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Geo wiz
The CPR models the exact case we are discussing. It recognised the risk that OWC could be at structural closure even though HUR felt that ‘extremely unlikely’. I’ve quoted the reference pages here numerous times.
I personally don’t think the 2017 CPR is an issue. I think the issue has been HUR management.
The coning is likely through the major fracture zones which dominate flow. Lancaster is not a simple inverted sandstone bath tub with a clearly delineated flat OWC. The fracture network will cause anomalies across the field.
The geology is all very interesting but the key question remains the so what. If correct, then the current wells will continue to water out. Replacing them is urgent and the company probably need to drill 2 new producers in the next 2 years to replace them (whether new wells or side-tracks). I don't think they can afford this from within current cashflow due to pressure from the convertible bond date, which means further debt/equity/farm-out is required.
If the new board articulate a strong case for OWC and reservoir reliability higher on the structure, and find the cash for further drilling then there is light at the end of the tunnel. If only RT hadn't shot for the moon and designed the wells around the best possible case.......
Nic. I’ve not seen the well plans for L8 but I’d obviously expect it to be above structural closure.
For those wanting to understand the effect on reserves and resources then the 2017 CPR covers it as the Lancaster low case. 25% reduction in reserves with an uncertain time to watering out of 6/7 wells. And a 70% reduction in resource.
Nic. Agood realistic summary!
The next step is to answer the ‘so what’. To me they desperately need to drill a Lancaster 8 well rather than a difficult sidetrack likely necessitating several months shut down of production.
The difficulty is funding it and the tie back when the 6/7 wells could both struggle with increasing water cut. A new well with testing and tie back would probably cost the best part of $80m. With pressure from the bond I think they’ll struggle to afford that and depending on how 6/7 perform it will likely be a struggle to borrow on reasonable terms.
A willing and confident partner could cut a hard deal.....and unfortunately HUR might have few other options.
The quotes on deep oil samples are correct from several wells. But the difficulty is that despite multiple attempts HUR has never managed to flow any oil from below structural closure. In my mind it’s ‘perched oil’, but that’s only my way of visualising it.
Another way to visualise it is HURs original interpretation (pre-2016) of a jelly fish model with tentacles of Oil in fractures below the actual OWC.
There seem to be many who feel that once the shallow OWC is confirmed then it is just a case that the company will keep pumping 17k per day and that the finances will take care of themselves.
IMHO it’s not that simple. The shallow OWC replaces the perched water model and explains the 50%+ water cut in the 7z well and the growing (12%) water cut in the 6 well. I don’t think we have enough information to guess how fast the water cut in both wells will increase, but I think we can have a degree of certainty that it will if the OWC is the issue. And the more they increase production then the quicker the water cut will increase.
A pessimistic view? Maybe, but HUR May only be producing from the current wells for a few months at worst and a few years at best.
I think they are talking OWC from logging which is stated in the CPR as between a choice between circa 1600 and 1700m. The low case picked the arbitrary value that aligned to a more localised structural closure.
No way to be certain but as I’ve said from July last year when WD failed, the CPR low case is the best model we have.
It’s not that simple. The OWCs from logs are circa 1600-1700m. I suspect they are referring to these estimates. The modelled Low Case takes an OWC of 1380m.
From the CPR, the low case has lots of uncertainty:
Note that these cases were run prior to the drilling of the 205/21a-7 well, so the deeper OWC is based on the 2C depth from the previous CPR (RPS Energy, 2013). 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.
For the low case, both wells start production at a gross rate of 20,000 bopd (16,000 bopd net @ 80% OE). RPS has arbitrarily selected a sudden 30% reduction in production rates to occur in Year 3 of production based on the discussion above, resulting in net production rates dropping from 16,000 bopd to 11,200 bopd from January 2021 onwards for the remainder of the EPS.
Looks like they are acknowledging the CPR Low Case with OWC at structural closure rather than the deeper OWC taken from logs. Result is a 25% decrease in reserves and a 70% decrease in resource. Plateau production of 3 years. Details can be found in CPR tables 7.11 to 7.14.
Bad news, but this has been coming since the WD failure last summer when the SP was in the mid-40s.
Since when has lift cost been $13. Read the company presentations and broker notes.
The RNS says ‘ oil and water production from the 205/21a-7z well has stabilised’. It does not say the 6 well is stable.
How much of current cash is committed to long lead items?
If the technical review and CPR reflect a higher OWC then what will this do you the 2C resource (the current CPR suggests a decrease of Circa 75%)
How much of the $560m will be taken up by the costs of production? How much of the current cash is already committed? What are the license commitments and how much will that cost? How much for a L8 well and a tie back to WOSPS?
What I’d the POO goes down?
What if the AM needs maintenance?
What if the water cut continues to increase?
Do you want me to go on?
Try and find some balance rather than just seeking to mislead people.
The BGS refer to it as containing numerous reefs. Good building stone.
http://nora.nerc.ac.uk/id/eprint/504662/1/IR05048.pdf
SG2
You say that perched water was always recognised as a risk. Can you find me a quote saying that from any HUR RNS or annual report? The closest I have seen is a 2016 (ish) technical brief that showed their early reservoir models but was effectively dismissed in the CPR. There is no reference to perched water in the CPR.
There are risks on early water production in annual reports but that is covered in the CPR as being caused by a higher OWC and not perched water.
For those familiar with risk management terminology, The water breakthrough risk that existed at higher a SP unfortunately became a water breakthrough issue. The company had played it down in their statements and the CPR reinforced the risk was low. Now it is real.
I don’t ever recall an explicit well interference risk, but that too has materialised.
So I’d argue in the past the investment was speculative and carried significant risk, whereas now its more a recovery play in the hope the issues can be solved.
I only quoted HURs own figures for Lancaster from the website and CPR. Rather than criticise then quote me some better ones!
How much oil is down there?
The mid-case figures for reserves in the CPR is 37mmboe. But it is obvious (IMHO) from the data published that the field performance is far closer (and probably worse than) the Low case of 28mmboe. A 25% drop that comes with a CPR warning to expect water breakthrough in the first 3 years (Sounds familiar!).
The resource attributed to Lancaster falls on the same basis from 523mmboe to 157mmboe, a 70% decrease.
The figures and detail of the implications of the LOW case are from the CPR which you can find it on the HUR website. and is their independently verified estimates
Again IMHO, the almost immediate water breakthrough experienced makes HUR a gamble. It’s certainly tradeable but the risks are so significant that I personally wouldn’t even hold over-night.
They are the house brokers producing a regular series of reports and forecasts paid for by HUR. Believe me , it’s not something that would pass them by!
If you can produce better figures than the house broker and show how your figures meaningfully change throngs then I’d be really keen to see them!