The latest Investing Matters Podcast episode with London Stock Exchange Group's Chris Mayo has just been released. Listen here.
Https://www.spglobal.com/commodityinsights/en/ci/research-analysis/bp-divests-20-percent-of-omans-khazzan-gas-field.html
"The Khazzan (Block 61) gas asset, located approximately 350 km southwest of Muscat, Oman, is one of the largest tight gas developments in the Middle East targeting 10.5 Tcf of gas resources"
"The agreement to sell a 20% stake of BP's participating interest in Oman's Block 61 to Thailand's PTT Exploration and Production Public Company Limited (PTTEP) for USD 2.6 billion was announced on 1 February 2021. "
20% of 10.5 Tcf of gas resources = 2 TCF
sold for $2.6 B
RNA Feb 28th
"estimates of gross unrisked Prospective Resources aggregate to 2,128 Bscf"
2.1 TCF
plus condensate
"Aggregate oil equivalent Pmean Prospective Resources net to the Baron working interest, including the condensate yield, are estimated by the Company to be 366 MMboe**, representing a significant follow-on portfolio to be explored. "
Low risk asset:
"Management estimates of the Geological Chance of Success for the prospects are in reasonable agreement with ERCE's estimates, indicating the relatively low risk nature of the Prospective Resources assessment."
Assume same broad range of deal, discount to $1 B to allow for development costs
mcap valuation at cash level - $1 B / 18B shares
Http://www.rockriverminerals.com/knowledge-center/horizontal-wells-explained
Afternoon Edgein
could the JVP use the existing Vertical CC well bores to kick off from and drill the Horizontal laterals?
RBM
Great to see that COPL are finally making progress - its no illusion, the game has fundamentally changed.
"Da bonds" will continue to impact (fully priced into mcap assuming all are converted, COPL priced to fail at junk status, have NO assets of any worth - valued at just about cash and equipment level)
So only way is up with proven rising production, turning that corner into profit and the eventual JV.
There is no evidence base to support the negative stasis remaining now - despite increasingly desperate low brow attempts to affirm that day is night.
AM didnt need to issue that LOI news at all, it could have been held until deal was completed - also we do not know when the LOI was signed and how long they are into the period of exclusivity.
Its interesting he did issue at the same time as when Blackstoat/LLP etc estimated the smaller BH may have mostly exited, with the main BH reaffirming their intent to remain following recent restructuring of their position.
With the LOI with the established large oil company comes an understanding by Banks that soon COPL will have a solvent partner in field development with no constraints on funding drilling, team deployed, equipment or logistics - working on the Cole Creek field with Frontier 1 vertical wells in production - low risk, rapid opportunity for Horizontal well development and field delineation towards booking reserves.
Frontier Reserves booked and increasing profit from BFU/Frontier 1 creates stability and so appetite to lend increases as COPL advances.
The RBL Bank also gain by association a Major joint partner if they lend to COPL, good move for marketing - risks are much lower to them with the JV in place as COPL will get substantial revenue increase as wells come on line to the % agreed in JV terms, leading towards large fund payments as WI is sold in the field in stages.
RBL allows SL debt to be retired - capital payments offset to later, releasing current $1m p/m capital repayments.
If RBL gained soon, COPL are then in profit as base costs are:
- c $400k O&A per month - reducing as cost saving measures deployed
- RBL interest payments - assume $600k p/m
With c 1500 bpd, probably the prod range at this time they have $1.5m net profit after all lifting/operational costs - leaving $500k and rising net profit p/m that can go into buying back a proportion of the Bonds (ideally) or likely BFU field development - a split between the two could be optimum perhaps.
Jan 23rd RNA
"Cole Creek is an asymmetrical anticline approximately 9 miles in axial length with approximately 2,500 feet of structural/stratigraphic closure."
Someone in the JVP has worked out how much carbon this anti cline could store and how much tax credit this storage system could bring - it could offset a substantial proportion of Exxon tax burden.
https://www.reuters.com/markets/deals/exxon-buy-denbury-49-bln-deal-2023-07-13/
"U.S. tax credits for reducing planet-warming gases have set off a race to build carbon capture sites."
"Jefferies analyst Sam Burwell estimated Exxon was paying $1.9 billion for Denbury's carbon capture infrastructure and $3 billion for its oil production."
Extend Denbury pipelines into Cole Creek and pump CO2 into the reservoir for Enhanced recovery - using Denbury and COPL expertise:
"Denbury, which gets most of its revenue from enhanced oil recovery, or pumping CO2 into wells to force out more oil, exited bankruptcy in September 2020 and its stock has jumped nearly fivefold since as carbon sequestration was embraced by U.S. companies to cut greenhouse gas emission."
RNA:
"COPL... brings considerable experience and understanding of Cole Creek, including operating the early stage enriched gas miscible EOR project at the neighboring Barron Flats Shannon Unit. This EOR experience can be directly applied to Cole Creek as they have many similar reservoir characteristics."
"The LOI grants exclusivity to JVCo for a period of time to allow for the negotiation of terms, and structure of the JV to be agreed, which include the consents required by COPLA. "
The exclusivity period of time has started so JV will be confirmed including COPL reqs or they open this up to the opposition - time frame unknown but we may reasonably expect JV within H2. If they walk, so be it, COPL talk to one of the others they considered and who may be more prepared to expedite, however it probably isnt going to come to that and their favoured partner looks likely to agree the JV.
Overall it seems that AM has more power in the negotiations than perhaps expected.
"The company that has entered into the LOI with us is the best partner we could have of the ones we have considered"
"Joint Venture (the "JV") to develop and exploit its oil reserves and resources "
Reserves being the proven and booked Cole Creek Frontier 2 field in this context - so may expect fast track drilling and production uptick such that the JVP field work has rapid ROI, with COPL getting their agreed share of profit.
Resources being the CC Frontier 1 flowing, being delineated and booked to reserves in time :
RNA Jan 23rd
"COPL expects conversion of Frontier 1 Prospective Resources to Contingent Resources and ultimately Reserves as additional producing wells come online"
RBM
I think your bang on the money - the COPL JV time taken may not have been so much about COPL but Exxon waiting on the far bigger Denbury deal to be secured, then Cole Creek anticline can be used - explains a lot.
But also AM would have been in a position of strength with this Denbury dependency, carbon storage at CC and biggest oil find in decades - his terms would be better met
AM isnt going to get shoved aside and wants to remain a key part of the operations, with some justification:
"Our Company brings considerable experience and understanding of Cole Creek, including operating the early stage enriched gas miscible EOR project at the neighboring Barron Flats Shannon Unit. This EOR experience can be directly applied to Cole Creek as they have many similar reservoir characteristics"
RBM
Superb prospect being in JV with a super Major , their adjacent Denbury deal as well was indicative - perhaps that had to complete before this last week before COPL LOI issued - a dependency in their PRB strategy.
https://www.reuters.com/markets/deals/exxon-buy-denbury-49-bln-deal-2023-07-13/
"Exxon two years ago set up its Low Carbon Solutions business with the aim of generating hundreds of billions of dollars in revenue from cutting its and customers' emissions. It has said the business, which includes carbon storage, hydrogen and biofuels, could outperform its traditional oil and gas operations as soon as a decade from now."
Mr S
"The LOI grants exclusivity to JVCo for a period of time to allow for the negotiation of terms, and structure of the JV to be agreed"
JV is on a timeline - sign terms within a set period or exclusivity ends and other suitors may be entertained.
Excellent news -AM didnt have to release this RNA on letter of intent and could have just let it play out until signed, but any gesture at supporting the SP is welcome.....
A few aspects:
"Joint Venture with an established energy company to develop and exploit its oil reserves and resources at its Cole Creek project in Converse and Natrona Counties Wyoming."
The JV is being signed for 100% WI Cole Creek only - not Federal Deep WI 85% at this stage.
Meaning the FD development JV may come later as part of a greater deal - or indeed with another JV partner as the operation is compartmentalised.
It makes sense to develop the CC 100% ownership first rather than involve CNOOC and the FD leasehold, especially as Frontier 1 flows, so risks are much less as a starting campaign. They can use these existing CC well Vertical bores to drill the H laterals for maximum production at lowest cost and risk.
The JV terms being finalised - it appears including the COPL requirements:
"The LOI grants exclusivity to JVCo for a period of time to allow for the negotiation of terms, and structure of the JV to be agreed, which include the consents required by COPLA."
COPL consents they require would most probably include cash up front at this critical stage, to allow them to further develop the BFU and manage debt whilst the JVP is developing Cole Creek.
"LOI grants exclusivity to JVCo for a period of time " - implying if the terms are not signed, they have other suitors, also supported by this statement:
"The company that has entered into the LOI with us is the best partner we could have of the ones we have considered"
They have considered multiple partners - and the JVP is their top choice - so what makes this partner the top choice for them?
Perhaps:
- Operating in the PRB
- Large scale with no constraints on funds/resources
- A company AM has worked with in the past
- Interest in exploiting the CC anticline for carbon capture for additional revenue
- Largest Carbon capture operation in PRB
Being Exxon.
I finally see what you mean now Doug re point 2 ! but it will play out as it will regardless of anything said on this BB Ii guess
FF - third times the charm
"Doesn’t matter if you have 40m barrels of reserves if you cannot demonstrate a profitable route to Market."
the route to market is established - this is when oil gets extracted and booked - this is happening right now and increasing each month as GGS kit does it work
Each company circumstance is different, but did Jadestone have 40 m barrels of reserves at the time of asking for their loan?
COPL do - and the BFU is de risked - the oil is there, it flows, the GGS is ensuring higher prod rates - as I said once field into profit and sustained and growing prod then refinance is possible.
Yes thats right, RBL is indeed viable once production rises into profit as it proves the field can be worked and money made, debt can be serviced.
Banks that specialise in Reserves Based Lending in the oil industry do not look at "Company’s last 5 years Track record" . This is not 1978 with AM negotiating a small business loan from the local TSB on his high street to set up a fast food joint.
The way oil sector banks lend is by leveraging the proven reserves (clue is in the name) , provided said reserves ability to be extracted is also proven - now established by MF and the installed GGS in this context - allowing the field to be collateral that can be sold on should the loan default for any reason.
Its how COPL gained the original Senior loan to buy Atomic - the loan buys the reserves which are then the collateral - COPL five years past accounts had nothing what so ever to do with it then and are also immaterial for RBL now.
Funds are coming to COPL and with it security and progress - how fast the field responds is how fast the RBL funding can be gained.
Trusts this assists.
Thanks Eazy.
Interesting section on 2023 activities following Hannam consultation with COPL:
"The main catalysts for COPL in 2023 will be:
production from its Wyoming assets, refinancing the Senior Credit Facility and
lowering its financing costs, installation of a higher pressure gas gathering
system and new compression to handle gas injection at the BFSU, changing
wells from flowing to pumping configurations, recompleting up to six wells in
the Frontier 1 sands at Cole Creek to add up to 500bbl/d, possibly drilling new
wells at BFSU and concluding a JV to appraise and develop COPL’s deep
discovery with the potential for 1bnbbl of oil in place in the Frontier sands. "
Current understood status, one by one:
1 - production from its Wyoming assets - ongoing
2 - refinancing the Senior Credit Facility and lowering its financing costs - RBL is viable now the field is on road to profit and reserves can be depleted
3 - installation of a higher pressure gas gathering system and new compression to handle gas injection at the BFSU - nearly complete - on time and on budget
4 - changing wells from flowing to pumping configurations - nearly complete
5 - recompleting up to six wells in the Frontier 1 sands at Cole Creek to add up to 500bbl/d, - ongoing prog - encouraging results so far from CC wells completed - Frontier 1 flowing is huge
6 - possibly drilling new wells at BFSU - the only aspirational target listed - all others are being actioned
7 - concluding a JV to appraise and develop COPL’s deep discovery with the potential for 1bnbbl of oil in place in the Frontier sands - Ongoing according to last RNA - JVP have completed technical DD and have been in commercial terms discussions since April:
RNA April 20th
"Discussions with a large oil company who approached the Company regarding the exploitation of its Frontier oil resources are continuing with current focus on commercial terms. These discussions, as well as the identity of the party involved, will remain confidential until their disclosure is appropriate by agreement. Substantial additional technical evaluation has been undertaken during this period, which has led to a better understanding, and increased confidence, of this resource."
Its a good new constraint you made up there FF - care to provide links to support your statements on refinery capacity and how this is impacting Major investment progs in PRB? Or should we take you at your untainted word?
So you maintain that said lack of capacity is enough for the JVP (and all Majors mind you) to walk away from this 1 Billion barrel biggest USA onshore find in decades discovery - didnt anyone tell them to save them a year of due diligence and field appraisal?
Is that all you have got? hardly a compelling comprehensive case is it.
because there isnt one.
One with no other choice
If he had taken the bridge loan route - direct loan with monthly payments plus interest as per Senior loan - COPL would have defaulted and had minimal other recourse/no BH tap funds and gone under by now due to low production revenue.
That the terms are proving a disaster doesnt change this reality - it was the least worst option in difficult times.