Hurricane Energy (HUR)

[Carcosa]

CA is actually holding 11.69% of HUR at the time of the RNS. The value they sold practically equates to the exact amount of cash debt they last reported. So it seem to me they are just selling when they need to raise cash for their own business purposes. It also infers they were quite happy to obtain a short term loan in preference to selling HUR shares a few weeks/months ago. All speculation and has little baring on my medium to long term view.

[Beerpig]

Comprehensive and positive presentation released this morning

http://www.investegate.co.uk/hurricane- ... 00078652B/

[dspp]

As far as I can see what is missing in the presentation is:

- Info on pressure profiles (per Nimrod's concerns/queries).

- Spatial cut-off they are assigning to Lancaster vs Halifax. I suspect - but would like it to be confirmed - that they are using the geologically arbitrary licence boundary as shown on slide 25. If so by eye from slide 20 & slide 25 then Halifax volumetrics (and STOIIP all else being equal) would be about 2x or 3x of Lancaster. Given that slide 14 gives 2.3bn bbl OIIP to lancaster with 593mmbl recoverable this indicates 1 - 1.5bn recoverable in Halifax.

- a single slide giving mge latest view on Lincoln / Warwick volumes.

Those quibbles notwithstanding from a technical perspective I am smiling. I see that over on the LSE board people are misunderstanding tilted OWC and I think they need to have a good read of PeterGray's find of https://www.researchgate.net/publicatio ... _North_Sea. Whether it is a tilted OWC or is a series of faulted stepped OWC I do not know (but the absence of info to support sealing faults tends me to the former hypothesis).

From an investment perspective I am very happy to see mge playing hard ball and putting debt forwards as a financing proposition to avoid being taken out at too low a price. As investors we all have to accept that CA will keep selling into rises for a couple of years to come of course (unless they get taken out).

Smiling lots As all of us should be if we think about the significance of those volumes. I'm glad all mine is now inside the ISA after this morning's little shuffle.

regards, dspp

[dspp]

To answer my own query I have just had a chance to listen to the HUR webcast of the CMD,

http://webcasting.brrmedia.co.uk/broadc ... b958000035

and indeed the Lancaster volumes are up to the licence boundary.

Worth listening to this in my opinion.

regards, dspp

[slartybartfast]

I must admit to not being a fan of podcasts as I seldom have the luxury of time and peace to listen to them... a written report is -to me- far more practical. Having said that, I'm very pleased that I found a window in which to listen to this. I'm now a much tighter holder of the stock. Thanks for the link dspp.

[HaiderAli]

Malcy seems to be doing a decent job of expectations management (post 19043 on advfn). He refers to any CPR being on a preliminary basis with 'plenty of upside'. He also says that the first phase farm-in partner could even be an oil-trader (and not the likes of BP that many are expecting).

I'd imagined news of farm-in with a well known oilco being a possible catalyst for some sp improvement, since it would at least provide some industry validation of HURs promises, but if it's an oil-trader I am not sure how the market will take it.

[dspp]

Thanks HaiderAli - I have no opinion on Malcy. In my opinion Rifcle on LSE is doing the right numbers on reserves volumes. And the difficulties in drilling - and then flowing - fractured reservoirs are beginning to sink home to others. And the company is carefully playing the 'go it alone' for EPS card (using 2/3 equity & 1/3 debt) to keep the valuation up. So all in all it is what I prefer - a medium term opportunity with sufficient scale and upside valuation and professional management that it will not be taken out purely on whim and momentum.

Nimrod - have you looked at the latest investor presentation and podcast ? Do you have any thoughts ?

regards, dspp

[HaiderAli]

Hi dspp, I hoped I wasn't inferring any opinion of malcy either way, in my post. My perspective was in terms of the points he was making that appeared to be coming from the company.

So, for example, in terms of the CPR and what it may or may not say it seemed interesting that he should point out that the numbers may be conservative - I'd imagine he'd have no reason to say that unless he was privy to opinion along those lines. The same applies to the possibility of an oil trader being interested.

Referring to your post, I am not entirely sure how 'going it alone' helps the company. Ultimately they need money and wherever it comes from there will be a cost attached.

My, perhaps naive, assumption had been that if an oil major were involved with access to the data room and the ability to interpret its contents the risk that they might attach to the investment could be lower than would be the case for people providing funding via debt or equity and as a result the overall dilution (equity) or cost (interest payments/terms on debt) we would suffer would be less.

In addition, I assumed that the inclusion of a major oilco may validate HUR's interpretation of the geology and their plans going forward and thus give a broader group of investors the confidence to buy, in a manner that the support of people from outside the industry might not.

But I am happy to be disabused of these ideas.

[dspp]

Haider Ali,

I've seen some text that appears to be from Malcy now. I'm not sure Malcy is getting any privileged info. I think the company are making the same points to him in private that they made very openly in the investor briefing that was webcast last week (and which he was apparently present at)
(http://webcasting.brrmedia.co.uk/broadc ... b958000035). So in a sense I think that all that we see is Malcy repeating the company line, perhaps with his own overlay. At least that's my take on him.

If you go to the webcast and the associated presentation what it is saying regarding financing the EPS is that it can be done without the need for a farm-in. That therefore lessens the leverage of those in any oil majors who are negotiating down the price for a farm-in, and increases HUR's leverage in negotiating up the price for a farm-in. HUR are saying very clearly that the assured natural flow rate from the two wells, even with four failed ESPs, is what sets the maximum debt that a responsible lender is prepared to offer. They are indicating that is about 1/3 of the EPS finance costs, leaving (say) 2/3 for equity. So a farm-in valuation needs to result in a outcome for an existing shareholder that is greater or else HUR would be doing the right thing by declining it and holding out for better value at a later date. It will of course be the mother of all valuation of different pathways spreadsheets behind this since they now have several fields to account for, each at different stages of explore/appraise. And that goes directly on to another point that HUR are making which is that their ability to process farm-in offers is less than that of the people who might farm-in to work them up and issue them.

Your point - which others are also making, that unconventional finance offers might be available is also relevant. The problem for HUR's board would be how to properly value them if they are too complex. All this is a luxury problem given that the possibility of debt + equity to deliver an EPS sets a floor on the valuation right now, and prevents a low-ball farm-in being accepted due to distress. Which I like.

As Nimrod quite correctly points out hubris should be guarded against. The gloop that prevented a DST on Halifax in the available time is a good example of the risks that are still on the table. I recall similar issues on fractured wells once (as the operator trying to clean-up, which was less of a problem than the drillers had been experiencing mind you) and have vivid memories of the problems it caused us. So on my personal tick-list for investing in HUR was seeing that they had (I thought) sufficiently resolved the corresponding issues early on in the exploration wells (one of the first ones) and so I ticked that risk off as being managed. To then see it being raised as the reason for a not-achieved DST is a sharp reminder of the risk at this stage. Mind you I think it is manageable so I bought some more on the basis of the ODT number in Halifax.

Just my thoughts, I may be getting lots wrong here, indeed I surely am. All contributions & insight welcome.

regards, dspp

[Carcosa]

You may find today's interview of interest http://tiptv.co.uk/tip-tv-ceo-interview ... ne-energy/

[PeterGray]

Referring to your post, I am not entirely sure how 'going it alone' helps the company. Ultimately they need money and wherever it comes from there will be a cost attached.

I would think that going it alone is pretty much the last thing the company wants to do. I wouldn't be surprised to see an early sale of the whole asset - or possibly a deal that leaves HUR with a small largely carried forward interest.

However, being able to show that they could go it alone, and talking that up is I would assume a key part of the negotiating position. The standard way forward for companies with interesting assets they can't afford to develop is to either farm out or sell on poor terms. By saying we have an interesting asset, and if we have to we could raise enough capital to move forward with an EPS, which will generate revenue and most likely make the asset more valuable at the same time, should hopefully make some of those entering the data room think carefully about what they are prepared to offer now.

Peter

[thebuffoon]

Hi dspp,

In Malcys interview Trice mentions that they were obliged to use a heavier mud weight because it was an exploration drill; and it was this that caused the problem due to the overbalance.

I can see that from a risk point of view, but, aside from the fact it was actually designated an appraisal well, does that comment ring true with you?

Buffy

[dspp]

I am not a driller or a mud engineer, but there are some facts I have picked up about the Halifax well that are interesting to me. One is the mud weight issue; another is that I heard somewhere - but cannot find it now - that they saw losses to the formation; and the third is the casing depth.

If you look on slide 21 of the CMD presentation it shows the Arco well detected gas on the crest of the (overlying) structure. I think this is why they set a casing shoe below that depth in the Halifax well so that they could thereafter drill open hole through the main section of the reservoir without needing to worry about what might come in at the top. That would mean they could reduce mud weight slightly, compared with setting the shoe higher. The presence, or otherwise, of a possible gas cap and the GOR of the oil are both of interest in reservoir development terms and in FFD topsides/export terms. Ideally a HUR shareholder would like to see just enough GOR to power the reservoir and topsides for field life without needing a gas import line, but not so much that flaring causes an environmental issue that forces a sub-scale gas export line & compression, and not so much that gas breakthrough into high-set horizontal producers is a concern. At some point I would like to see a phase diagram for this reservoir to understand how close the top is to having a gas cap, or not, or whether a secondary gas cap might occur, or not. This has cost/recovery/etc implications for field economics and so matters to us as investors. The presence of a strong aquifer seems to be likely by the way if the tilted OWC hypothesis stands up, and this is also relevant to the reservoir's pressure journey during field development.

Then I picked up somewhere - and like I say I cannot find where so I may be mis-remembering it - that they took losses. This implies that they were slightly overweight and/or unable to build up a good enough filter cake across the fractures. Which might be a function of the actual size of fractures they happened to drill through, or just being overweight (due to excessive - but understandable and commendable - caution on a first well into the structure). If losses occur then the drilling fluid invades the structure more deeply, and consequentially when you come to open up then you have to produce out all that fluid before you get the formation fluid out (and you have less pressure to drive that clean-up process). So what one would naturally do in that situation is to try and build a more competent filter cake. Quite what the mud engineers do to make that happen is not my part-of-ship, but the consequences ordinarily will be that a pretty good skin of gunk will form around the well bore sealing it off effectively from the formation. And the mud will not be so good in returning cuttings to surface rather than getting bound up in all this. Back in the olden days that was less of an issue because you just perforated through it and hey presto flow happens (being simplistic). But in a hole like this where you aren't perforating and are trying to conduct a DST then getting rid of that filter cake, and producing out those losses, to get flow to surface and doing this against the clock (time/cost) is problematic. And I think that is what we are looking at when we see the photo on slide 22 of the CMD presentation. But there are other possible explanations and we don't have enough info to be sure of exactly what happened but what I am describing is at least consistent with the evidence we have seen. I would welcome others who know more about this commenting, and maybe correcting me where I am not getting it right. Anyway this will have consequences if they cannot get it right on the next well(s) but I think they can get it right enough given what I have seen in their past learning curves, so it is not a huge worry for me right now.

Hope this helps. Comment/corrections most welcome.

Regards, dspp

p.s. I tend to agree with Rifcle's volumetrics, and he is right to be doing the sums in my opinion.

[thebuffoon]

Thanks dspp, that is helpful.

Buffy

[dspp]

Re my question of targets in adjacent blocks and issues of biodegradation of Clair oil (23.7 API) and Foinavon (26.8 API) and Schiehallion oil (25 API) and Solan (23-28 API) it will be very interesting to see what they are after in the adjacent blocks. For sure HUR are very fortunate that LinWar and LanHal are 38 API.

One has to wonder what is in Clair basement.

http://www.landforms.eu/shetland/oil%20 ... etland.htm
http://etheses.dur.ac.uk/3489/
https://www.chrysaor.com/downloads/CPR% ... 0Final.pdf
not forgetting
http://sp.lyellcollection.org/content/397/1/81.full

WoS is likely to be quite busy in the coming decade.

regards, dspp

[dspp]

A couple of good articles with additional info from Trice in Energy Voice,
https://www.energyvoice.com/oilandgas/n ... -sea-find/
https://www.energyvoice.com/oilandgas/n ... now-cards/

One of them included more explanation of the drilling decisions and the issues experienced cleaning up, which is much as I had been thinking,

"“We drilled for the first time in the UK a significant section of basement with a 12-1/4 inch bit; and we used a special kind of sheer-splitting [sic, means shear] fluid called Drillplex (viscosified brine), which prevents any losses whatsoever. The last thing one wants is to have total losses like we experienced on the (Lancaster) ‘seven’ well and then gas coming to surface. It was done for safety reasons. Basically it fills up the fractures, sets solid and keeps the gas and oil at bay. We used it on the first well on Lancaster.” ........ so [my words] basically they couldn't clean it up in the time and money available before the rig went off hire.

regards, dspp

[dspp]

Something is going on. After being in 50-60 range there is a rapid climb through 65 so far today.

[Carcosa]

Something is going on. After being in 50-60 range there is a rapid climb through 65 so far today.

I'd say Bulletin Board 'headless chicken syndrome'.

If the CPR is not released tomorrow then I'd expect a good proportion of today's gains to be given up tomorrow. Means nothing for long term shareholders. Day traders love it though. Small retail shareholders will probably [expletive deleted] themselves and 'top slice' or whatever it is they do.

yawn.

Carcosa

[StepOne]

I was considering selling a chunk and then buying back tomorrow, but knowing my luck the CPR would come out in the morning.... better leave things as they are. Glad to see some comment on here as it keeps me sane after reading too much advfn!

Cheers,
StepOne

[fullbreakfast]

Days like this are good for my emotional barometer readings on a share.

If I feel delighted by the rise I probably have too many. If it distresses me I probably have too few. If I have mixed feelings, as in this case, I'm probably holding about the right amount.

In any event, my general policy of masterly inactivity will continue.