The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Jansey
"If you read the latest MD&A there is a 0.6m receivable from a “partner in their Wyoming assets”
Average price of a Horizontal well is c $4m
CNOOC share of FD is 15%, if they chose to take part in one well, 15% of $4m =$0.6m
On confidential wells on WOGCC
49-009-49002
APD description:
"Southwestern Production Corp proposes to drill a pilot hole to 9,079' TVD in the Frontier formation, then kick off horizontally to 8,961' TVD/11,053' MD to test the Frontier 2 D Sand formation."
The number of drilled wells listed in WOGCC in well status:
http://pipeline.wyo.gov/OperatorsFrame.cfm?Oops=1
search for
SOUTHWESTERN PRODUCTION CORPORATION
then well status, brings up a table
which lists 2 confidential wells.
confidential wells = drilled - its not confidential permit to drill recorded in this table - its called wells status.
Confidential well status must mean all aspects relating to it, key being the declared production - in WOGCC or in a Company accounts - as if ascertained they had success and high production in a certain formation, the need for well confidentiality is somewhat challenged, so why would they bother?
Otherwise, they would not be put into production which would be a completely illogical move given COPL cash flow needs.
I thought it an honest professional update, without spin.
They have spent the time to fix all aspects of the operation as best preparation for safe increase of NGL injectant -essential works.
"Production was impacted primarily due to downtime at high productivity wells. Field work was undertaken to repair and dome access roads, with numerous required inspections and repair programs to all low-pressure heater-treater-separator units to prepare the upgraded gas gathering system for the resumption of enriched natural gas liquid ("NGL") injection.
The Company completed upgrades to its gas gathering system in the third quarter of 2023 to debottleneck restrictions at certain well locations"
With this work complete, they have started to ramp up the injection rate, but it takes a while to show effects.
These works were a one off cost equating to $5.31/bb - offset by the hedge removal - so going forward netbacks will increase in tandem with increased production
"An increase in operating expenses of $5.31/bbl in the third quarter of 2023. Operating costs were impacted by certain one-off costs related to landowner payments, repairs and maintenance following severe and abnormal weather conditions in the first half of 2023 and increased workovers at specific well sites in the Barron Flats Shannon Unit "
Average production has been 1110/day in last 3 months = c 100k barrels.
$5.31/bb operating expense increase = c $500k costs for these works, no big deal in the grand scheme and sets them up with stable system that can handle the higher pressures, maintenance and trucking of the produced crude - you do not prioritise funds to repair roads if not many trucks full of oil may use them in the near future.
There are many component parts to BFU field development - the complexity is often overlooked or not allowed for, but it appears COPL are now well positioned.
Market is impatient for 100% demonstrated progress, this quarter essential activities completed = progress towards higher revenue and into profit.
You can believe that 1 Billion barrels is worthless and this comment made:
"..... the JV talks have been sidelined. The CEO is new and is concentrating on increasing production."
Or you can believe that the discovery is valuable, there is a LOI in place to gain JV and remains the stated intent of the company in legally binding RNS:
RNS Sep 6th
"The prospective horizons are currently under Joint Venture negotiation with a respected industry leader. "
CEO comment
".....ensuring that if the interest being shown by certain third parties in joint venturing with us matches our own views on value, we will seek to further scale through partnership."
Prod rising with proven tech , revenue growing
focused board of directors - cut costs and grow production, gain JV
fully funded with $17m to end March 2024
WTI stable and high, hedge removed for max benefit
going concern risk reduced - into profit territory soon
JV ongoing discussions, letter of intent to partner is is place
and market expectation of any of these aspects bearing fruit? Zero - its priced to fail
objectively - market perception is fundamentally wrong on COPL right now
Key reasons why the SP is crashed
1 - Former CEO
- Pushing financials to the limit to secure CUDA
- Then going concern in Q1 as had no contingency funds for winter impacts
- Poor deal on the Bonds terms, albeit their funding kept COPL going
- Broken promises on JV, RBL and Prod, the 1000 to 1 consolidation threat and poor comms overall - some problems such as gas pressures/severe winter were outside of his control but the net impacts caused poor sentiment contributing to the SP demise.
However the ends may yet justify his means to reach this point, fully funded into 2024 and JV reaching a conclusion of commercial discussions, with LOI in place for this period.
Key going forward - no further impacts due to CEO front of house comms, AM will focus on his technical and JV negotiation strengths.
2 - Debt burden
SL debt is fully serviced, with hedge offset and added to the full amount payable March 2025 - soon RBL possible and the SL will be retired for much better offset terms, however until that point the debt burden remains - plus Bonds - uncertainty is the norm.
3 - BH interest payments/ dilution - Until Bonds dealt with by revenue this will continue to have an impact - however the smaller BH appear to have exited finally.
3 - Prod is still not into profit territory - Will continue to rise as the GGS installed, MF tech is proven with higher rates of injection, winter well head equipment was installed so prod can be better sustained in cold weather.
4 - JV not yet in place - JV may reasonably be expected in Q1 2024 - fact remains a large oil company would not bother signing an LOI if the stated intent to complete was not apparent - it secures the position whilst legals are finalised.
Item 1-5 -are dealt with, in progress or nearly addressed.
As each key driver is confirmed - a sentiment/SP boost may be expected, adjusted SH positions - as risks are managed and reduce = exponential upside.
Thanks Zero, that helps
So just poor wording by COPL
Stas
Your right, the prospectus is accurate for COPL America status subsidiary at the time of the Atomic acquisition in 2021 - it could have changed status since to Affiliate was my point - as that is what COPL are calling it now - also in legally binding RNS.
I think in conclusion its just a COPL typical comms cluster
Zero
Sorry, really unclear to me
COPLA assets were still classified as Affiliate but the COPL America worthless paper shell is a subsidiary?
if just a tax shelter/legal move so be it, but its hardly transparent, given long standing poor sentiment issues this is exactly what they need to be 100% clear on.
Just as long as the JV and eventual sale of the assets come back to COPL Group and is reflected in the mcap.
Once Cowan breaks cover this will be one of the first questions, appears to be signs of them opening shop soon as the GGS is proven as is the increased rate of injectant effect - the prod has been 100% rising given this context.
COPL America was a subsidiary in 2021 communications when Atomic was bought pre discovery - and described on the website which is not kept up to date and not legally binding.
As of latest RNS July 2023 COPL America is termed an affiliate
"Canadian Overseas Petroleum Limited and its affiliates .....is pleased to announce its COPL America Inc. ("COPLA") affiliate has signed a Non-Binding Letter of Intent ("LOI") for a Joint Venture with an established energy company "
Its a pretty fundamental difference, may just be terms COPL are using without much thought, but they create multiple ownership vehicles like this for tax/legal and accountability issues.
If COPL parent had gone under in Q1 due to going concern issues - ownership of the discovery may have remained with COPL America, a separate affiliate not listed -
and owned by?
Brattus
Can you supply a source doc for this?
"there is security over COPLA and that all decisions have to go via COPL topco board"
If your right then COPL America is not an affiliate - cant have it both ways
I could never see AM handing over control of the JV and discovery monetisation to Anavio as implied by the new board composition - nor them retaining the power to remove him from centre stage, which is now the JV and the delineation.
It appears the JV legally will be with COPL America, with AM as its President:
July 24th RNS:
"Canadian Overseas Petroleum Limited and its affiliates ........is pleased to announce its COPL America Inc. ("COPLA") affiliate has signed a Non-Binding Letter of Intent ("LOI") for a 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."
Note "its" twice implying COPL America ownership of the discovery.
The parent COPL company appears to be set up to now just feed funds to COPLA - the remaining board may have no say in the JV deal agreed terms nor discovery operational decisions agreed with the JVP.
RNS Oct 6th:
COPL parent company funding package secured:
"providing focus on the key strategic priority of increasing oil production to allow COPL America to become fully funded through 2024."
Affiliate is different from subsidiary legally, COPL America is an affiliate:
https://www.usemultiplier.com/blog/affiliate-vs-subsidiary
"In international trade, an affiliate company is a commercial entity where the parent company holds less than 50% of the shares of the business. The parent company remains a minority shareholder in this structure, and they have no involvement in decision-making, board meetings, or any other daily operations."
Subsidiary:
"A subsidiary company is where the parent company holds a minimum of 50% of the equity. A parent company is the subsidiary’s major shareholder, meaning they are the key decision-makers. For subsidiaries, the parent company is part of the Board of Directors and plays a key role in setting the goals of the business."
What is the ownership structure of the affiliate COPL America is a question for the new COPL Board, if the LSE listed Canadian Overseas Petroleum Ltd in which SH own shares do not own greater than 50% in COPL America as per this description - then who does?
Https://www.theguardian.com/world/2023/sep/28/playing-the-china-card-or-a-serious-regional-threat-timor-lestes-new-deal-with-beijing-australia
"Analysts have said that until there is detail of exactly what Beijing and Dili plan to do, it’s possible that Timor-Leste is using its growing relationship with China at least partly as a tactic to secure more investment from Australia."
These are the objective facts:
JURISDICTION
• Onshore USA is the lowest cost & risk sector globally
• Safe political jurisdiction, pro oil and exploration State, Governor & Senator support
• Low tax and royalty regime
• Substantial M&A activity in the PRB
• Drilling permits authorised November 2023
DISCOVERY
• Discovery ratified by independent Ryder Scott to 1 Billion barrels OIP, subsequent JVP Due diligence and further evaluation
• Stacked reservoir plays - multiple targets, additional OIP following delineation
• Suitable for immediate tertiary MF recovery up to 50% of OIP
• No wildcat drilling - established PRB reservoirs
• Low cost drilling onshore, rapid production and Capex payback
• Route to market - Infrastructure/ refinery established in mature oil region
• Carbon capture play with impermeable anticline 9 miles long at Cole Creek
RESERVES CONTEXT
https://oilprice.com/Latest-Energy-News/World-News/BP-Rosneft-Were-Only-Firms-With-Over-1-Billion-Barrel-Oil-Finds-In-2021.html
Jan 2022
"BP and Rosneft were the only companies to have delivered over 1 billion barrels of oil equivalent in discoveries last year "
"Overall, the volume of discovered resources globally was disappointing, dropping from 19 billion barrels of oil equivalent (boe) in 2020 to just 6.6 billion boe in 2021,"
“Frontier exploration drilling fell to the lowest level ever recorded by Westwood (since 2008) with only 15 frontier wells completing and only one making a potentially modest-sized commercial discovery,”
“The 2022 exploration programme is dominated by commitment wells on licences acquired prior to 2020. Things may change in 2023 and beyond, as current portfolios are drilled out and if acreage is not renewed in response to energy transition pressures"
CONCLUSIONS
The longer time taken is just due to the scale of the discovery - largest find in decades onshore USA at a time when Majors reserves are very low and WTI price high - requiring complex technical evaluation and commercial terms negotiation.
Objectively - a Major will secure the discovery through partnership with COPL.
Appears the lack of TL political will and action is finally negated - just a matter of time until decision and sale of asset it seems.
On Sale of field - funds secured then cascades as Baron can afford to drill Dunrobin for expedited sale positioning,
Any news on follow on project positioning indicative.
CPR Feb RNS
"The assignment of Contingent Resources to the Chuditch-1 discovery, built on the extensive technical studies completed by the Company, sets the foundation for the next stage of the project cycle. .....Management believes that the Chuditch-1 Pmean Contingent Resources, now independently assessed, are likely to be sufficiently large to be economically viable to be developed standalone or in parallel with other developments in the region."
develop stand alone or in parallel
Fl find confirms:
"at least two large investors from China and one group from Kuwait are ready to contribute with the government to develop a greater sunrise and other fields"
Bob makes a v good point - Gupta brings valuable reservoir management and development expertise - BFU field has an incline prod curve - the correct technical approach will unlock its full potential.
https://www.canoverseas.com/usa/
"Significant upside in unit redevelopment with horizontal production wells and miscible flooding....Third-party reserves auditor forecast gross production rate plateau of c.3,500 bbl/d to 4,000 bbl/d under the 2P reserves case....... production increases from a miscible flood project would be in addition to this."
The production plateau for BFU was estimated by a third party at 4000 bpd, with miscible flood increasing this potential - also opportunity for horizontal prod wells from Shannon.
This isnt COPL spin but independent evaluation -given the phase 1 GGS installed and increased rate of flood, the profile to achieve this plateau should be well established in Q4.
Expect a substantial re rate journey to start once the 2000 bpd reached - prudent this was a stated milestone by Cowan rather than repeat of AM promises, this potential is still viable however - once the profit zone reached then we may expect BFU further field plans to be announced.
To come for BFU, fully funded to achieve the necessary catalyst/momentum towards :
- 2000 bpd Profit zone reached
- RBL leverage
- SL debt retired
- Further GGS and field works
- H wells in Shannon
I cant see Gupta bending knee to AM if he is still controlling the main COPL board by proxy.
Chennery was chair of the reserves committee which Gupta take over - maybe he just retired as had over 50 years exp in his description profile, all recently updated on website - so the board of directors is now Richardson, Cowan and Gupta.
The first two are arguably in AM pocket as with him for years, Gupta his own man (I assume he is the Anavio appointment?) so AM still has the voting control by his influence. Frankly they can do what they want in BFU now its on the road to profit, as long as COPL America gets funded and positions in the JV for best advantage.
https://www.canoverseas.com/governance/
AM listed as "Not Independent - Management Directors" at bottom of page and also sits on reserves committee - as COPL America are soon to have reserves in abundance.
If there is only one aspect that all camps may agree on, its that the key players involved will best position for maximum personal and Corporate financial return.
1 - COPL board - now taking shares instead of salary
2 - ANAVIO - Willing to maximise funding to best position COPL for JV - their potential share holding on conversion is substantial, taking a NED place on the board to ensure their best return - if they planned just to sell the shares at rock bottom SP for a nominal % return, why bother? They must be here for special dividend on full asset sale and associated mcap growth as COPL are soon to become a mid cap.
3 - Senior Lender - willing to remove Q4 hedge and add to the loan capital, deferred to March 2025, debt interest offset, reduced cash on account requirements - again designed to enable COPL to maximise funds in period towards JV - they ensure their repayment by COPL doing well - they retain 8% of mcap on SL being retired in shares - so also get the special div on sale of asset as SH.
4 - Joint Venture Party , + 1.5 Billion barrels OIP discovery to develop for terms yet to be agreed - also in their interest to ensure COPL are a solvent partner in JV during delineation and towards asset sale to them in stages - SWP have the field knowledge for EOR for Cole Creek, the letter of intent keeps the competition at bay until the deal is signed.
Its in all players interest to keep COPL a solvent and able partner.
SP stimulus is coming only once all are positioned to their satisfaction for the JV and its benefits.
The GGS could have been actioned much earlier, but was not prioritised with COPL funds - it appears two confidential wells were drilled instead early 2023 (these planned drills are recoded as wells on WOGCC = not just permitted)
This action would have advanced the JV considerably - the strategic priority - the BFU just pays the bills until JV lands.
Soon the BFU prod following two months of double NGL injectant will take them into profit, the JV will be signed, field will be developed and prod will come from multiple H wells.
None of these vested interests are letting their position go for a song as all are convinced in the discovery and its value - the diametrically opposed opinions (with no evidence) of the detractors, who maintain that only a miniscule return of SP 9-10p for PI may ever be realised at any stage.
They are too busy to plan any information strategy roll out it seems
Dont know what they dont know on communications perception?
Do not prioritise or value information management/marketing? as they contract Cathy company for this role which should be in house and valued could be the case
Some considerations may be:
1. Have just one day workshop with key COPL staff with one agenda – how to best manage information in COPL control for sentiment increase and associated mcap rise
2. List all the development items coming - have a working document maintained database of promises made and if notifed for completion of task, such as cole creek well recompletions – are they all done? What was the net impact? are more works planned?
3. Decide what news can be issued as a series of RNS – e.g as an example for future drilling , issue news as one offs on the theme – when casing received , all staff and materials sourced, well spud, drilling progress – on schedule, early results - emphasise what each well means when complete in planning – once in JV it shouldn’t need to be confidential. AM used to state many pieces of info when he did interviews – so issue same detail in RNS.
4. Have a plan and tick off all stages to completion by task , specify follow up tasks– update market as done.
5. Decide on a set date for updates each month – could just be all plans previously advised are progressing as planned, or an issue resolved etc – it doesn’t have to be play by play, but encourage SH to be interested and engaged – repeat the strategic necessity of actions and what this means.
6. Identify ley actions apart from field works to improve comms/marketing and sentiment – website is a good start – photos of the board isnt to much to ask, let alone interviews – the current no action approach is toxic - but easily dealt with.
7. Peer review RNS for understanding, removal of nuance or different interpretation – clarity and minimise multiple messages in each RNS the goal.
8. If some tasks not achieved as planned outline why – RBL not gained yet due to….? Saying nothing has impact – things change, accept this is the case and bring SH with you
9. All this micro management of comms may seem onerous – but pay off as the prod rises to profit and cashflow increase drives sentiment
10. JV changes everything – then the Major writes the comms, but improve the company up unto that event.