Hurricane Energy (HUR)

[dspp]

@PG: thanks for giving it a second look, concur.

@FB: indeed. folks are missing that they did the warrants in order to get the long lead items ordered up so as to stay on the critical path, and not get manoeuvred into losing a year. it was the right call. with luck eps foil Q3 18, followed by 3 wells.

regards, dspp

[dspp]

HUR RNS re governance matters: https://www.hurricaneenergy.com/communi ... ws-service

Listing and Governance Committee Update
Hurricane Energy plc, the UK based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, provides an update on the initiatives undertaken by the Listing and Governance Committee ("LGC").

The Company has appointed Spencer Stuart, a leading executive search firm, to source a non-executive chairman of the board of Hurricane (the "Board"). The appointment followed a rigorous tender process, and is being overseen by the Nominations Committee. A further update will be made as to progress in due course; and the activities of the search firm and the Nominations Committee will be reported upon within the next Annual Report, in accordance with the UK Corporate Governance Code (the "Code") Provision B.2.4.

Once a non-executive chairman has been appointed, the Company will seek to appoint additional independent non-executive directors, such that the Board becomes fully compliant with Code Provision B.1.2. Such appointments will be made with input from the new chairman, and will aim to ensure the Board and its committees have the appropriate balance of skills, experience, independence and knowledge.

On the LGC's recommendation, the Company has appointed Boudicca Proxy Ltd ("Boudicca"), a specialist shareholder engagement and corporate governance consultancy, to assist in evaluating and transitioning the Company's corporate governance policies and procedures towards best practice, benchmarked against those of a premium listed business. Boudicca will work alongside Evercore Partners, which has already been appointed to provide independent advice to the LGC.

The Board believes that director nomination processes, succession planning and Board evaluations are integral parts of a well-functioning, effective Board, and will form part of the ongoing Board strengthening activities.

John van der Welle, Chairman of the LGC, commented:

"I am pleased to report that the Listing and Governance Committee's initial recommendations have been made to the Board and have been acted upon. I would like to thank shareholders for their input as part of this process. The LGC's review of the Company's organisation and governance structure will continue into the new year. I look forward to updating shareholders on progress in due course."

[NigWit]

The warrants were almost commercial suicide. They may have helped keep the EPS on schedule but they were avoidable because Crystal Amber would have provided a £12M convertible loan. How on earth did the company find itself short of such a paltry sum?

The day after the warrants were issued in May Marshall Wade, a large aggressive hedge fund, opened a short position. Before then Hurricane Energy was not on any short seller’s radar. By the end of June 20% of the stock was on loan and the share price was on its knees.

This has left the company open to justified accusations concerning governance, potentially prone to hostile takeover and uninvestible to most institutional investors, which is why there are so few of them now.

Only today we see more evidence of this but at last the problems are being dealt with.

In my view we shareholders are in debt to Rob Arnott for keeping to his principles and focusing intense light on the poor governance that has destroyed huge value since May. Heaven only knows how high the share price would have climbed by now had those warrants not been issued.

Let us hope the CPR is good and that the EPS succeeds without any hitches.

[dspp]

Not ordering the long lead items would have created even more pressures. At times like that there is no option but to buckle in tight.
regards,
dspp

[PeterGray]

The warrants were almost commercial suicide.

I think they were possibly badly advised by Stifel- who almost certainly recommended that course of action.

Apart for the critical point that dspp makes that no ordering the long lead items would almost certainly have created bigger problems, I also doubt very much that it had a negative impact on the final outcome.

Raising the level of capital that they have was always going to be very difficult - and there was never any likelihood that a raise would take place anywhere the highs that were in place at the start of the year. The only justification for those prices was a view that a good FO would be forthcoming, which wasn't the case. Had the price not been depressed by the warrant issue the equity raise would either have taken place at a much bigger discount, or perhaps not even been possible to negotiate. Whether the effects of the warrant raise were deliberate or not the end result was probably what made the current position (being fully funded to FOIL) possible.

Peter

[wanderer101]

CPR is out:

https://www.investegate.co.uk/hurricane ... 00058941Y/

Highlights:

· Substantial resource increase - Hurricane total 2P Reserves + 2C Contingent Resources increased by ~231% to 2.6 billion barrels of oil equivalent

· Halifax 2C Contingent Resources of 1,235 million barrels of oil equivalent

· Lincoln 2C Contingent Resources of 604 million barrels of oil equivalent

· The undrilled Warwick prospect is assigned Best Case (P50) Prospective Resources of 935 million stock tank barrels of oil, with a 77% chance of being a discovery

And an interesting section headed 'Farm Out':

Hurricane is committed to maximising shareholder value, and is committed to monetising the vast resource within its portfolio via a farm-out, and ultimately a sale to an industry partner, at the appropriate time.
...
The EPS has given the Company the flexibility to continue to de-risk its assets independently, until such time that it receives an offer from an industry partner that reflects appropriate value for shareholders.

Hurricane's data room remains open. We have been encouraged that certain potential counterparties have expressed a desire to transact across Hurricane's entire Rona Ridge portfolio. However, given the potential capital commitments for a development of the size indicated by this resource upgrade, it is likely that potential partners will wait to see initial results from the Lancaster EPS.

Although that could mean a deal is two or three years away (ie no-one is willing to get anywhere near HUR's asking price for now).
Shares up 4.5p to 31.5.

cheers slb

[dspp]

I’ve updated my simplistic view of figures now that the CPR has been published 11-Dec-2017. So far I have only read the RNS not the CPR itself. My last substantive analysis pre-this-CPR was 28-Oct-2017 on post #91293 at https://www.lemonfool.co.uk/viewtopic.php?f=16&t=796&start=100#p91293.

========NOW=======

To my mind the situation now can be set out in this table:

Table 1: Situation as of Dec 2018

Code: Select all

 
                 | MMboe  | Cat           | $/bbl        | $mln               
Lancaster - FFD  |   529  | 2C (50%)      |  $     1.00  |   $           529
Lancaster - EPS  |    62  | 2P (50%) 10yr |  $     5.00  |   $           311
Halifax          | 1,235  | 2C            |  $     1.00  |   $         1,235
Lincoln          |   604  | 2C            |  $     1.00  |   $           604
Warwick          |    935 | P50           |  $     0.10  |   $            94
Whirlwind        |   179  | 2C            |  $     0.50  |   $            90
Strathmore       |   32   | 2C            |  $     0.10  |   $             3
Tempest/Typhoon  | 1,307  | P50           |  $     -     |   $             0    (relinquish)
Subtotal         | 4,883  |               |  $     0.59  |   $         2,865
               


Re volumetrics : I am using the latest 50/50 numbers from this CPR and the Lanc CPR. For the Lancaster field I have split it into the volume attributable to the FFD and the separate volume attributable to the EPS. The $/bbl valuations are my own view. (If you have a better opinion than mine on any of this please speak up).

Re adjustments: In the simplistic view I make no adjustment for balance sheet cash, oil price, or for any other factors such as asset values, cash for options, interest payments, liabilities, etc. Then I take the fully diluted number of shares as best I can find:

Table 2: Fully diluted shareholdings

Code: Select all

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


Dividing the two numbers gives $1.16 per share and using USD/GBP of 1.34 gives £0.87 per share. As I write the market is at £0.30 per share which gives an insight into either the significance of this CPR (and hence the trading opportunity) or into the error-term in my $/bbl view.

=======EPS etc LATE 2019=========

Following that (and ignoring any farm-in outcomes) the next major step is for the EPS to be operating, and I am assuming that the contracted rig does two other jobs at the same time. Firstly renter Halifax for a DST and OWC determination. Secondly drilling Warwick and a DST. As before I assume they can be done out of spare change (i.e. unused contingency) so this is an operationally optimistic case. Assuming success in all three then the (late) 2019 picture might become:

Table 3: With EPS operating (say 6m after first EPS oil)

Code: Select all

                 | MMboe  | Cat           | $/bbl        | $mln               
Lancaster - FFD  |   529  | 2C (50%)      |  $     5.00  |   $         2,645
Lancaster - EPS  |    62  | 2P (50%) 10yr |  $    14.65  |   $           910
Halifax          | 1,235  | 2C            |  $     1.00  |   $          1,235   (assuming re-enter drilled success)
Lincoln          |   604  | 2C            |  $     1.00  |   $           604
Warwick          |    935 | 2C            |  $     1.00  |   $           935   (assuming drilled success)
Whirlwind        |   179  | 2C            |  $     1.00  |   $           179
Strathmore       |    32  | 2C            |  $     0.10  |   $             3
Tempest/Typhoon  | 1,307  | P50           |  $     -     |   $             0    (relinquish)
Subtotal         | 4,883  |               |  $     1.33  |   $         6,510
               


As before I use the immediate EPS valuation of $14/bbl which is my discounted view of a 10-yr life one year into the future using a 10% rate and $25/bbl margin. Again your view may vary but I am trying not to overcomplicate. I am assuming success at Halifax and Warwick to bring these to $1.00 valuations.

In this case the EPS is paying the bills but to balance out some of my optimism I don’t take into account any cash generation.

With no new shares needing to be issued this leads to $2.65/share and £1.98/share as a reasonable aim point in mid/late 2019. If the market prices in success early then it could overshoot but that would be before EPS results had become available – the more oil that comes out the better the available dataset becomes for reservoir analysis purposes (i.e. RF%).

============= END GAME 2020 / 2021 ==========

With further appraisal but not yet heading into an FFD, say 12m after drilling & assessing 3-4 appraisal wells, this could further mature in valuation terms.

Table 4: With EPS operating (say 12-18m after first EPS oil) and 3-4 appraisal wells inc data analysis

Code: Select all

                 | MMboe  | Cat           | $/bbl        | $mln               
Lancaster - FFD  |   529  | 2P-FFD        |  $     5.00  |   $         2,645
Lancaster - EPS  |    62  | 2P (50%) 10yr |  $    14.65  |   $           910
Halifax          | 1,235  | 2P-FFD        |  $     5.00  |   $         6,175   (assuming re-enter success)
Lincoln          |   604  | 2P-FFD        |  $     5.00  |   $         3,020    (assuming more appraisal)
Warwick          |    935 | 2P-FFD        |  $     5.00  |   $         4,675   (assuming drill success)
Whirlwind        |   179  | 2C            |  $     1.00  |   $           179
Strathmore       |    32  | 2C            |  $     0.10  |   $             3
Tempest/Typhoon  | 1,307  | P50           |  $     -     |   $             0    (relinquish)
Subtotal         | 4,883  |               |  $    3.61   |   $        17,606


This yields $7.16/share or £5.34/share and makes it quite clear why some people are trying to short a undervalued takeover situation onto the table. Equally it makes it quite clear why the management team, backed by Kerogen, are quite rightly resisting this. Because of the pressure communication thought to exist in LinWar and in LancHal the duos must be unitised and developed together. And because of export matters they really need to be developed as a quad (i.e. one consortium of majors buys the whole of Rona Ridge as a farm-in). I am more inclined to the view at the moment that gas will initially be dealt with via reinjection and subsequently a export pipeline.

As I have pointed out before HUR can continue to self-fund into an Intermediate Field Development (IFD) at a further $1bn or so by putting a larger FPSO (100,000 bbl/d) at about the EPS location, and moving the AM EPS up towards the Halifax area. With typical tie-back lengths of 5-10km and these well productivities that ought to suffice for a lengthy enough appraisal campaign to prevent any risk of HUR being starved into submission prior to a FFD. It also ought to keep OGA at bay for enough time as it is a no-regrets pathway to data gather for a FFD, i.e. is not a delay in developing what is a strategic asset. That can be plotted whilst assessing the appraisal well results during 2019 as a fall-back plan, and thereby allows further monetisation of reserves valuation and keeps the majors on their toes during farm-out negotiations.

regards, dspp

[I may tidy up the tables if I get a moment at a later date]

[Itsallaguess]

I may tidy up the tables if I get a moment at a later date

Not sure if you're aware dspp, but there's a helpful page on the Financial Software Repository that can help with posting tabular data.

You can have a look here if you think it might help here or in the future -

http://lemonfoolfinancialsoftware.weebl ... ormat.html

Cheers,

Itsallaguess

[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.

@aduk: I too read the CPR on this point. I am sure they had losses at the top, plus they prob were concerned re a gas cap. Hence being overweight, hence losses, hence loss control. But agree bullheading daft and anybody on the rig should have known that inc the G&G folk at all levels. So there was probably a reason we are not aware of to bullhead as the first try. There are comments throughout re Hal gas cap and setting producers neither too high nor too low for obvious reasons.
regards, dspp

[dspp]

Someone on the LSE board has access to the Stifel reports (http://www.stifel.com/research), and they have set a new price target of 80p. Not so different than the 87p I calculate.

(@IJWT: I use expectation volumes (50/50) not low case (10/90). The $/bbl valuations ascribed are simply my opinion, except that the EPS one of $14 is based on an NPV model. You can make as complicated a model as you like, there are many paths to heaven. It is good quality oil, no nasties, in a fairly stable location, with good marketability but all opinions welcome.)

It is becoming clearer that full value will only be realised by farming out of the whole of Rona Ridge as a package. To do anything else, given what is known at present, would be not only to undervalue the first chunk sold but would also further devalue the remaining chunks (and constrain the market for them). I stick with my opinion that it will be 2-4 majors (or equivalent) acting in concert. It is going to be the real long term WoS hub with a 40-year lifespan.

I read the CPR last night. It is somewhat optimistic because it assumes that the reservoir material is essentially describable at a macro level as a homogenous material, i.e. very little heterogeneity and little or no seals/baffles. They partly offset this with the few sealing faults they do factor in. But as EE said from the Soco experience the basement can be very different across the structure. A question I'd like to know is what can they get out of the seismic to support the homogenous hypothesis that they have. Re those sealing faults if the LinWar structures are separate (if) then there ought to be something to look at in the SW quadrant pie-chunks. Also there is a question re the desirable orientation of well bores as that in turn determines how many drill centres, and that in turn determines to what extent an IFD is a no regrets (optimal) or a min regrets (but suboptimal) path. It is awful skinny and steep halfway along Halifax. What determines the fracture density and orientation throughout the structure ?

This cake needs another 2-3 years of baking, and needs to be sold in one 4-chunk lot to one group of bidders. So the best way to maximise value will be to encourage a bidding war between two consortia. In order for that to happen they will need to entice some folk to the table who are not the normal UKCS suspects. Those people would rather wait to see the EPS perform and that also gives time for 3-4 more appraisal wells/re-entries - there are still a lot of unanswered questions.

regards, dspp

[dspp]

RNS for ops update ahead of analyst visit; all seems on or ahead of track
https://otp.tools.investis.com/clients/ ... sid=957245

Hurricane Energy plc, the UK based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, is pleased to provide an operations update on activities related to the Early Production System on the Lancaster Field ("Lancaster EPS"), at Drydocks World, Dubai, ahead of an analyst visit this week.

The Aoka Mizu FPSO ("Aoka Mizu"), the facility for the Lancaster EPS, arrived in Dubai on 30 September 2017. Its repair, upgrade and life extension works are being carried out at the Drydocks World yard in Dubai. Fabrication of the buoy, to which the vessel's turret mooring system will connect, is taking place at the same yard.

An analyst site visit to these operations will take place on 12-13 December 2017, prior to which, the Company provides the following update:

· Internal turret removed from Aoka Mizu for upgrade

· First planned dry-docking completed on schedule, during which a number of works were undertaken, including: removal of a thruster for overhaul, outer hull surveys, replacement of a number of sea valves, and installation of new bilge keels

· Initial tank inspections and cleaning has taken place

· Buoy structure is taking shape, with major sections including the top cone preassembled and shell plating being attached to the cone module

· Buoy locking ring has arrived from fabricator and is being installed

· All critical components for the mooring are now undergoing fabrication and the first of the 12 chains has been completed

............

Hurricane's acreage is concentrated on the Rona Ridge, West of Shetland. The Lancaster field, the Company's most appraised asset, has combined 2P Reserves and 2C Contingent Resources of 523 million stock tank barrels of oil. The Company is currently proceeding towards the first phase of development of Lancaster, an Early Production System, with first oil targeted for 1H 2019.

During the 2016-2017 drilling campaign, the Company made two significant discoveries* at Halifax and Lincoln. Together, these discoveries* have 2C Contingent Resources of 1,839 million barrels of oil equivalent.

Hurricane's other assets include Warwick, which has best case Prospective Resources of 935 million stock tank barrels of oil, Whirlwind, which has 2C Contingent Resources of 205 million barrels of oil equivalent (under the Whirlwind oil case) and Strathmore, which has 2C Contingent Resources of 32 million stock tank barrels of oil. Together, this brings Hurricane's total combined 2P Reserves and 2C Contingent Resources to 2.6 billion barrels of oil equivalent.

[Haoma]

Finding Petroleum hosting "Understanding Fractured Reservoirs & Rocks" on 23rd Jan 2018. Dr Robert Trice speaking, amongst others.

Tickets are £100 +VAT - or you can watch the event on the website at a later date:

http://www.findingpetroleum.com/event/U ... 2c77f.aspx

Haoma

[forsi]

I read the CPR last night. It is somewhat optimistic because it assumes that the reservoir material is essentially describable at a macro level as a homogenous material, i.e. very little heterogeneity and little or no seals/baffles. They partly offset this with the few sealing faults they do factor in. But as EE said from the Soco experience the basement can be very different across the structure. A question I'd like to know is what can they get out of the seismic to support the homogenous hypothesis that they have. Re those sealing faults if the LinWar structures are separate (if) then there ought to be something to look at in the SW quadrant pie-chunks. Also there is a question re the desirable orientation of well bores as that in turn determines how many drill centres, and that in turn determines to what extent an IFD is a no regrets (optimal) or a min regrets (but suboptimal) path. It is awful skinny and steep halfway along Halifax. What determines the fracture density and orientation throughout the structure ?

This cake needs another 2-3 years of baking, and needs to be sold in one 4-chunk lot to one group of bidders. So the best way to maximise value will be to encourage a bidding war between two consortia. In order for that to happen they will need to entice some folk to the table who are not the normal UKCS suspects. Those people would rather wait to see the EPS perform and that also gives time for 3-4 more appraisal wells/re-entries -

there are still a lot of unanswered questions.

I have not read the CPR, but if we compare HUR now with what it was a year ago, the unanswered questions should be fewer, or am I missing something?

[NigWit]

Stifle issued an update on 14 Dec following the site visit to Dubai that took place last week

Since the update, which is 13 pages long, is Stifel’s intellectual property I am not comfortable about disclosing any of its detail. However, in a spirit of mutual cooperation, here are some of the key take outs that I feel safe mentioning since they are similar to comments already in the public domain.

I hope that the re-iteration of these points made elsewhere, although not necessarily all together in the same place before, will help reassure.

———
Lots of slack in schedule and good progress so far means FOIL in 2018 now considered likely provided no delays but base case still H1 2019
———-
Next critical path item is buoy test fitting in yard Q1 2018 followed by buoy sail away Q2 with installation on station possible by end H1 2018
———
The work on the ship and buoy are both well within the capacity of Dubai Dry Docks
———
Ship due on station 2018, which will release cash early for organic funded appraisal drilling during 2019
———
“Eye-opening” un-risked NAV of 580p per share
———
EPS considered low risk and if successful de-risks 523m bbl and may carry across all other prospects, which are geologically similar.
———
Current risked NAV per share and target price now 80p based mostly on Lancaster phase 1 and 2 (ie almost no value attributable to other assets).
———

My comments

According to Stifel the current share price of 27p is undervalued by 53p with potential upside to 580p. This is at $5/bbl with PoO at $60 and Capex of $20 and appears to me, from my limited knowledge, to be based on undemanding recovery factors.

There’s obviously a long way to go with risks to be managed but it is very exciting since it could all be de-risked by H2 2019.

[dspp]

@forsi etc: in partial answer to your various questions
@nigwit: thanks. nice to see others coming in with numbers similar to mine per viewtopic.php?f=16&t=796#p103338

=====
The unanswered questions are set out in the two CPR reports and I have put them into a table below so that we can see the extent to which there is commonality across the structure(s). You will need to use the scroll bar (at the bottom of this post).

Key: x = from CPR; ? = my own addition

Structure:                                                           | Lancaster - EPS | Lancaster - FFD | Lincoln   | Halifax     | Warwick  | Whirlwind | Strathmore | TOTAL      
Reserves, volume (MMboe)                                             |              62 |             529 |       604 |        1235 |      935 |       179 |            |            
Reserves, category                                                   | 2P              | 2C              | 2C        | 2C          | P50      | 2C        |            |            
Reserves, valuation ($/boe)                                          |          $5.00  |          $1.00  |    $1.00  |      $1.00  |   $0.10  |    $0.50  |            |            
Valuation now (per my table 1) ($mln)                                |        $310.50  |        $529.00  |  $604.00  |  $1,235.00  |  $93.50  |   $89.50  |            |  $2,861.50 
                                                                     |                 |                 |           |             |          |           |            |            
Discovery well                                                       |                 |                 |           |             | x        |           |            |            
Hydrocarbon type                                                     |                 |                 |           |             | ?        | x         |            |            
Fluid properties                                                     |                 |                 | x         | x           | ?        | x         |            |            
Fracture propensity & distribution                                   | x               | x               | x         | x           | ?        | x         |            |            
Interconnectivity of fracture network (pending interference testing) |                 |                 | x         | x           | ?        | x         |            |            
OWC depth                                                            |                 |                 | x         | x           | ?        | x         |            |            
Demonstration of commercial flow rates from a well test              |                 |                 | x         | x           | ?        | x         |            |            
Water production potential & subsequent water handling requirements  | x               | x               | x         | x           | ?        |           |            |            
FFD plan (no of wells, drill centre locations)                       |                 | x               | x         | x           | ?        | x         |            |            
The Lancaster development (as a potential host facility)             |                 |                 | x         |             | ?        | x         |            |            
Gas handling, longer term                                            |                 | ?               | ?         | ?           | ?        | ?         |            |

The EPS is intended to help understand longer (but still short) term produceability, and (via interference testing) give an insight into the fracture network and any (short term) water issues. The EPS itself is likely to not be produced at maximum rate as they will likely need to close in one or the other well for very extended periods of time to do interference testing. There will probably be times when they will need to close in both wells. So anyone looking only for 30,000 bbls/d as a sign of good health will be looking for the wrong thing, indeed if I were on the controls that would be the last thing I would want to do in the beginning until I had gotten every other piece of data I could.

To reduce the other risks they need to as soon as reasonably possible re-enter Halifax well; drill a Warwick well; and test both of these plus Lincoln, i.e. three well tests in all. That will mean that all the data sets can be properly valued for FFD and farm-out purposes. For Whirlwind the aim should be to drill & test it, but likely as late as reasonably possible.

If things go as are hoped then they will find that the four fields are better considered as two pairs: LancHal + LinWar, and should be developed as a quad. The Whirlwind development is probably dependent on those but would be devalued if sold separately later so it would be better (from HUR's perspective) if it were offloaded at the same time.

The earlier HUR exit the greater the level of uncertainty will be and the lower the price. The later they exit the lower the uncertainty and the higher the price ought to be. In between money is spent to reduce risk, HUR's money. There is a tradespace between these, and a common way to manage that is with multiround buy-outs which a first round and an option for a subsequent second round. The other thing that can be done is a 'carry' of the explorer (HUR)'s share of development costs that can be negotiated as part of the valuation package. It will really depend on the risk appetite of the buying consortium, and of HUR's ability to value what could be very differently structured proposals.

My best guess is that a consortium of 3-4 majors would probably buy the quad for 4 x 20% with 20% left in HUR, with a carry of HUR through the initial phase of FFD. The farm-in would be done with a mix of shares & cash. That would leave HUR to return the bulk of cash to shareholders and work up Whirlwind (plus other exploration opportunities) with the balance.

Re Strathmore it looks to me as if that is best hung on to until it can be definitively ruled out from a FFD perspective. There are pathways to FFD where a short pipeline from LinWar over to Solan with the use of Solan as a storage and offtake point might be atractive. So one would tend to swap Strathmore for that export option if one ended up in a DIY-FFD of a low case. Until that can be ruled out there is no need to surrender it early. The other thought I have is that there may be opportunities to use Rona Ridge fluids to get a better sweep of the Strathmore reservoir (and for that matter, perhaps the Typhoon prospect one day). But those are less likely development pathways.

There is always the possibility that someone may try a low-ball takeover far earlier than PIs would like. That is a clear risk.

When a bid might reach the 'good enough' threshold during the next 2-4 years is not controllable by PIs. I am extremely disappointed by the actions of CA and would expect them to wage a publicity campaign to push to accept a low-ball bid as early as possible, simply because of CA's other issues. If they can get the EPS hooked up by (say) Sep 2018 then my guess is that by late 2019 the other wells will have been largely done, and the data gathered. At that point it becomes a race between bidders to get a good enough bid in, versus HUR going-it-alone another year or so perhaps via an Intermediate Field Development (IFD). I hope that HUR are manoeuvring to ensure that there are multiple consortia bidding. A increase in oil price might accelerate farm-out as majors will scramble to accelerate projects, and this is about as shovel-ready as it gets.

Anyway now in my bottom drawer for a few years. Not a lot I can do to affect the outcome.

regards, dspp

[NigWit]

The discussion about Richard Bernstein and his Crystal Amber fund and Kerogen has become polarized and childishly over-simplified on some of the message boards. I hope that does not happen here since I am sure that the situation really is much more complicated than a kid’s game of cops and robbers.

Firms like Boudicca are springing up to represent businesses because the investment community in general is beginning to appreciate that activism is often a force for good since it is undesirable for company directors to make errors in secret. Some even they say more activism is necessary to better create efficient and fair capitalism. I tend to agree, especially after the warrants fiasco.

Let’s remember that CA are transparent, they use Twitter to inform small shareholders and openly publish their plain-speaking views on their website. Perhaps Richard Bernstein is frequently mis-cast as a baddy because some are unable to see past the medium to the message it conveys whilst conveniently overlooking Hurricane’s own tweets. As a matter of incontrovertible fact Bernstein is an award-winning philanthropist who has raised tens of millions of pounds for charity with Eurovestec, which he founded. When I met him I found him to be a socially aware and responsible individual and far from the Gordon Gekko he is sometimes painted to be.

Rob Trice, who is also charming in person, went in with Crystal Amber before the IPO knowing what they do and all other small private investors bought in afterwards. He spoke effusively about Bernstien after the AGM. We don’t know what was agreed between Rob Trice and Richard Bernstein but it is entirely possible that they agreed at the outset to sell or farm out before now, after all that has always been part of the company’s business plan, which has been delayed more than once. If that’s true then one might be sympathetic if Crystal Amber feel let down but that would still not be sufficient to explain why Rob Arnott resigned on a point of principle he felt so strongly about that he went to the FT. There has to be more to that resignation and I expect that’s a complicated situation too.

On the other hand Kerogen are almost completely opaque to we private investors. We have nothing to judge them on except the words on their website and, since they are comparatively recently established, we can’t check if they’ve lived up to their claims before.

At $2bn Kerogen’s fund is about 6 times the size of Crystal Amber’s and their holding in Hurricane is about 3 times the size. Neither are big funds so I anticipate that there may come a time when neither will want to be overweight in Hurricane. We have no idea how much weight in Hurricane Kerogen want to carry yet we know that Crystal Amber keep their investments until they are sold for their true value but may elect to sell a portion when they reach a very substantial 30% of their fund’s total NAV, although this is not fixed and in the past has reached nearer 40%. Neither should we overlook Pelham, who own 6.5% of Hurricane.

So the situation is not polar but nuanced and multi-layered and it should be considered adultly without calling people names, which is happening far too much elsewhere but thankfully not here, so far.

Which is good because it really won’t do any of us any service to jump to bad conclusions about anyone.

[forsi]

@forsi etc: in partial answer to your various questions
@nigwit: thanks. nice to see others coming in with numbers similar to mine per viewtopic.php?f=16&t=796#p103338

=====
The unanswered questions are set out in the two CPR reports and I have put them into a table below so that we can see the extent to which there is commonality across the structure(s). You will need to use the scroll bar (at the bottom of this post).

Key: x = from CPR; ? = my own addition

Structure:                                                           | Lancaster - EPS | Lancaster - FFD | Lincoln   | Halifax     | Warwick  | Whirlwind | Strathmore | TOTAL      
Reserves, volume (MMboe)                                             |              62 |             529 |       604 |        1235 |      935 |       179 |            |            
Reserves, category                                                   | 2P              | 2C              | 2C        | 2C          | P50      | 2C        |            |            
Reserves, valuation ($/boe)                                          |          $5.00  |          $1.00  |    $1.00  |      $1.00  |   $0.10  |    $0.50  |            |            
Valuation now (per my table 1) ($mln)                                |        $310.50  |        $529.00  |  $604.00  |  $1,235.00  |  $93.50  |   $89.50  |            |  $2,861.50 
                                                                     |                 |                 |           |             |          |           |            |            
Discovery well                                                       |                 |                 |           |             | x        |           |            |            
Hydrocarbon type                                                     |                 |                 |           |             | ?        | x         |            |            
Fluid properties                                                     |                 |                 | x         | x           | ?        | x         |            |            
Fracture propensity & distribution                                   | x               | x               | x         | x           | ?        | x         |            |            
Interconnectivity of fracture network (pending interference testing) |                 |                 | x         | x           | ?        | x         |            |            
OWC depth                                                            |                 |                 | x         | x           | ?        | x         |            |            
Demonstration of commercial flow rates from a well test              |                 |                 | x         | x           | ?        | x         |            |            
Water production potential & subsequent water handling requirements  | x               | x               | x         | x           | ?        |           |            |            
FFD plan (no of wells, drill centre locations)                       |                 | x               | x         | x           | ?        | x         |            |            
The Lancaster development (as a potential host facility)             |                 |                 | x         |             | ?        | x         |            |            
Gas handling, longer term                                            |                 | ?               | ?         | ?           | ?        | ?         |            |

The EPS is intended to help understand longer (but still short) term produceability, and (via interference testing) give an insight into the fracture network and any (short term) water issues. The EPS itself is likely to not be produced at maximum rate as they will likely need to close in one or the other well for very extended periods of time to do interference testing. There will probably be times when they will need to close in both wells. So anyone looking only for 30,000 bbls/d as a sign of good health will be looking for the wrong thing, indeed if I were on the controls that would be the last thing I would want to do in the beginning until I had gotten every other piece of data I could.

To reduce the other risks they need to as soon as reasonably possible re-enter Halifax well; drill a Warwick well; and test both of these plus Lincoln, i.e. three well tests in all. That will mean that all the data sets can be properly valued for FFD and farm-out purposes. For Whirlwind the aim should be to drill & test it, but likely as late as reasonably possible.

If things go as are hoped then they will find that the four fields are better considered as two pairs: LancHal + LinWar, and should be developed as a quad. The Whirlwind development is probably dependent on those but would be devalued if sold separately later so it would be better (from HUR's perspective) if it were offloaded at the same time.

The earlier HUR exit the greater the level of uncertainty will be and the lower the price. The later they exit the lower the uncertainty and the higher the price ought to be. In between money is spent to reduce risk, HUR's money. There is a tradespace between these, and a common way to manage that is with multiround buy-outs which a first round and an option for a subsequent second round. The other thing that can be done is a 'carry' of the explorer (HUR)'s share of development costs that can be negotiated as part of the valuation package. It will really depend on the risk appetite of the buying consortium, and of HUR's ability to value what could be very differently structured proposals.

My best guess is that a consortium of 3-4 majors would probably buy the quad for 4 x 20% with 20% left in HUR, with a carry of HUR through the initial phase of FFD. The farm-in would be done with a mix of shares & cash. That would leave HUR to return the bulk of cash to shareholders and work up Whirlwind (plus other exploration opportunities) with the balance.

Re Strathmore it looks to me as if that is best hung on to until it can be definitively ruled out from a FFD perspective. There are pathways to FFD where a short pipeline from LinWar over to Solan with the use of Solan as a storage and offtake point might be atractive. So one would tend to swap Strathmore for that export option if one ended up in a DIY-FFD of a low case. Until that can be ruled out there is no need to surrender it early. The other thought I have is that there may be opportunities to use Rona Ridge fluids to get a better sweep of the Strathmore reservoir (and for that matter, perhaps the Typhoon prospect one day). But those are less likely development pathways.

There is always the possibility that someone may try a low-ball takeover far earlier than PIs would like. That is a clear risk.

When a bid might reach the 'good enough' threshold during the next 2-4 years is not controllable by PIs. I am extremely disappointed by the actions of CA and would expect them to wage a publicity campaign to push to accept a low-ball bid as early as possible, simply because of CA's other issues. If they can get the EPS hooked up by (say) Sep 2018 then my guess is that by late 2019 the other wells will have been largely done, and the data gathered. At that point it becomes a race between bidders to get a good enough bid in, versus HUR going-it-alone another year or so perhaps via an Intermediate Field Development (IFD). I hope that HUR are manoeuvring to ensure that there are multiple consortia bidding. A increase in oil price might accelerate farm-out as majors will scramble to accelerate projects, and this is about as shovel-ready as it gets.

Anyway now in my bottom drawer for a few years. Not a lot I can do to affect the outcome.

regards, dspp

Good post. My sincere thanks!

[Clitheroekid]

A useful report from Edison Research - http://www.edisoninvestmentresearch.com ... 78882/full

[Clitheroekid]

Also, an interview with Malcy where he mentions HUR, apologies, I haven't had a chance to listen to this yet, but thought it worth sharing (I get an error message on clicking the link to the interview) -
http://www.malcysblog.com/2018/01/vox-markets-podcast-malcy-on-victoria-oil-gas-europa-oil-gas-egdon-resources-union-jack-oil-pantheon-resources-premier-oil-hurricane-energy-and-sdx-energy/

Thanks for the link.He gets into HUR at about 13:40. Nothing new, but encouraging nevertheless.

[dspp]

Nothing particularly new here either, this was published earlier this morning and is worth a read for HUR followers. Good to see HUR rallying from 24p a few weeks ago. Typically, I'm now kicking myself for not buying another tranche of HUR when it was on sale.
https://www.energyvoice.com/oilandgas/north-sea/160720/hurricanes-remarkable-west-shetland-story-enters-critical-phase/

The key bit re Halifax exploration skin is much as we had thought - this by the way is largely quoting HUR directly so it is OK from a (C) perspective :

"“We’ve done a lot of detailed work on what has potentially caused the fractures [in the Halifax well] to block and we now think that, assisted by lab work undertaken by third parties, granite fines created during the drilling process have mixed with the drilling brine and additives in that drilling fluid to create a very fine-grain paste.

“During drilling operations, this was forced into the (granite rock) fractures under the relatively higher pressure induced by mud weight. We believe that is why the test didn’t go as planned.

“There is work ongoing to determine whether that the paste embedded in the fractures can be broken down or would break down under natural conditions or require chemical stimulus.”

But when Lancaster was drilled Hurricane didn’t have this problem; so what’s different with Halifax?

Trice: “When the Lancaster wells were drilled we noticed that on every one of our vertical wells that, when we drill, we create a sump. But we had never before seen this particular paste-like material.

“We think that is a combination of the bit grinding up cuttings and mixing the finings with the drilling fluids, so creating a paste. We’re checking for differences in the minerology between Lancaster and Halifax. But the other point is that what’s different with this well when compared to our earlier ones is that we had to drill significantly over-balance because it was an exploration well.

“In Lancaster’s case, once we’d drilled the first well we were able to drill closer to balance.”

Given the formation clogging, what about using under-balanced drilling to get around the problem, now that HUR and its drilling contractor Transocean mow have some knowledge of reservoir conditions?

Trice: “In theory, the best way to drill these wells is underbalanced or using managed pressure drilling. In practical terms we can’t do it because we’d have to augment a rig, train the crew and get the rig through the safety inspectorate.

“Also, we’d probably need to fund a four or five well programme to make that practical. Even though it’s an ideal solution it’s not a practical ideal solution (at this stage)."

Worth reading the whole thing as they go into some detail about reentry etc options for the other two well slots (gauges, retests, etc) - dspp