I'm not sure I fully agree with you. I'll try and take each point in turn. Please take the points in good faith.
Read-over. The whole basis of the CPR is that the Rona Ridge fields are analogous. This is based on a common lithology and a common geological history that in theory should lead to an extensive fracture network. So there is undoubtedly read over,because to suggest otherwise undermines the resource estimates. Of course there are known differences and this lack of read over introduces uncertainty. The main difference between Warwick and Lancaster/Lincoln seems to have been lack of fluid loss when drilling across seismic scale faults. I'm sure we all agree this is linked to permeability and Production. So how will future wells be located and how much of the field volume resembles Warwick vs Lancaster? How do you value HUR with that Unknown?
6-12 months. Hur have said this, but Stobie also said in the CMD Q&A that others (ie majors) will take longer. So if we're talking takeovers we need to think about risk appetite of the bidder. I've never claimed 3 years, I've simply said HURs low case model shows water breakthrough in Y3 and asked if this is valid.
Poorly connected section. This is a description of what was observed. I'm asking what are the implications of this observation? An entirely different question. Listen to the CMD Q&A again. RT is pretty clear in saying he does not know why flow rates were not commercial. At around 1:54 he says he simply does not yet know whether reservoir depth is linked to producibility. He says more work and more data and wells are required.
Finally, I don't think I've jumped to a conclusion. Yes, I have doubts, but I am certainly not claiming to know the answers here. And my original point in raising this a couple of weeks ago was to suggest a reason why the HUR SP is relatively low. I still think uncertainty over WD implications is a factor and will remain so until HUR do the analysis to explain the implications better. Until HUR do that work I'm pretty certain IR will not be able to help.
Thanks for the response. Regarding the Low/Mid/High model articulated in that section of the CPR, then the Mid/High case both assume the flow of producible oil from below structural closure. So surely WD suggests Low Case? Not necessarily the Low Case as described in the CPR, given for example that Porosity and permeability may be better than expected in the upper reservoir.
To paraphrase, you say that it won’t affect the EPS which is going great guns. But you’ve not said why you think that when both the HUR and RPS models suggest it will.
I do recognise that articulating this ‘issue’ will not be welcomed by some. But to me it is a key argument that Hur have not yet satisfactorily explained. Hopefully the CMD in January may provide the opportunity.
The section of the CPR I’m quoting does actually mention 3 years data. I can’t tally that with recent statements on 6 months pressure data. It may be that this pressure data is sufficient to prove flow from the lower reaches of the reservoir? Hence why I’ve always said this is a key risk area that RT needs to explain better. I think I recall from the CMD, he admitted that more work was required on the model post-WD and I assume that is underway using both the theoretical fracture model and the best available collected data. I also accept that we are talking across both GWA and GLA, but the fields are meant to be analogous so I think that is valid. For reference, it is section 7.8.7 of the Lancaster CPR.
For investors at the moment, the only real evidence available is the CPR, and it is reasonably explicit in the implications. The CPR states:
In terms of the Low Case, Hurricane considered this to be extremely unlikely given the wealth of data that supports producible oil below structural closure, but viewed that the inclusion of such a case provided confidence that the economics of the field are robust and the EPS can prove to be successful in this low case.
My argument is that WD probably puts us in the Low Case. Until proven otherwise this has huge implications for both the resource upside and for water. However, the low case is not necessarily catastrophic and therefore the downside risk is mitigated somewhat.
My question to you is: What do you think are the implications of WD?
The models predicting water breakthrough in Year 3 are not mine!
There are 2 of them covered in the Lancaster CPR. One is Hurricanes own model and the other is by RPS. They have similar results. Hurricane model a Low Case that assumes oil will not flow from below structural closure and that results in the water breakthrough. Hence, until they explain the WD failure to flow then the risk remains significant (IMHO). They remain economic, but without the upside potential. I suspect the CMD next year may be when they seek to explain.
All the best
I'm only quoting the CPR. It is the independent assessment and had access to HUR personnel and data when it was written by RPS.
I certainly don't think MMs read it. I suspect analysts do, and perhaps question some of RPS assumptions. Some of them look pretty arbitrary to me! And all the talk of a year was pre-WD.
I also think it provides a reasonable explanation of the SP discount.
That’s a good summary. The worry for me is your case (b). It is modelled in the CPR (tables 7:11 and 7:12) and suggests that if oil does not flow from below structural closure then it predicts water breakthrough for the EPS in Year 3 of operation. Given HUR have no evidence for flow from below structural closure, including issues with the vertical wells as well as WD, I suspect this is the reason why the shares are heavily discounted. If HUR can convincingly update their model to explain why WD did not flow and why it is unrepresentative of the rest of the fields, that would be helpful.
A bit esoteric but given that the oil price received has been reduced then surely the notational fair value itself is reduced?And the discount will be widened because of the negative political outlook and the likelihood of a Fernadez/Kirchner government.
Disappointing all round after such a good performance last year
Great interview. 7 out of 8 wells have been successful with only Wick failing to strike oil/gas. Clear route to monetising Parta. The strategy, thus far, is certainly looking good.
Given the timing of the last ADX update, we are pretty close to drilling into the basement target and I'd hope for a positive update this week.
I agree with Badger. Good update with multiple potential production zones and lots of running room on the license. The pre-drill expectations look at this stage to have been exceeded. Will be interesting to see the eventual flow rates.
The potentially bigger prize is coming. If the fractured basement is positive then we could see very high flow rates (dependent on the nature of the fractures). Success there could be spectacular.
Desmond. That is true. But the implication in fractured carbonate plays is that they are dependent on the fractures for permeability. The Zechstein does have fractured carbonates from collapsed karst, but the expectation is that the WN well will be sufficiently permeable without fractures. Suggesting fluid loss is pure guesswork.
I bought back in yesterday having sold my earlier holding out. If the price stays around this level I’ll gradually add more.
The rise to the 50s looked overdone to me, especially as some of the macro environmentals are not, IMHO, particularly supportive of the mining sector. Long term prospects provided the Gangfeng deal comes good are excellent.
I can’t imagine I’m alone in thinking the retracement must be about complete.
I thought the RNS was very disappointing. Production figures well below the peak of 3300 at the end of last year, despite having promised multiple workovers being completed by end of Jun.
Pleased they have switched to an average production figure, but that may just be an excuse for dropping the 4900 target by end 2019.
This has promise, but the delivery on the promises is disappointing.
Market conditions is usually code for no buyers at the offered price.
Have a look at BCN over the last year. Withdrew the funding due market conditions and the price slipped by circa 70%. Funding now close but at a lot lower price.
Caveat Emptor at these prices.