Hurricane Energy (HUR)

[NigWit]

https://www.fool.co.uk/investing/2018/0 ... me-to-buy/

I’m not the world’s biggest fan of Motley Fool but, nonetheless, I prefer them onside.

[NigWit]

There’s a fresh note from Edison, out yesterday and looking positive

http://www.edisoninvestmentresearch.com ... QE,2MXG2,1

[dspp]

Ops Update RNS 01 06 18

Hurricane Energy plc, the UK based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, is pleased to provide an operational update in relation to the Early Production System development of the Lancaster Field ("Lancaster EPS").

Well re-entry and completion operations for the Lancaster EPS have now commenced under the control of Petrofac Facilities Management Limited ("Petrofac"), who are the Well Operator. The operations will utilise Transocean's Paul B. Loyd Jr. harsh environment semisubmersible rig. Following the rig's previous assignment and mobilisation to the Lancaster field, it underwent a required period of Blowout Preventer maintenance prior to commencement of well completion operations.

The Lancaster EPS will use two currently suspended horizontal wells; 205/21a-6 and 205/21a-7Z, which were previously drilled and tested in 2014 and 2016 respectively. The 205/21a-6 well tested at 9,800 stb/d and the 205/21a-7Z well tested at 15,375 stb/d. These rates were achieved using electrical submersible pumps ("ESPs") and were constrained by the capacity of surface test equipment. During these operations, the wells will be completed with dual pod ESPs.

https://www.hurricaneenergy.com/communi ... ws-service

[Carcosa]

The RNS to which you refer is nothing more than a confirmation of activity which was planned months ago. Furthermore it's issued via the RNS system and all those interested in the company would be aware of said RNS. Had the source been other than an RNS then a commentless link/extract might have been of interest to those who are interested in the daily goings on.

A link/extract to an RNS with no insight or substantive comment merely ads to the clutter of this board.

[StepOne]

I gave up on RNS alerts a long time ago because they just clog up my mailbox - so I'm more likely to see news if it's posted on these boards. I think in general people only post stuff that is interesting, so I 'm okay with it. Compared to the RNS links posted on the HYP board this is an oasis of calm!

[dspp]

AGM presentation
https://www.hurricaneenergy.com/~/media ... slides.pdf

AGM presentation with speakers' notes
https://www.hurricaneenergy.com/~/media ... -notes.pdf

regards, dspp

[dspp]

Any one have an idea how much conversion of 935mmboe from prospective to contingent at Warwick might be worth?

Have a look at my post on this thread dated: #132941 Postby dspp » April 17th, 2018, 11:00 pm

There were a number of statements by HUR in the presentation and in the text that are directly addressed at a number of the points raised on this and the LSE boards. They know that we know the game.

What was the diameter of the large red dashed circle on slide 23 ............. ????

- dspp

[dspp]

Yes, they are answering our questions, obliquely so as not to expose themselves.

Did anybody think to ask them about flow assurance constraints ? Or about the dimensions of that circle ?

(In a post on #131784 Postby dspp » April 12th, 2018, 9:14 pm I have previously also commented on how far you might be able to stretch, and on other occasions earlier. One would hope someone quizzed HUR about it today ?)

regards, dspp

[PeterGray]

What was the diameter of the large red dashed circle on slide 23 ............. ????

10km

I assume that is intended to show the area in which potential tie backs to the FPSO exist?

Though it's not clear what the smaller circle over Warwick indicates.

Very good to see the presentation provided with speakers notes for those interested.

Peter

[dspp]

Thank you Peter. Were you there ?

If it is centred on the FPSO mooring and if it is 10km diameter then it is comparable to the already known 6km flow assured number after allowing for bends etc. Personally I think one could go further out as a tie-back length for shorter term appraisal work. Either way it suggests a suitable subsurface Lincoln and/or Warwick target section could be reached from a drillbase(s) on the 10km diameter. However if no suitable target exists then presumably the other smaller dotted circle is where they would prefer to go (for purely subsurface drill & test) if they were not intending to tie back for an appraisal.

regards, dspp

[dspp]

They have a rig already organised. The PBLJ which is running the completions now has a number of options set aside for both HUR and for another Kerogen company. The way I read it is that the PBLJ will go off from HUR, drill an exploration well for the other company, and then pass PBLJ back to HUR if the AM comes onstream early enough to release the project contingency money (and prod revenues) for an early 2019 drilling campaign. If not it will drill a second exploration well for Ker's other company then come across in late 2019 when the HUR kitty has been refilled enough.

i.e. no more dilution, at least not prior to an IFD if required ........

regards, dspp

[PeterGray]

Thank you Peter. Were you there ?

Sadly, no. I just compared the slide to a map of the licences that had a scale!

Peter

[Carcosa]

Am I correct in interpreting the annual report (p57) as indicating Hurricane has a maximum potential of 29% share dilution which can kick in at a share price of greater than 65p? Or put another way, a reduction in value of about a third?

[dspp]

Am I correct in interpreting the annual report (p57) as indicating Hurricane has a maximum potential of 29% share dilution which can kick in at a share price of greater than 65p? Or put another way, a reduction in value of about a third?

Carcosa,
If you look at my #103338 Postby dspp » December 11th, 2017, 12:00 pm in Table 2 I give the fully diluted shareholdings per my best understanding then. There is an earlier post of mine on the same subject explaining how I came to that. It is a moving target but yes about 25-30% would be right depending on what gets dialled in for PSP and Ker rights.

Regards,
dspp

==================



Table 2: Fully diluted shareholdings

issued shares (mln) | 1,959
convertible bonds (30 06 17) | 442
options, warrants, PSP, etc | 58 (putting 25m for Ker rights)
Fully diluted (mln) | 2,460

[PeterGray]

Am I correct in interpreting the annual report (p57) as indicating Hurricane has a maximum potential of 29% share dilution which can kick in at a share price of greater than 65p? Or put another way, a reduction in value of about a third?

I don't see that it has much impact on "value". The assets would not be changed by it. The convertible is a known feature of the companies finances, and though clearly, as dspp has demonstrated, trying to predict exactly what the effect in terms of either dilution, or repayment of capital is going to be is difficult, and involves some guesses it is a feature of the company and therefore presumably taken into account in existing valuation models? So though there is a potential increase in share count it is also the case that when it takes place, an existing factor, which reduces the current valuation of the shares will be removed.

Peter

[dspp]

If Kerogen own CBs and exercise their conversion rights, will that take them over 30% ownership?

Simple answer is I don't know because it would depend on other things. However if they wished to they could easily purchase the relatively few shares required to push them over the 30% on the open market.

The combination of Ker + CA + is one of the things that encouraged me earlier on. In that respect the continued presence of CA still has value in derisking PI positions.

regards, dspp

[Carcosa]

dspp thanks for your 103338 and prior post. Seems a reasonable estimate given the subsequent info contained in the AR.

Peter

I don't see that it has much impact on "value".

Agreed not in the context of company 'value' but as a shareholder a 30% dilution is not welcome. Understand the need that to get where we are today/going' required those dilution terms. As far as retail investors go, other than a small minority, I do not believe the subject of dilution crosses people's minds. Institutional investors may be a different story. Those who benefit from the dilution may well find a need to sell shares in the open market (a little like Crystal Amber is doing at the moment) so this may well depress the share price.

Timing, company progress, price of oil and corporate activity are all factors which make predicting what will happen a futile exercise; what I would suggest however is that it is probably advantageous for retail investors to accumulate their final shareholding over the coming few weeks rather than leave it until later. But that would be timing the market which I have failed to do for my advantage for 25+ years!

[dspp]

The folks on the LSE board have spotted an updated Edison note giving an 81p/share valuation, using fully diluted numbers of shares, and for the current situation (i.e. impending EPS). This is up from the prervious Edison valuation of 78p/share.

This compares with my 12 Dec 2017 valuation 103338 that estimated 87p/share for the corresponding 'time now' situation (i.e. my table 1).

They come at it using discounted cash flows for one scenario, whereas I mostly come at it the rather simpler way of using $/bbl for different reserves categories and again one scenario. That means they can run a sensitivity analysis for different oil prices which is helpful. Both are valid approaches at this stage, and there are others as well. Anyway 78, 81, and 87p are all very close to each other in the context of HUR. But let's hope this game lasts long enough to take a look at the later valuations I set out.

regards, dspp

[dspp]

The folks on the LSE board have spotted an updated Edison note giving an 81p/share valuation, using fully diluted numbers of shares, and for the current situation (i.e. impending EPS). This is up from the prervious Edison valuation of 78p/share.

This compares with my [11] Dec 2017 valuation 103338 that estimated 87p/share for the corresponding 'time now' situation (i.e. my table 1).

They come at it using discounted cash flows for one scenario, whereas I mostly come at it the rather simpler way of using $/bbl for different reserves categories and again one scenario. That means they can run a sensitivity analysis for different oil prices which is helpful. Both are valid approaches at this stage, and there are others as well. Anyway 78, 81, and 87p are all very close to each other in the context of HUR. But let's hope this game lasts long enough to take a look at the later valuations I set out.

regards, dspp

I can see some of you are confused as to how to interpret my tables in my 11 Dec 2017 valuation (see link above).

Look at table 1, line 2, which shows $5/bbl for pre-FOIL EPS yielding a EV of $311m for that line. Do the same for the other lines, add it all up, divide by the fully diluted number of shares, fiddle with exchange rates, and you get £0.87/share. That's just a sum representing a pre-FOIL value and the only real wet-finger-in-air bit is the $/bbl bit for the different reserves classifications for each block/sub-block. Every other number is basically taken straight from reports (well, one is a bit of a fiddle, the sharp eyes will notice it).

Now look at table 3, line 2, which shows $14.65/bbl for post-FOIL EPS yielding an EV of $910m for that line. The point is that I did a basic DCF for 10yrs production at $25/bbl margin to get $14.65 which is simple maths in a basic spreadsheet. That is an increase in $/bbl for having got from the "pre FOIL" condition to the "post-FOIL" condition, i.e. a significant reservoir and production system derisk. Similarly I have set out a likely appraisal (drilling etc) programme and described the assumed 50/50 success outcomes (i.e. success at proving up the 50/50 volumes), which affects the $/bbl for each line item, and I have explained (simplistically) how it is paid for. That yields £1.98/share when all the line items are totted up.

In both these (and the third, table 4) cases what is being described is a very simplistic fair expectation value for the sum of all the reservoir assets if sold together in a trade sale at each stage along the derisking & proving up pathway. The share price could (in principle) be higher or lower on the day of sale, indeed I would ordinarily expect the share price to be lower than the EV per share (would you buy into an overpriced share ?). However the share price might go higher or lower for a whole variety of rational and/or irrational reasons. That's the whole point of a market.

There are many (very many) other ways of doing these calculations, but I am a bear of little brain, and not much spare time, and this is a freebie, so that is why I am putting up these simplistic versions. If you have better plain vanilla numbers (e.g. if you have run DCFs for cold-start developments at different oil prices), or if you have better purchaser-specific numbers (e.g. if you have figured out the ullage in the various pipelines, and have worked out the available value/avoided tariff/etc) then please post them (HERE) and I am happy to look at them and chew over them. Given the right incentive I will also do more work myself, but seriously I am busy elsewhere.

I suggest you also trawl through the other significant posts by myself and others as there is quite a lot of background info as to what we are each worried about, and that is a pretty good pointer as to what risks would worry anybody else knowledgeable in the industry. Risks = low price.

The timeline I sketched out could be easily 4-years long. A lot can change in that time, including everything shifting right by a few years. Or left. Or going completely wrong for endogenous or exogenous reasons. Or whatever. As of now this is just a hole-in-the-ground-story-stock. One I happen to think is interesting, but nonetheless not a slam dunk. Never fall in love with a stock.

regards, dspp

[feste]

Hi ap8889,

Likewise ! Lots of helpful clarifications/confirmations, eg likely RNS-flow etc and some interesting comments re oil majors' mentality (buy it all, rather than piecemeal - if they can); life post farmout/sale, etc ('the FB world is our oyster' , to paraphrase), etc.

I was interested in Dr T's comment/slip that drilling options were all contingent on 'having revenue in the early part of next year' - no doubt mindful of the cash squeeze experience that is widely held to be responsible for the warrants issue.

There must be a reasonable lead time involved in the cycle from 1st oilflow, to filling up the 600,000bbl capacity Aoku Mizu (60 days at avge , 'slow ramp-up' 10K bopd, cet par 40 days at 15K bopd), then offload and sale via BP.

Surely 'revenue early part of next year' is only consistent with FOIL by / before end 2018, is it not ?

ATB