapid growth of a field and resultant SP from 10c to $16.44
Thats 160 bags
But you focus on Liberia buddy, if it gives you satisfaction.
" I think some conveniently forget about AM's past, perhaps a dose of realism is needed here? "
Your right - some have forgotten about AMs past
Here is a reminder of his achievements, pre global crisis:
"The company has been able to execute its aggressive growth strategy by accessing relatively cheap capital in the form of a US$500 million credit facility from a banking syndicate led by the Royal Bank of Scotland."
“The increase in debt capacity provides us the financial means to significantly increase our production over the next several years”, said Arthur Millholland. “It allows us to quickly move from discovery to production, which is a key part of our strategy”.
They had conviction and belief in their team evaluating their reservoir and a high drill success rate, spending the $500m RBL to achieve the growth required.
"Oilexco ...has become a bit of a Canadian hydrocarbon darling of late, morphing gracefully from junior explorer into mid-tier producer. The disciplined and methodical deployment of capital that has become the company’s trademark have got both individual and institutional investors smugly satisfied with the share price appreciation, which recently touched a high of $16.44 back in November last year. It looks like its going to be heading straight north again, as increased institutional attention is attracted by the liquidity and growth potential."
Growth from junior explorer in the pennies to mid tier at $16.44 a share in 3 years in far more difficult and costly operation offshore deep water than Wyoming onshore, low cost field, much bigger scale of reserves expected.
"disciplined and methodical deployment of capital "
This starts in August for COPL with gas gathering field development at cost $12m using tap facility and funds on account.
AM has traded time in 2022 for best position -
CUDA secured through long legal process,
Discovery appraised by RS in period,
Independent II bond lender secured with deferred payment terms not secured on the asset, enables RBL to leverage all reserves.
Trust this assists.
We differ on whats material, COPL making less money on the first 1000 bopd is material to you - but not to me.
You post as if that is it, no more production or chance of it when the reality is utterly different.
Bizarrely you represent the nervous nelly market perception in that you wont believe anything until its proven, dont allow for potential or logical progression - but only after the event and then grudgingly if at all.
CUDA WI is secured for example.
Market thinks, so what? more Working interest, the production hasnt gone up, they just have some more WI income but nothing like the 5000 bopd promised yet, so no value for these reserves is assigned, debt has increased is all.
It is what it is - but the market is wrong in the ultra negative view, not assigning value as has happened on many other shares, it will be proven very wrong with all the news to come - that is material.
RBL is reserves based lending - funding to drill
If COPL do not increase revenue and pay back the capital, then the RBL company take the reserves as collateral. Its lent however on the premise that production will grow.
The hedge is therefore irrelevant in this regard - as in any case the oil is hedged on only the first 1000 bopd.
After that as outlined this morning - conservative production rise from BFU and the Frontier drills is c 5500 bopd- paid for by the RBL - its just gradation of profit depending on working assumptions made.
So no its not material given the production scale to come COPL plan to exit the deal in any case in 2022 as its one of their objectives.
Good to discuss fundamentals
COPL are not using as much butane
So the overall hedge/swap needs to take into account real cash flow aswell
The first 1000 bopd is hedged and lower potential or unrealized income by c $700k after costs per month
However offset completely by not having to pay the $2m a month butane cost as AM highlighted in interview
Net saving by optimised operations = $1.3m to the good
They can exit the oil hedge when appropriate to do so, but its not a material issue.
This week is a transition, trolls last hurrah
Update operational plan for H2
RS report confirmation
RBL firm will draw some conclusions even if its not reserves but a resources estimate, as without doubt a summary version is being used by Ryan to secure the best deal.
Gas pressure works start in August using tap facility
Drilling commences in Q4, just 8 weeks - each drill takes 3-4 weeks
By year end - c 2500 bopd unhedged from 3 wells and c 3000 bopd from BFU as pressures are managed
1000 bopd is hedged = $500k month net profit after lifting costs and tax
4500 bopd unhedged = $5.5m month net profit after lifting costs and tax
Past is irrelevant now.
"Production is currently woefully insufficient to service the debt now in place, and even if the numbers come back positive in the RS report it will still need multiple drills over next few years and god knows how much more expenditure to get to that point of actually proving it up."
Each delineation well proves up 1 square mile, as agreed with RS, enabling P2 to be booked.
There are three drills in Q4 = 3 sq miles proven up
Average scale 16m barrels per sq mile assuming OIP scale is confirmed, although not linear so could be more or less than this - for context by end Q4 its the equivalent of BFU/CC reserves.
Each well online provides revenue to then aid in funding the next drill and service debt, with two Frontier at 85% WI and the CC drill at 100% WI - all unhedged.
There will soon be a RBL to fund drilling in any case - this is designed to be a constant held debt, which reduces with payments in off drill season and increases with capex - is standard in the industry - its based on the reserves, so is secured debt - it provides stability once in place.
Past performance is no indicator of future
Trust this assists.
So what additional data did RS find that AM referred to?
Perhaps the discovery extends much further outside of COPL controlled leases
Presentation for the discovery high case had Frontier over 81 sq m and 88% ownership on COPL leashold.
Delay could also be AM manoeuvring to secure these areas using the Tap facility or through a separate deal with the bond lender.
Or just that the find is bigger overall as why mention otherwise if it was smaller?
COPL had $7m cash on account end Q1, raised $13m April 19th and have reduced field spending substantially.
They had no intention of using any of this for CUDA, had developed a bridge loan in April to pay for it and now the Bond has.
Why did they not start spending some funds on field development in the interim?
They need to spend $12m for gas gathering kit upgrade identified in April presentation
They knew they had CUDA weeks ago in real terms and could have started at any time.
They may have perhaps c $18m on account at this time so it could have been done, steel pipeline procurement delays perhaps.
Looking forward to the updated operational plan.
I think I have finally worked out the Bond deal, only took me 6 days
No shares issued at all at this time, bond amount can be converted into shares in 30 months or paid back in cash at that time.
Warrants are issued in 90 days and should be closely held