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Hurricane Energy (HUR)

FredBloggs
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Re: Hurricane Energy (HUR)

#94633

Postby FredBloggs » November 10th, 2017, 2:46 am

Quite a bit of commentary in the media since the announcements from HUR. I was mildly surprised that the price was down. It is obvious now that every passing day the project risk grows steadily less. The "biggy" of course remains - What if the fractured basement doesn't behave as Dr Trice believes it will? A big risk. But the lesser risk of delivering the FPSO and hooking it up diminishes by the day. They have good people on the project, it is bread and butter to them, but in an extremely harsh environment. My belief now is that up to the point of first oil, the project risk is substantially lower than it was. Potential major oil industry partners are focussed on the big risk of how the wells deliver, no doubt. Malcy's Blog is calling a 100p value on HUR. What price eventually for a 100% take out of HUR by a super major? 200 to 250p, perhaps?
http://www.proactiveinvestors.co.uk/companies/news/186986/hurricane-energy-plans-possible-move-to-premium-listing-on-london-stock-exchange-186986.html

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Hurricane Energy (HUR)

#94698

Postby forsi » November 10th, 2017, 12:09 pm

From the Energy Voice

"The chairman of North Sea oil firm Hurricane Energy has quit in a disagreement over the firm’s future direction.

Hurricane announced yesterday Robert Arnott had resigned “with immediate effect”.

Senior independent non-executive director David Jenkins has taken over as interim chairman, while the Surrey-based company’s new listing and governance committee (LGC) hunts for a permanent successor to Mr Arnott.

The departed chairman has spent more than 30 years in the oil and gas industry, and a further 10 in investment banking.

A spokesman for Hurricane said: “It became apparent that there wasn’t an alignment of views between Dr Arnott and the rest of the board on certain aspects of the board’s processes and proposed changes.”"

Any thoughts on what the disagreement might be?

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project economics

#94711

Postby forsi » November 10th, 2017, 12:34 pm

I am taking a deep look at HUR and trying to find some kind of margin of safety for this transition period.

Looking at page 22 of the last presentation.

Can anyone (with the right background) comment on the economics of the project?
Theoretically the project should generate good cash flow, but... is it really true? Which downside risk do you see?
I assume price of oil >$50.

Thank you.

Forsi

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Re: Hurricane Energy (HUR)

#94714

Postby FredBloggs » November 10th, 2017, 12:52 pm

There are dozens of senior execs out there from all the oil super majors and the 2nd tier companies been paid off. They've all had big fat pay offs and a couple of years gardening and golfing. I really doubt they'll struggle to get a high calibre candidate in place in the current O&G environment many of the guys with 30 or 40 years experience will relish one last big job and another juicy pay off.

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Re: Hurricane Energy (HUR)

#94717

Postby dspp » November 10th, 2017, 1:06 pm

Forsi,

If it helps this sort of stuff used to be my day job in some of my jobs. However I have not built DCF models for these fields with all the normal stuff one would put in them. So I have formed my opinion based on my knowledge of how such models perform, without doing it on this occasion. HUR has obviously built these models in order to make the statements they have made, including the p22 statements.

Basically the economics look good IF they get the well productivities they anticipate and IF they get the recovery factors they anticipate.

In my opinion the biggest downside risk is no flow, i.e. technical reservoir risk. Other technical risks (flow assurance stuff) are relatively trivial (with the caveat that HUR might not have the $$ to fix them, but I think nonetheless they are not that significant). Build costs getting out of control aren't too great a worry.

If the wells do not flow at the anticipated rates because of poor reservoir performance then the economics of all of these reservoirs are put into an entirely different zone. What that zone would look like would depend on how bad the performance was, and what it indicates.

At the currently anticipated well productivities the project appears to be robust to a fairly wide range of oil prices (down to $37 for breakeven per p22). Again I have not built and run the models to prove this, but I have seen sufficient in the various HUR info to form that as an opinion of the work they have obviously done.

It is probably not possible to drill deeper into this without building DCF models. Are you intending to do that ?

regards,
dspp

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Re: Hurricane Energy (HUR)

#94720

Postby FredBloggs » November 10th, 2017, 1:27 pm

My semi-ignorant take on HUR is that the risk is all about the fractured basement and how it behaves. It might boil down to if you hit the sweet spot you have a bonanza on your hands. If you don't, you have next to nothing. I think that is what it boils down to and essentially why the premier league and the second division operators out there are keeping their distance at the present time. It's not quite roulette, but it is a gamble, for certain.

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Re: Hurricane Energy (HUR)

#94722

Postby dspp » November 10th, 2017, 1:37 pm

forsi wrote:From the Energy Voice

"The chairman of North Sea oil firm Hurricane Energy has quit in a disagreement over the firm’s future direction.

Hurricane announced yesterday Robert Arnott had resigned “with immediate effect”.

Senior independent non-executive director David Jenkins has taken over as interim chairman, while the Surrey-based company’s new listing and governance committee (LGC) hunts for a permanent successor to Mr Arnott.

The departed chairman has spent more than 30 years in the oil and gas industry, and a further 10 in investment banking.

A spokesman for Hurricane said: “It became apparent that there wasn’t an alignment of views between Dr Arnott and the rest of the board on certain aspects of the board’s processes and proposed changes.”"

Any thoughts on what the disagreement might be?


Re the Chairman issue it is unclear to me.

1) The board have been a very tight ship with no leaking. So the mis-steps so far (re the latest finance round) may have arisen as a result of views put forwards which the board accepted at the time, i.e. not necessarily as a result of the people who subsequently fronted those views to the external world and who have copped the public part of the blame. That is one line of enquiry.

2) If it becomes necessary to walk this path alone for longer, then you need a Chair who can simply be present for it. Who knows what the personal now & future situation of RA is. That is another line of enquiry.

3) And going down the later FO route also means moving to a different listing. That in turn may require a different skillset. And that is another line of enquiry.

My personal guess is a chunk of all three. But they have been a sufficiently tight ship that good evidence is lacking. Which is as it should be. But in any case I think they have collectively done a good job so I am not complaining.

regards, dspp

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Re: Hurricane Energy (HUR)

#94761

Postby PeterGray » November 10th, 2017, 4:03 pm

My semi-ignorant take on HUR is that the risk is all about the fractured basement and how it behaves. It might boil down to if you hit the sweet spot you have a bonanza on your hands. If you don't, you have next to nothing

The risk is certainly about how the fractured basement behaves. However, I don't think it's quite as simple as bonanza if you hit a sweet spot and nothing otherwise.

The two wells that will be produced from in the EPS are both horizontal wells, covering a significant cross section of the reservoir. They have also drilled two other vertical wells that have flowed. The evidence is that it's not too hard to get flow from the Lancaster reservoir, and the use of horizontal wells ensures that you can hit a good cross section so you should hit both areas where there is good fracture development as well as a sample of those that don't. I don't think HUR have much doubt that the initial flow rates will be good. The big question is going to be how those rates hold up - which will tell a lot about connectivity and mobility within the reservoir - and in turn how many wells will need drilling to extract a reasonable proportion of the oil there.

Peter

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Re: Hurricane Energy (HUR)

#94766

Postby NigWit » November 10th, 2017, 4:30 pm

https://www.ft.com/content/26e9d110-c61 ... 86f39ef675

So is Mr Arnott is the first to run bleating to the press or an honest whistle-blower?

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Re: Hurricane Energy (HUR)

#94822

Postby dspp » November 10th, 2017, 9:11 pm

I think this fits within fair use & quote policy, from your FT link
https://www.ft.com/content/26e9d110-c61 ... 86f39ef675

"The oil industry veteran who this week resigned as chairman of Hurricane Energy has accused the company of falling short of the governance and leadership standards expected of a publicly listed group.

Hurricane, the oil explorer that claims to be sitting on the biggest new discovery beneath UK waters s........

Mr Arnott, a former investment banker with more than three decades of experience in the oil and gas industry, said in a statement sent to the Financial Times that his efforts to urgently improve standards in governance and the company£s leadership culture had £failed to succeed due to a reluctance to implement immediate change£.

He added that £a substantial gap still exists between the company£s current standards of governance and leadership culture, and those expected of a publicly listed company£. This prompted his decision to resign, despite having only joined the board last year...... etc "
very little substance to back up difference. Surely more meat to it than this.

regards, dspp

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Re: Hurricane Energy (HUR)

#94827

Postby Nimrod103 » November 10th, 2017, 11:03 pm

dspp wrote:I think this fits within fair use & quote policy, from your FT link
https://www.ft.com/content/26e9d110-c61 ... 86f39ef675

"The oil industry veteran who this week resigned as chairman of Hurricane Energy has accused the company of falling short of the governance and leadership standards expected of a publicly listed group.

Hurricane, the oil explorer that claims to be sitting on the biggest new discovery beneath UK waters s........

Mr Arnott, a former investment banker with more than three decades of experience in the oil and gas industry, said in a statement sent to the Financial Times that his efforts to urgently improve standards in governance and the company£s leadership culture had £failed to succeed due to a reluctance to implement immediate change£.

He added that £a substantial gap still exists between the company£s current standards of governance and leadership culture, and those expected of a publicly listed company£. This prompted his decision to resign, despite having only joined the board last year...... etc "
very little substance to back up difference. Surely more meat to it than this.

regards, dspp


I would interpret that statement as meaning he found himself by-passed on key decisions. But what do I know?

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Re: Hurricane Energy (HUR)

#94836

Postby FredBloggs » November 10th, 2017, 11:57 pm

Sounds to me that the grapes he was given as a leaving present are tasting pretty sour to me.

I can't possibly begin to know what goes on at HUR but the numbers of staff is currently tiny. I think it likely in such a small team playing with such huge potential stakes, the chances of personal disagreement more than professional disagreement is exceedingly high. I do not know Dr Trice, but if I were him I would be leading this from the front and expecting others to pretty much toe the line. It doesn't always work out that way.

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Re: Hurricane Energy (HUR)

#94838

Postby FredBloggs » November 11th, 2017, 12:05 am

@PeterGray thank you for the excellent reminder of the drilling strategy at HUR. That puts my mind a little easier. So if the horizontal wells are only 50% as productive as the best estimate, you drill them longer or you drill another? Extra cost, for sure. But with the FPSO hooked up and oil flowing at north of USD 60 a barrel, it should be a flea bite in the scheme of things? Potentially HUR have the biggest resource find for the last couple of decades on the UKCS? HUR seem pretty well placed to exploit it.

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Re: Hurricane Energy (HUR)

#95066

Postby FredBloggs » November 12th, 2017, 2:09 am

Anyone interested in HUR should take a few minutes to listen to the first part of this interview from Malcy on Friday. Apparently, he is meeting HUR for an update on Monday. The next few weeks could be interesting with the CPR expected to come soon.
https://www.youtube.com/watch?time_continue=24&v=TZS1KOBv1Bw

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Re: Hurricane Energy (HUR)

#95084

Postby forsi » November 12th, 2017, 9:11 am

"If the wells do not flow at the anticipated rates because of poor reservoir performance then the economics of all of these reservoirs are put into an entirely different zone. What that zone would look like would depend on how bad the performance was, and what it indicates.

At the currently anticipated well productivities the project appears to be robust to a fairly wide range of oil prices (down to $37 for breakeven per p22). Again I have not built and run the models to prove this, but I have seen sufficient in the various HUR info to form that as an opinion of the work they have obviously done.

It is probably not possible to drill deeper into this without building DCF models. Are you intending to do that ?

regards,
dspp[/quote]

Hi Dspp,

I do not intend to build a DCF for the moment. My aim is to make sure they do not tell us "lies" or they do not omit anything relevant.
Most of us are interested in HUR, and this creates a positive anchor which can be dangerous (we also know that many investors have actually lost money with HUR).
In the case of the illustrative economics of the project, the management's figures are pretty good.
But as you know, this is just a "communication" with a long disclaimer, it is not a regulatory announcement.

That is why I am asking if there is anybody here who has taken the time to really analyse these numbers.

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Re: Hurricane Energy (HUR)

#95088

Postby FredBloggs » November 12th, 2017, 9:19 am

@forsi, it might be a better set of data to work with once the next CPR is released, I think it is scheduled before year end.

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Re: Hurricane Energy (HUR)

#95098

Postby dspp » November 12th, 2017, 11:07 am

@ forsi,
If you look at the last CPR which is dated 2 May 2017 it analyses the economics for the EPS and is on the HUR website. When I read it my opinion was that they have done a thorough job. If you go to shareinvestors.co.uk you can also find a DCF analysis (hurricane-model-shareinvestors1) as a pdf that you can then replicate as a spreadsheet and fiddle with greatly.

@PeterGray & FredBloggs,
Similarly if you look at the CPR it goes into the fault mapping processes used. In a FFD the wells would be planned so as to optimally intersect the faults. At least that is the theory - it of course depends on whether the many assumptions that go in to that process are correct. If a well is not as productive as hoped then it is not necessarily the case that you 'just' drill them longer.

regards, dspp

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Re: Hurricane Energy (HUR)

#96211

Postby NigWit » November 16th, 2017, 2:25 pm

The warrants, the raise and the press

Last week the Dr Rob Arnott, the chairman resigned and then wrote a statement condemning the company’s corporate governance to the FT, who published it.

https://www.ft.com/content/26e9d110-c61 ... 86f39ef675

Then Richard Bernstein of Crystal Amber spoke with the The Times and they published an even more critical article on Tuesday.

https://www.thetimes.co.uk/article/stor ... -kbnrkdwwh

The majority of posters on the internet believe these actions to have been self-defeating and motivated by nothing but spite. Few are prepared to look past the messengers and at the messages so I have and here’s my take.

Firstly some background


All the drilling was great and there was no cause for concern until the warrants issue in May. There was never a good explanation for the warrants. The explanation in the RNS did not explain how the company found itself short of £12m having already raised money for long lead items. The warrants caught the attention of hedge funds, in particular Marshal Wace. At one point in June 20% of the stock was sold short according to Richard Bernstein (who told me at the Crystal Amber Conference at the end of June). The hedge funds realised that if the company needed £12m urgently it must be in distress.

Now my doubts


I think that the warrants were very possibly caused by the board, lead by Rob Trice, walking out of some farm-out negotiations at the last moment after they’d already committed to further long lead items for the EPS in expectation of the farm out funds. Leastways no-one has provided a better explanation that I have heard. Crystal Amber say they are baffled. I would be very happy for my conspiracy theory to be disproved.

Now we hear that the board of directors is so split that the chairman felt that he had no option but to resign. He has risked career suicide by writing to the FT so he must think something will emerge in the coming weeks to vindicate him. Clearly he did not feel listened too. Check his CV. He has been engaged as a NED on many companies and is a successful banker as well as a geologist.

https://www.linkedin.com/in/robert-arnott-49689412/

Like others I first thought that Arnott had stomped out in a huff over a trivial matter but then Richard Bernstien made his similar complaints in The Times. I know people who know Richard Bernstein and I have met him and, in my view, he is not a hot-head who would do this without a clear, positive agenda.

Crystal Amber’s recent newsletters all state that they are actively involved with management to release value for shareholders. At the AGM (when I sat directly behind Richard Bernstein) he asked Rob Trice if he would sell Lincoln for £0.5bn to fund the EPS. Perhaps he had a buyer.

Instead, the company diluted all the holders who supported them through the drilling. Their only concern was not for those holders but to fund the EPS but, due to the shorting, the loss of momentum and the dilution, the share price has not recovered even though the price of oil is near a two-year high.

If you look at the Q3 presentation it suggests that there are ongoing discussions with farm-out partners and that there may be more appraisal drilling next year if a partnership comes about. This is all absent from the Q4 presentation published last week.

I may be jumping to conclusions but I strongly suspect that Richard Bernstien and Robert Arnott had been working on a farm out agreement that the others rejected in the last few weeks and that is the cause of the divisions.

The time value of money works both ways. Money now from a farm out is de-risked and can be put towards more exploration providing the company with another strategy to run in conjunction with the EPS. It might be worth considering what the share price would be today had Lincoln been sold instead of raising so much money at a discount.

If there are any problems with the EPS there is nothing else to fall back on. Do others here think this is wise or too risky? I am uncomfortable, especially if there are ways to mitigate the risk that we have been denied.

At the very least if there was an offer I think that, as a substantial shareholders, we should have appreciated being asked to vote on it.

I don’t mean to stir. I didn’t join up for that but the press-releases have caused me genuine concern that I did not anticipate.

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Re: Hurricane Energy (HUR)

#96227

Postby dspp » November 16th, 2017, 3:08 pm

NigWit,

I have been watching the handbag waving as well.

Your summary is a good one, except that you are then building a hypothesis based on a partial knowledge of what has happened. It is important to remember that RB of CA's interests are not necessarily aligned with HUR PI shareholders' interests. There is an alternative hypothesis, for which there is equal evidence, that RB is trying to panic PIs (and other IIs) into prematurely accepting a low-valuation exit, or partial exit. The wider board have quite probably done the sums of all the different pathways (which will be the mother of all spreadsheets) and concluded that the RB's proposed path leads to a lower risked valuation than other pathways, and hence should not be chosen. There is a good deal of subjectivity in such evaluations as they depend on the preference function of A for X vs B for Y, and so it is possible for good analysts to come up with equally valid recommendations for different things. RB has a fairly high probability of job loss if CA has a down year, and so wants to shake the HUR money tree into solving his downside risk, this very much exposes his preferences. If I may say so that should not be HUR's problem. Try not to become part of the problem.

If I may say so it is a little bit late in the day for any single PI to start having doubts of this nature. It tends to imply that they have not done their homework as to what can happen, and do not understand the context in which they are investing. That context is not just technical; it is also corporate and governance is part of the corporate equation; so too are many other aspects.

Personally this is the first time in maybe 15-years that I have invested in a minor oil explorer and a considerable part of my caution over those years is because I have seen bad things happen to the little people who are taken for fools too often. Ditto any other hole in the ground type stock. It was only 18m ago (?) that I thought HUR had passed the necessary threshold for it to become a reasonable risk. I am very happy to see the events of the last week as it tends to support my view that the grown ups are in charge with a clear understanding of where shareholder value truly lies, and how to access it, and with a proper understanding of their duties.

Some quicky points:
- never fall in love with a stock
- RB is not on the board, so it would have been wrong for RA to share any privileged information with him
- likewise even if (say) a farm-in candidate spoke with RB/CA and then RB spoke with RA about a stitch up, then it would be wrong for RA to consider this without reporting to board for direction
- if RA did either of above then that would be a resigning matter (<<< and he has ......)
- a lot of majors will be trying to pressure HUR into low-ball exits
- nice to see OGA staying quiet in public all through this
- I could be wrong in many ways, do not take comfort from anything I say
- HUR is still a very high risk play that could have a very binary outcome, do not put in more than you can afford to lose
- RA is a failed expl geologist who has then done the rounds in London, he sufficed but no more
- don't let anyone pressure you into thinking that 'their' man/woman is the right one for the job
- also don't get hung up on DrT being there: I think this company is now at a stage where DrT's existence is not absolutely critical (but very value-adding and so I don't want to see him go)
- lastly this is not a shareholder voting matter

regards, dspp

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Re: Hurricane Energy (HUR)

#96232

Postby dspp » November 16th, 2017, 3:26 pm

On a slightly different HUR topic I worried that I had the wrong number of fully diluted shares in my post of October 28th, 2017, 1:15 am that yielded 2,402 mln.

Having done a bit of digging around I have the following update that so far yields 2,434 mln:

issued shares = 1,959,210,336
convertible bonds = 442,307,692 (issued 30 06 17)
options = 901,000
PSP rights = 8,930,354 (as of 31 12 16)
warrants = 23,333,333 (held by CA, exercisable at £0.20)
KER top ups = ??? (I have yet to dig into (see below)
===================================
total (fully diluted) = 2,434,682,715

Various notes:

1. In addition to the options, there are also the Performance Share Plan (PSP) rights held by certain directors and employees. There were 8,930,354 outstanding at 31-Dec-16 (see page 59 of the 2016 annual report).
2. Note that my option figure is also as of this date 31-Dec-17 .
3. Through the year there will be portions of PSPs and options that lapse etc and the next update to the market will be in the 2017 annual report.
4. Note the VCP which is described in the annual report.
5. Re the warrants held by Crystal Amber. They can subscribe to up to 23,333,333 new shares at a price of £0.20/sh. This is detailed on page 58 of the 2016 annual report.
6. Re Kerogen there is a top-up right held by Kerogen to subscribe for shares at the same price as Crystal Amber upon exercise of the aforementioned warrants (see page 18 of the April 2016 prospectus on HUR website).

As you can see it is a moving target. It is quite possible I have mistakes in this list. If anyone fancies please correct me and/or dig into the Ker top-up rights as I have a day job to look after right now.

regards, dspp


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