Hurricane Energy (HUR)

[drillordrop]

#6 = dryer & higher in the structure
#7z = wetter & lower in the structure

(We are not exactly sure of their relative trajectories. We think the #6 and #7z enter at about the same depth, but that the #6 remains horizontal whilst the #7z droops down deeper. HUR have been very coy about exact trajectories and depths so far.)

regards, dspp

We already knew that the 6 well was producing 1.74% watercut by combining the HUR Q4 data with the OGA November data, I posted it here on this site February 2nd (although my calculation back then of 3.56% was wrong due to my error, it should have read 1.64%, off due to rounding. The question's for Jan-Feb 2020 are (1) is the 6-well watercut increasing (2) is the 7z well watercut increasing. We will only know that now at the CMD unless HUR release more data beforehand (unlikely).

It also doesn't look like they are producing 20kbopd from the lifting records, if that is the case I would have thought there should have been a RNS as it's very materially different from guidance.

[feste]

Hi thehaggistrap,

Not clear which RNS you're referring to re intentions for 7Z ?

The 29 Jan RNS is pretty clear that ONLY 6 was producing between late Nov and late Jan, see

…"The Lancaster 6 Well flowed at an average rate of approximately 12,500 barrels of oil per day from the start of individual well flow period on 20 November 2019 until the latest (eighth) lifting on 22 January 2020. .."

ATB

[feste]

Hi drillordrop,

Your Q .." (2) is the 7z well watercut increasing..."

Well, first we need to know if it's actually producing....

Ben at HurComms hasn't responded to my Q as to the apparent less than 20K production (which ought to be explained, as at variance with stated intention) , I asked whether there was a shortfall in production or a 'short shipment' (or a combination) as these seemed to be the only explanations for the numbers we've been seeing.

Let's hope it's a case of short shipment, in which case we should expect to see another offload shortly , if they ARE producing 20 K , as AM approaches capacity...

ATB

[PeterGray]

Feste

Hurricane said:

"We .... announce any material variations to expectations as required."


What is a material variation? They said they "intended" to flow both wells at once, at up to 20k. But the timing was simply after the 6 well test had finished, at around end Jan. I doubt they ever intended to simply turn on the taps from 7z on 1st Feb. They are in a test phase after all, and it would be no surprise if they ramped up slowly, quite possibly played with optimising flow and WC, or possbly were forced to. We can't know.

But given they keep emphasing that they are in a test phase and that production is above the "base case" I'd very much doubt they would see any need to RNS simply if they failed to reach peak 20k, or took sometime reaching that. They keep telling us we have to wait for the for the CMD, and we've known that for many months, and short of major disaster I'd expect that is what we will do.

[feste]

Hi Peter,

I take your points, but :

(1) Hur have tested 6 for over 60 days , late Nov to late Jan, presumably plenty of time to gather whatever data they wanted from that well , at different flowrates, shut-in periods, etc.

(2) They've now had over 30 days since to play around with combined flow, with the knowledge gained re 6 as a 'base case'. Do you think they'll have reached the intended 20K by now ?
I ask because we're 2 weeks away from results and 3 weeks away from CMD....do you think they'll have reached 20 K by either of those dates ?

I appreciate the potential 'woolliness' of 'intention' *- indeed, I think I referenced its scope for (ab)use in correspondence with, for example, HMRC, I don't think this 'cuteness'/ being economical with the actualite (if that is what it is) is appropriate for a company / BoD that wishes to retain its credibility.

* There's some suggestion elsewhere that HUR/Spirit's 'intention' to ask OGA for a postponement to the P+ A requirement has not, in fact , translated into a formal request for said postponement, I don't have any documentary support for this suggestion.

Call me old-fashioned.... !
ATB

[dspp]

RNS of Crystal Amber increasing holdings from 5.03% to 6.25%

https://ir.q4europe.com/Solutions/Hurri ... d=14621271

dspp

[PeterGray]

dspp,

(2) They've now had over 30 days since to play around with combined flow, with the knowledge gained re 6 as a 'base case'. Do you think they'll have reached the intended 20K by now ?

I would certainly hope so, or close, unless they had hit problems.

But my post was really in response to those, mainly elsewhere, who have assumed that they started producing 20k on 1st Feb, whereas average production since is apparently below that, judging by reports of offloading. We don't know how quickly they ramped up. Almost certainly not instantaneously, possibly more slowly, and that will have impacted monthly production. Without in my view neccessarily being something that had to be RNS'd.

And I would not be surprised, even if they were producing from both wells if they were looking at the effect of adusting balancing and production rates between the 2. At this stage they are presumbly looking to see if they can produce, and maintain, at 20k, but I wouldn't assume that means all the time, yet.

[PeterGray]

Apologies, a bit of misreading by me there! My previous post was intended to be a response to feste, post 288253, not to dspp!

[PeterGray]

Nice to see a decent blue day today at HUR. I can't help feeling Bernstein/Crystal Amber have been playing the HUR stock like a Stradivarius violin, both on the down side and now upside.

Absolutely.

As you say, good to see a rise on their purchase, but I keep reminding myself their approach and interests are not the same as mine. I see today's call for buybacks as an example. Sure buy backs would probably create a short term price rise (which CA would certainly make good use of) but I am totally opposed to them from the view of a long term investor who wants to see HUR's value and SP maximised over the long term. The last thing they should be doing at the moment is using their cash on buy backs - as has been discussed here, they will have plenty of calls on what cash they have and produce over the next couple of years.

[drillordrop]

Nice to see a decent blue day today at HUR. I can't help feeling Bernstein/Crystal Amber have been playing the HUR stock like a Stradivarius violin, both on the down side and now upside.

Absolutely.

As you say, good to see a rise on their purchase, but I keep reminding myself their approach and interests are not the same as mine. I see today's call for buybacks as an example. Sure buy backs would probably create a short term price rise (which CA would certainly make good use of) but I am totally opposed to them from the view of a long term investor who wants to see HUR's value and SP maximised over the long term. The last thing they should be doing at the moment is using their cash on buy backs - as has been discussed here, they will have plenty of calls on what cash they have and produce over the next couple of years.

If you look at the SP as daily with volume, today isn't significant, the price would need to go above 21p to confirm breakout, it's probably a sleepy oil price related algo trundling along unchecked. I'm interested in volume though, which really moved north on 3 Feb, i.e. after the 29 Jan RNS where watercut was flagged as a potential issue. There have been very few TR-1's, apart from Crystal Amber (who's holding history to date has been amazingly amateur, they went very long years before an event was triggered, by Kerogen, who have been very clever in comparison. Kerogen is an insider, I'm expecting their complete exit after the CMD. CA is probably trying to anticipate the BS at the CMD boosting price (unless they have insider information, which is possible, but historically they have been bumbling around in the dark and pretty useless).

The CFO going so suddenly hasn't hit the SP, something that would normally cause a panic, but I guess in this case the SP is back to fairly flat 2014-16 levels and those holders aren't budging. I'm expecting HUR to go from 16p to 30p if Lancaster core NAV can be demonstrated, or if not - zero. I don't short AIM oilco's because being right - eventually - is no protection from positive price spikes, and I've never been long HUR. Fractured Basement WoS? Ha!

[pijoe1212]

Nice to see a decent blue day today at HUR. I can't help feeling Bernstein/Crystal Amber have been playing the HUR stock like a Stradivarius violin, both on the down side and now upside.

Absolutely.

As you say, good to see a rise on their purchase, but I keep reminding myself their approach and interests are not the same as mine. I see today's call for buybacks as an example. Sure buy backs would probably create a short term price rise (which CA would certainly make good use of) but I am totally opposed to them from the view of a long term investor who wants to see HUR's value and SP maximised over the long term. The last thing they should be doing at the moment is using their cash on buy backs - as has been discussed here, they will have plenty of calls on what cash they have and produce over the next couple of years.

If you look at the SP as daily with volume, today isn't significant, the price would need to go above 21p to confirm breakout, it's probably a sleepy oil price related algo trundling along unchecked. I'm interested in volume though, which really moved north on 3 Feb, i.e. after the 29 Jan RNS where watercut was flagged as a potential issue. There have been very few TR-1's, apart from Crystal Amber (who's holding history to date has been amazingly amateur, they went very long years before an event was triggered, by Kerogen, who have been very clever in comparison. Kerogen is an insider, I'm expecting their complete exit after the CMD. CA is probably trying to anticipate the BS at the CMD boosting price (unless they have insider information, which is possible, but historically they have been bumbling around in the dark and pretty useless).

The CFO going so suddenly hasn't hit the SP, something that would normally cause a panic, but I guess in this case the SP is back to fairly flat 2014-16 levels and those holders aren't budging. I'm expecting HUR to go from 16p to 30p if Lancaster core NAV can be demonstrated, or if not - zero. I don't short AIM oilco's because being right - eventually - is no protection from positive price spikes, and I've never been long HUR. Fractured Basement WoS? Ha!

interesting you have never been long.
i concur the cfo leaving is a far bigger deal than the market thinks (hence my article [*** no you cannot ***] - note to DSPP can i say that?!)
given Kerogen actions after last CMD, i can not discount your views on their future actions, but they would need buyers...
is your real name Ian?
i remain not long or short.

[pijoe1212]

Absolutely.

As you say, good to see a rise on their purchase, but I keep reminding myself their approach and interests are not the same as mine. I see today's call for buybacks as an example. Sure buy backs would probably create a short term price rise (which CA would certainly make good use of) but I am totally opposed to them from the view of a long term investor who wants to see HUR's value and SP maximised over the long term. The last thing they should be doing at the moment is using their cash on buy backs - as has been discussed here, they will have plenty of calls on what cash they have and produce over the next couple of years.

If you look at the SP as daily with volume, today isn't significant, the price would need to go above 21p to confirm breakout, it's probably a sleepy oil price related algo trundling along unchecked. I'm interested in volume though, which really moved north on 3 Feb, i.e. after the 29 Jan RNS where watercut was flagged as a potential issue. There have been very few TR-1's, apart from Crystal Amber (who's holding history to date has been amazingly amateur, they went very long years before an event was triggered, by Kerogen, who have been very clever in comparison. Kerogen is an insider, I'm expecting their complete exit after the CMD. CA is probably trying to anticipate the BS at the CMD boosting price (unless they have insider information, which is possible, but historically they have been bumbling around in the dark and pretty useless).

The CFO going so suddenly hasn't hit the SP, something that would normally cause a panic, but I guess in this case the SP is back to fairly flat 2014-16 levels and those holders aren't budging. I'm expecting HUR to go from 16p to 30p if Lancaster core NAV can be demonstrated, or if not - zero. I don't short AIM oilco's because being right - eventually - is no protection from positive price spikes, and I've never been long HUR. Fractured Basement WoS? Ha!

interesting you have never been long.
i concur the cfo leaving is a far bigger deal than the market thinks (hence my article [*** no you cannot ***] - note to DSPP can i say that?!)
given Kerogen actions after last CMD, i can not discount your views on their future actions, but they would need buyers...
is your real name Ian?
i remain not long or short.

thanks for the clarification DSPP! (edit accepted!)

[wanderer101]

The current production level is mentioned by Dr Trice in an RNS on GWA arrangements with Spirit:

https://www.investegate.co.uk/hurricane ... 00052586F/

"the Lancaster EPS is currently producing at 20,000 barrels of oil per day and I look forward to providing an update at the Capital Markets Day on 25 March 2020"

[dspp]

Well, that sorts out any doubts over the 20k per day question. But confirms that Spirit (Centrica) have no money. We knew that anyway though.

Equally, I am encouraged that publicly, a WOSP tie in is on the agenda and that must mean that the previously mooted de-bottlenecking of the FPSO to 40k per day production is on the cards. The capital sums that are being mentioned in the RNS as 100% to HUR really are trivial given the upside potential. I am a lot less worried than I was a few days/weeks ago. Like many, I am under water in HUR. I look forward to recovering that this year. Hopefully.

And it gives them the certainty re commercial JV arrangements required for them to ask the OGA for consent to suspend the Lincoln Crestal well, rather than be forced by regulatory norms into P&A. That in turn buys them enough time to drill a Lancaster #8 and find out if there is enough to justify a WOSPS tie-in, and the hookup of the Lancaster #8 and the Lincoln Crestal.

The question remains what are the convertible bond terms .... either for the default case or (tbd) the rollover case. The default case provisions (which we don't know, as so far HUR have declined to tell us) will set the scene for the amount of equity haircut required for rollover.

regards, dspp

[dealtn]

...the amount of equity haircut required for rollover.

What do you mean?

[dspp]

...the amount of equity haircut required for rollover.

What do you mean?

There is a buy stack of things to be paid for if HUR have to go down the DIY route on all the Rona assets, from memory the list below is what it would take to get the AM FPSO to the 40kbpod level in about two years time:
- Lancaster #8 well ($50m drill & test)
- Lancaster #8 complete & tie back (say $50m)
- Lincoln crestal tieback ($20m, + sunk costs, say $20m)
- regulatory committment wells (2x, vertical/inclined in Lincoln & Warwick) (say 2 x $40m)
- gas compression ($18m)
- WOSPS tiein ($28m + $62m)
That's about $300m I see there, and I'm sure there is stuff I have overlooked. Is there a consideration for a 10yr AM extension for example ?

Then the bond repayment is another $230m, due to pay out in 2022.

That's $530m to be paid out during the next two years on the DIY pathway.

Now at an average production of (say) 15k/bopd, and a $20/bbl margin (for argument, it may be more), HUR earns $0.3m/day. So £110m/year. So approx $220m income, which is of course not assured at this time. $220m income vs £530m outgoings over a 2-year period. It is only at the end of that that HUR would be in a position to become a 40k bopd producer, if all that list were to work correctly.

Yes HUR have a few hundred $m sitting in the bank right now, but it is going to be tighter than the optimists like to think, going down the DIY route even in the success case (it will be a lot worse if watercut remains a concern).

Which means it will be likely attractive to do a deal with the bondholders to roll the bonds over for another couple of years in late 2022. I'm guessing they are going to ask for extra $$ for that, as otherwise HUR will have to raise equity (at a discount in these circumstances), or get alternative loan/bond funding. So knowing the default clause details is important to the better understanding of how close to the wind HUR can sail.

I remain a holder. Apart from B&ISA activity I don't think my holding has changed for a couple of years. But I am concerned about the risk/reward ratio not being where I would like it to be after the reservoir outcomes from 2019 (pending further info when the HUR mge deign to inform their shareholders ....).

The CFO looked at the list above and walked ...

regards, dspp

[dealtn]

...the amount of equity haircut required for rollover.

What do you mean?

Which means it will be likely attractive to do a deal with the bondholders to roll the bonds over for another couple of years in late 2022. I'm guessing they are going to ask for extra $$ for that, as otherwise HUR will have to raise equity (at a discount in these circumstances), or get alternative loan/bond funding. So knowing the default clause details is important to the better understanding of how close to the wind HUR can sail.

You are better placed than me to know if financing is required, or not, but I think they have the option to issue bonds, utilise bank debt, as well as rolling the convertible bond, which was a private placement, and have plenty of time to be having those discussions, before resorting to fresh equity

I would think with oil now "on-stream" and producing cash they are in a less risky position to find finance, and pay for it than beforehand, or do you disagree? They effectively had to borrow at 15% (from memory) last time. They could perhaps borrow less, at more attractive rates, this time with better security?

[ammonite]

Ppl are getting far too hung up on CBs.

It's debt that is not due for 2 years, ffs. Yes, I know they can't wait that long ; but as long as we have cashflow replacing that debt really shouldn't be the problem some here think ; there is no need to repay in cash.

A successful EPS will render the CBs irrelevant, imho.

[Clitheroekid]

For what it's worth: https://www.proactiveinvestors.co.uk/co ... 14454.html

[dspp]

Ppl are getting far too hung up on CBs.

It's debt that is not due for 2 years, ffs. Yes, I know they can't wait that long ; but as long as we have cashflow replacing that debt really shouldn't be the problem some here think ; there is no need to repay in cash.

A successful EPS will render the CBs irrelevant, imho.

If you are a get rich quick short term trader then not looking two years ahead is fine.

Except that the EPS has produced a lot of water, and all the LinWar wells in 2019 were massively disappointing, so slowing down everything to the point where things that need to be thought about years in advance hammer todays shareprice.

Which rather upsets the short term traders, who weren't looking ahead two years.

At present I can count $500m of cash needed to get to the 40k point, but only $200m of cash that might reasonably be expected to come in. There is cash shortfall. Yes there is cash in the bank that can be added to that equation but one needs cash in the bank if one is to run a company in this game.

That is the bad news. The good news is that if they can finance the bonds, and maybe dip into the bank account a bit, then in two years they could be a 40k bopd producer with only $220m of debt, and $200m/yr of free cash flow, and sitting on all the essential 'hub' connections for the next stage of expansion. That ought to be worth a rerating.

There is however considerable reservoir uncertainty between here and that. Volumetrics, quality, water.

regards, dspp