Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
Interesting reactions today. A significant number of investors couldn’t determine whether the RNS was good or bad, and despite the price fall there is obviously a number of posters on here holding the line that the news was relatively positive. I think the company could certainly have been clearer on their interpretation. Rather than simply offering numbers, they could guide their shareholders better.
My view, for what it’s worth, is that it was negative and that the market response was appropriate. I have to assume that the companies considered the well to be non-commercial, hence the P&A. This leaves Warwick itself as a discovery but with 2 non-commercial wells. The choices going forward for further appraisal and development will be difficult ones. The investment required is huge, and the risks on Warwick seem high.
The CMD will be vital. As I’ve said before, company modelling requires oil to flow from below structural closure or else they expect water breakthrough in Lancaster from Y3. The good thing may be that these 2 wells demonstrates that Warwick is not analogous to Lancaster and that Lancaster may flow from depth.
Good luck all.
ADUK
Not questioning your technical background, but I suspect you are reading too much in to limited information at this point. Regarding permeability, the company have told us the formation is naturally fractured which is certainly encouraging. They were also quite clear in stating that it is the switch from gas to oil that is the cause of the delay in the EWT. The relevant para is:
'Cased hole logging and completion programmes were initiated on 6 August 2019 followed by well test operations which commenced on 20 August 2019. However, with the indication of a potentially significant oil column, the EWT has been temporarily paused, in order to review and revise the well test design, which will now focus on the potentially highly significant oil column. The Operator is currently reviewing the forward plan including the potential to restart the flow test under a different test design, subject to all necessary approvals.'
I think we are waiting for all partners to align on the forward plan and funding. RBD seem to be ahead of the game on this, and it is only when others are complete that we will get more detailed info.
WN is a huge discovery. There are technical, financial and other issues to sort. There are multiple partners who all need to be aligned. And as plans change then there are regulators and locals to keep onside.
A few on here are being unreasonably impatient.
I think your figures are miles out. Best estimate of STOIIP from the CPR is 4bn barrels+. 935 m was the best recoverable estimate.
The failure of WD to flow is loosely modelled by the low case rather than the best case in the CPR. So 225mbbo of recoverable oil. So 112M net to HUR.
Tiger champ
So you're trading whilst trying to manipulate investors views on these BB.
Feel proud of yourself?
Ron
You write:
My read on this is that there must be a very good system of oil filled fractures from the oil/water contact right up to the horizontal leg.
What is the evidence for that statement? It's a well rehearsed argument, but Warwick Deep did not demonstrate a flowing interconnected system of fractures. And other wells have struggled to flow from deeper parts of the reservoir. So whilst there is evidence of good reservoir properties at shallower depth, uncertainty remains over how far down this remains true.
The reason for the EPS is effectively one huge test to find out how good that fracture network is.
I did answer. The CFO has no concerns and nor do I.
I guess you are angling for a lower entry point having just sold out? Can't imagine why you ever bought in originally if you're so worried!
TC
It’s usually better to read the full quote from the interims rather than extract one line:
Cash balances at 30 June 2019 stood at £2.25m, (31 December 2018 £3.81m: 30 June 2018 £5.88m) but this excludes £0.63m cash R&D tax rebates, now expected in 2H2019.
Based on the growth of the business, cash generation from EUS activity and effective cash management, the cash burn in Bango in 1H2019 has significantly decreased. With further growth in revenue expected in 2H2019 and beyond, on a stable cost base, Bango will have sufficient cash resources to support both planned investments to grow sales and develop new products to ensure Bango has a strong slid pipeline of upgrades and benefits from the additional billions of dollars of EUS through the Bango Platform that the Board expects over the coming years.
The CFOs analysis seems sensible to me.
I asked HUR about the WD analysis. Still working it. They confirmed Q1 CMD was the likely date info would be available
Biffa
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.
ADUK
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.
LW. I think the bid will come when we least expect it! And will depend on the risk appetite of the bidder.
Longwait
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?
Longwait
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
Long wait
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.
SG2
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.
Interesting to see he confirmed there will be an equity raise about 55 sec in. I suspect that will hold the price in check until more detail is known.
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.