We would love to hear your thoughts about our site and services, please take our survey here.
Longwait. I'm sure there is a degree of panic selling by PIs, but I think IIs are probably also looking to reduce. Given recent volumes it seems likely to me.
Essentially, the implications of WD plus significant perched water both point towards the LOW case, and are IMHO the main factor. As Fred says below, most retail and IIs will have never heard of DSPP and LF.
I've read DSPPs (very long) post and have a contrary view to those attacking it here. The general gist is that he is simply offering one plausible explanation as to why the company are experiencing significant perched water. He may or may not be right. Essentially the company recognise almost exactly the same possible end state in their CPR LOW case for resources. The LOW case has no oil flow from below 1380m TVDSS, predicts water breakthrough, and reduces contingent resource by circa 75% (not the 33-50% DSPP suggests). As far as I am aware none of HURs multiple wells has flowed significant oil from below this depth, though I'm happy to be corrected on that.
Whilst the LOW case may seem very unpalatable, it is a realistic possibility and I think the SP reflects the fact that most objective observers are probably starting to consider it more likely than the BEST case described in the CPR.
I realise that I'm at odds with the opinion here. I made it clear a few months ago that I had sold in the mid-40s after the WD disappointment. However, I now think the SP has fallen far enough to offer value. Hence, despite my concerns over oil flowing from depth, I reinvested earlier today. Only a small amount, but the SP now seems to offer more upside than downside, despite the obvious risks. Unfortunately, I think the huge upside that we all hoped for a year ago is now unlikely.
GLA
Great interview. Good to see the interviewer press hard in multiple areas.
I have to say that virtually every company including HMI has sales forecasts. It’s a shame HMI can’t be more open and confident in setting market expectations.
At break even. Profit next year. £5m cash. A MCAP of £6.6m. No significant debt. Huge potential market. Dividend discussion. All that’s needed now is to be sure that any forced seller is clear and for sentiment to swing
I've not read this board for a while now. For what it's worth:
1. The board expected pockets of perched/stranded water on the 7z well (source: the last CMD presentation)
I disagree. It looks likely that took perched water out of their models around 2016. If they had expected it then it would have been in the 2017 CPR. The CMD was mainly a report on what they found.
2. Any produced water will be cleaned up on the FPSO and discharged to sea (source Lancaster CPR report, section 8.2.1).
I agree. But just because I think DSPP is wrong on this doesn't make his other observations wrong.
3. HUR can mitigate the rate of water flow by throttling back the rate of oil flow on 7z (source: the last CMD presentation).
Not sure what this is getting at. Are you suggesting the water cut is rate dependent? If confirmed that would be worrying.
4. It is common to get water in the early part of production (source: the last CMD presentation).
HUR were absolutely explicit in numerous interviews and in the CPR that they did not expect a high water cut prior to the EPS actually producing it.
My suggestion would be to read section 7.8.7 and 7.8.8 of the CPR which is the best description I've seen of HUR and RPSs models - this describes the expectations. The CMD mainly reported findings and I'm sure HUR are extremely busy reconciling the differences.
Good luck all. I think there are real worries regarding water and the fracture network at depth, but if these risks prove unfounded then the shares should re-rate. As ever, risk and reward.
Fantastic news. Hopefully an indicator that the market factors driving the SP oversold are easing.
Apologies. Just looked at Lemon Fool after posting here and I can see there is a far fuller explanation there.
The only reference to perched water that I can find in HUR literature Iain a 2016 presentation. It states:
https://www.hurricaneenergy.com/download_file/force/117/258
Fluid distribution data is provided by Hurricane’s deep inclined well, 205/21a-4.
In the CPR, a model of varying fluid distribution was applied to take into account the downside possibility of perched water being encountered in this well. Re-interpretation of this data indicates that the water encountered could have in fact been coned from deeper down, rather than being perched water. Additionally, comparison with the extremely high productivity of the horizontal well and observations of a highly connected fracture network make the model of perched water within the reservoir far less likely. Therefore, a Free Water Level has been modelled in the simulator rather than a complicated perched water model - this is useful as there is no way to distribute perched water effectively, and the simulator is unsupportive of running such a model as initialisation of the model enforces equilibrium and drops the water to the base of the structure.
I assume the CPR mentioned was the earlier (2013 from memory) CPR on Lancaster. The wording indicates they were dismissing the perched water model in 2016 perhaps the reason why it does not feature in the 2017 CPR.
The OGA definition should set expectations:
The OGA generally considers any well test with a total flow duration of more than 96 hours or which produces a total of more than 2,000 tonnes of oil/oil equivalent1 to be an EWT. For oil volumes over the 2,000 tonnes threshold, consideration should be given to saving the produced oil rather than flaring it.
So st least 4 days of flowing the well.
Rev
You wrote:
2. At 20Kbopd we're making £300mill for the next 2 years and then in 2022 with 40kbopd we'll be making nearer $0.5bn, which, suggests 2 things; a) our share price should be substantially higher and b) with around $1bn in the bank by end 2022 (accounting for some moneys spent on tie backs etc.) we could, in the absence of a farm in, start funding a staged FFD out of our own funds and minimal debt. This puts us as masters of our own fates.
If the EPS performs as HUR expects they will certainly be cash generative. But your figures seem far too high. For example, HURs forward guidance for cash flowin 2020 at the interims was $200m not £300m. Similarly their forecasts of CapEx in the interims is up towards $200m total over the 2020-21 period. Slide 17 refers. I appreciate the most recent guidance changes things, but not necessarily in a positive sense and nowhere near the amount you suggest.
GLA
Started building a stake here again this week. With the price now below 3p and the MCap almost down to £30m, it looks like good value.
The promises made for this year did not materialise so trust is low in management. But they are profitable, the expansion of gas production looks low risk, and the promise of 50% production growth next year is attractive.
Lots of news due as well. Not just fracking, but they promised a Paraguay update before year end as well.
GLA.
ADUK
You questioned my assertion about whether we are still in the Base Case as defined by the CPR.
Two issues:
The Base Case relies on oil flow from below structural closure. WD did not, and I think I’m right in saying none of the vertical wells have ever done so.
The Base Case for perched water is 5-10%. Worst case in the CPR 10-15%. Given the current water cut, we are at least outside of Base Case.
So the company have a number if questions still remaining to answer at the CMD in March. From evidence made available the Base Case in the CPR is not met. Whether this is a critical shortfall will no doubt be revealed at the CMD.
GLA
There are a lot of people struggling with uncertainty here. IMHO DSPP has offered multiple interpretations of OGA figures- some good, some bad. Those that criticise this are pretty blinkered, it’s always best to consider all possibilities. If you’re confident in your assessment then now would be the time to add.
The company guidance that people quote can be read in a number of ways. From the interims in Sep:
We have gone to great lengths to explain why we do not expect to see coned aquifer water during the lifetime of the EPS, under our base case. This is our continuing expectation. The perched, or stranded, water we have experienced is consistent with our reservoir model and since our capital markets day presentation this interpretation has been reinforced by the Company's technical work. Notwithstanding the increase in aggregate perched water production to a sustained rate of approximately 7.5%, water cut remains within expected ranges and is not impacting oil production levels or the cost of production.
They quote the base case, but don’t actually state that the data supports this. I’m confident that they’ll focus on this at the CMD as they know it’s the key question following WD. As for water cut, the way they phrase it as an aggregate and an increase makes it clear to my mind that both wells together average out at 7.5%. That means either both are wet, or the wet well is significantly wetter.
I know plenty will disagree with me. That’s fine. Unlike some, I recognise that nothing is certain here!
GLA
UJO have clearly stated that there will be a 2 well drilling and testing programme at WN in H1 20 whatever you think about Q4 being missed, or the lack of permits, the published intent of at least 1 JV partner is clear.
I suggest that once Humber’s financial situation is sorted then this will move quicker. Until then patience is required.
There is no specific mention of ‘perched water’ or ‘stranded water’ in the CPR for Lancaster that I can find.
My assumption is that the water saturation figures in Table 7.4 are probably what RT refers to in the CMD presentation. It has a ‘worst case’ of 10-15%. Hence any suggestion of a 15% water cut (pchima) is at the extremes of the model.
Just to note, I agree it is difficult to draw conclusions based on the limited evidence we currently have.
Jiffy
The key term is ‘under our base case’.
If, and it is an if, Lancaster is sufficiently similar to Warwick at depth then we are no longer ‘under the base case’. The CPR is explicit in stating that no flow from depth is the modelled Low Case.
In the Low Case, resource estimates are cut by 75% and the wells are predicted to water out in Y3. This is why the CMD is so important.
I did email HUR on this back in October but unsurprisingly they said they were still doing the analysis and would only talk about it when the analysis was completed and there was something to say. They stated likely at the CMD.
Drillspark.
Do the maths. The % increases gradually each month. From 2.5% water in May to around 8% in the last month. I agree with Green machine in that we don’t know the ratio between the producing wells which makes the analysis uncertain.
I don’t have a view on price. Your guess is at least as good as mine (up or down).
I do have a view on the geology.
The graphs posted on LemonFool are not conclusive but can certainly be interpreted as an increasing water cut - judge for yourself.
Warwicks fracture structure seems significantly different from Lancaster. That’s good in the sense that maybe oil will flow from deep on Lancaster - unlike Warwick. It’s bad in the sense that the Rona Ridge is not a uniformly fractured and productive collection of fields as assumed in the CPR. This has to push down resource estimates and push up development costs and risks.
FFD has to be at risk - Spirit cannot be pleased with the outcome. How much to drill say 3 or 4 guaranteed producers on GWA, lay a gas pipeline and fund another FPSO and all the SS work. I’m not saying this won’t happen focussed on Lincoln, but I think the decision to commit will likely be delayed and the implementation far slower. Much of this is discussed on LemonFool, far more eloquently than I can articulate it.
Apologies, I know this will be interpreted negatively. I lost faith with the geology after WD. However, I do wish all well - much to play for at the CMD.
Having studied a few large (relative to mcap) placings as an investor, my take is that this is normal. A SP bottom of 15-20% below the placing price is my expectation. And around 3 months to recover, but that’s really news based.
That’s what we’re hitting now and I suspect we may loiter here for a while. I’m content and am adding below .80.
I realise that for those already fully invested, or seeking short-term gains then this drop is tough. But the company has great prospects and I’m confident will stabilise and then push higher once the placing excess settles and the newsflow on WN resumes.
Some very astute posts. Water cut. Development plans and pace. Should be read by all those who think this can’t go lower.
This share attracts a lot of diverse comment, unsurprisingly given the plummet in perceptions since the placing. The common theme on this BB has been - show that this sells, and it appears it has!
The bottom line now is that has made a pretty good effort at sales, has plenty of cash in the bank, and is at that inflexion point where any sales growth will drop straight through to the bottom line.
I’ve added today.