The Lemon Fool

Hi Dspp and other,

it is really a pleasure to read your comments and I wish I had more time to interact.
I must say that I also appreciate doubts and criticisms here because most of us tend to have a positive psychological bias towards HUR which can be dangerous.

I have a question for everybody and especially for Dssp who has been one of the few PIs I know who has taken the time to come up with a valuation of HUR which I have found extremely useful as a starting point: how would you imagine a FO or a FI? Can you put some numbers in your scenario?

My humble thanks

Forsi

forsi,

0. Thanks.

1. Out of interest who are you ? A PI ? or something else ? It helps phrase any answer, and in any case interests me. Up to you if you answer.

2. I can imagine many FO/FI outcomes. Would you care to constrain the solution space ?

regards, dspp

Dssp,

I am an investor with equity exposure to different sectors and quite a bit of dry powder at the moment.
I occasionally pay for some specific research (certainly not brokers!) but most of the time I do and enjoy doing my own research, sometimes with the help of people like... you to whom I am most grateful.
I do not work for an O&G co.

I have gone through a number of FO or FI agreements in the past, but I have not conceptualized what this can mean for HUR.

Regards,

forsi

forsi wrote:Dssp,

I am an investor with equity exposure to different sectors and quite a bit of dry powder at the moment.
I occasionally pay for some specific research (certainly not brokers!) but most of the time I do and enjoy doing my own research, sometimes with the help of people like... you to whom I am most grateful.
I do not work for an O&G co.

I have gone through a number of FO or FI agreements in the past, but I have not conceptualized what this can mean for HUR.

Regards,

forsi

Thank you. I will try and write a short response when time permits, though not right now, regards, dspp

Very interesting developments on Twitter this weekend. Richard Bernstein confirming farm out offers have been refused by Trice and Stobie and that Institutional Investors have kept away due to governance concerns. Also confirming the quality of the assets.

It’s all worth reading and thinking about.

Apologies for my brevity but anyone interested will be able to find it.

Richard Bernstein confirming farm out offers have been refused by Trice and Stobie and that Institutional Investors have kept away due to governance concerns.

Are either of those a surprise to anyone? Any E&P in HUR's position looking for partners is going to get offers that they consider are not worth serious consideration - does anyone think that the BoD should be accepting offers regardless of their view of the value? And do we for a moment think that someone like RB is better placed than those running the company to make the judgements on acceptance or refusal?

And yes everyone knows there are loads of funds that will not invest in AIM shares, and that the company has grown beyond the one most of the BoD started with. And they also know that HUR is looking at exactly those issues.

Maybe they won't come up with solutions that I will find acceptable, but until they do I'm not going to prejudge. What I certainly will not be doing is getting too concerned by the views of a fund manager who is keen to pass the responsibility for the poor performance of his fund onto the BoD of one of the companies he has invested in - rather than accepting that he got the timescale and investment outlook for HUR wrong and made an error of judgement in going massively overweight with his clients funds.

Peter

Nigwit,

this is RB's twitter on Nov. 25th:
"In 2005, Trice raised £25m, Further money was raised in 2008, 2010, 2011, 2012, 2013, 2014 and 2016. This years's May warrant issue fiasco and the summer's $300m raise brings total equity raised to £595m. £80m more than the current £515m stock market value. Track record?"

Can you please paste the one you are referring to?

Thank you

I am very disappointed by somebody like RB whom I have admired in the past.

Richard, sorry to see you using the Trump's style...

I think we can guarantee that RB / CA will be getting no privileged information, or even sniffs of information in the their Christmas stockings. Maybe that's why they are so peeved.

@forsi I'll gt back to you when I have a chance.

regards, dspp

Forsi and others

Please may I politely suggest, in the nicest possible way that you're swimming against a very strong tide by criticizing Twitter. It is a valid medium used by many serious people (as well as by POTUS).

I'd suggest signing up so that you can see first-hand what has been posted. I would be delighted to cut and paste but it's not really so simple because, for you to make proper sense of it all, I would have to assemble all the twitter posts and their replies and further replies all of which would still not read properly here. If you don't approve of any of the tweets then Twitter is the right forum on which to say so.

Having met him at his own conference and also having sat immediately behind him at the AGM in June I think I'm an a reasonable place to say that I believe that Richard Bernstein is much misunderstood. It is very easy to accuse him of short term objectives on the grounds that his fund's share price has fallen. There is no evidence of any holders of that fund being unhappy and every holder I met so far is delighted with him. The only people he ever seems to upset are the misplaced directors who he has ejected.

From my discussions with him I believe Richard Bernstien has long term objectives for Hurricane (he has mentioned the FTSE100) and sees a degree of monetising now as part of the growth of the company. I can not speak for him but I sincerely believe he loves the company but not its management (at least since the warrants in May). He clearly believes in its assets and wants to see the share price reach full value before his fund exits, gradually as it must if it is to remain balanced.

I really don't think there is anything else to his agenda, which is clearly set out on the Crystal Amber website. He is not a short term trader as has been alleged. There is no evidence for that in any of his interests past or present.

I understand the complaints of unprofessional but I do not agree with them. Richard Bernstein is just one shareholder talking to others in public, which is the same as happens here.

What is more Crystal Amber are known activist investors whose strategies are explained on their website openly. They are doing nothing that they have not set out in those explanations.

Crystal Amber invested before the IPO so I would have to suggest that anyone who invested in Hurricane and who is now unhappy about the publicity generated by them did not do enough research. You can't invest in company that has an activist investor and then rightly complain when they are activist.

I'm staying in. Richard Bernstein has a formidable record of getting value for shareholders. In fact I am very excited.

NigWit wrote:I understand the complaints of unprofessional but I do not agree with them. Richard Bernstein is just one shareholder talking to others in public, which is the same as happens here.

Then he is welcome to come here and post his views in joined up phrases, and deal with the responses and consequences.

Until then, or until/if facts otherwise come to light, RB/CA and any fellow-travellers are now a downside risk factor in my opinion, not an upside. That is a pity as CA are part of what made HUR investable in the first place.

regards, dspp

So, HUR carries its descent downwards to 24p. May be I have the wrong end of the stick entirely here, but does the present pitiful valuation mean the company is valued less than the money it has in the bank? And that the several hundred million barrels of probable asset in place is actually worthless to investors in HUR at the present time? Do I have this wrong?

The cash is earmarked, and already being spent, so in terms of valuation what people will be looking at is what will the company get as a return on that investment. If you believe that the EPS is likely not to be the success HUR think it will be (and share the general scepticism/avoidance of basement reservoirs) then the value may seem reasonable. The other big factor is that we won't know how the EPS is really working for nearly 18 months/2 years - some might say plenty of time to get in later. Plus there are the convertibles, and the very real possibility that some holders are hedging their positions in them, and of course just the simple fact that a lot of people got a lot of shares in the summer raising and they almost certainly didn't all take them up for a long term hold.

I bet on the price not falling as it has, but I was well aware it was a quite possible outcome over the end of this year, and early next, so it doesn't surprise me too much. My view remains that at some point in the next year those betting on getting in cheaper nearer FOIL are going to get caught out. Firstly, the possibility of some sort of deal remains open. Perhaps a smallish one that would allow appraisals to progress, or perhaps something larger. Either would shift the SP up, probably significantly. Secondly, as FOIL approaches, and progress gets reported over next year, assuming no major issues, potential investors are going to start asking themselves how long to wait.

Peter

FredBloggs wrote:Is a hostile takeover and asset sell off getting ever more likely here? I doubt Dr Trice has the resources to fight a determined predator at these valuations?

Reservoir risk is always present and easily understood in its general nature by 'tech'-type investors in HUR. Less easily understandable is corporate risk for these sorts of people. There is a risk of a hostile takeover, or a hostile (but internal) sell-out, and the latter seems to be what CA were trying to force through if the rumours are right. The barriers to a hostile action are Kerogen and the management team, and they seem to have seen that off. The worry is that at these valuations they might be seduced by a friendly takeover. Without being on the inside it is difficult to assess whether there might be any appetite for seduction.

Those who advocate selling any of the more significant assets at this stage are missing various things, including:
1. Unitisation issues, which nobody in the PI community (and few in the II) seems to have paid attention to.
2. Even if the unitisation issues could be overcome, then selling (say) Lancaster cheap to a major (who would promptly double up with another major) then a) means they would have their hands full for a while, thereby reducing the number of majors available to bid on the remaining assets; and b) creates an asymmetrical valuation to the remaining assets that is in favour of the first pair of majors (who would have the least appetite).
3. Then means that HUR would have to spend the capital on starting again to work up what's left .....
4. And the low-prices that people are spouting (£500m) are simply not the best (expectation value) pathway to creating shareholder value.

I am concerned that CA are deliberately seeking to depress values for their own ends (which may not be their own ends but RB's but that's another story), and that is feeding others piling in likewise. As a PI the only thing I can do (apart from sell-out, which I am not minded to) is sit tight as so far the other shareholders (i.e. Kerogen) have stuck to their guns, and the management team is doing exactly what it said it would do. FWIW my decision was to buy some more not long ago.

regards, dspp

So, to FOIL, all pretty mundane O&G stuff really. I don't think the ambition for the EPS is at all a challenge, it's pretty conservative.

I think that's a mistaken view - at least I'm pretty sure most of those who might make, or have made, FO offers wouldn't see it that way.

There's quite clearly a significant degree of doubt amongst many outside of HUR about how the reservoir is going to perform under production conditions, which is why HUR are where they are now, and why the EPS is so critical. I would say that is one of the big factors that explains the current SP. Though, as I said, the perceived wait for the EPS to prove up the reservoir and potentially release value must also be a factor.

Peter

At 25p today and fully diluted 2.45bn shares, mkt cap is around £612/$827 most of which is cash.

EV can be around $300m. Sure, there are huge capital commitments, but most of the cash is still there.

A year ago, oil price was $48, Hurricane's market cap (at 42p) was $630m and EV was perhaps $470m.

So the Hurricane of today is 36% cheaper than a year ago...

Hi FB,

Yes, totally agree that getting the plumbing done should be not too eventful - though you never know!

I'm reasonably confident about the EPS - not least as the two wells to be used have both flowed well, and as horizontals cover a decent cross section of the structure. The big issue is going to be how well they keep flowing under production conditions over months. Basement certainly does so in other places - Bach Ho of course is the near standard example, where they've been producing (a lot) for decades. They'll be collecting all sorts of more detailed data too of course that will no doubt be looked at in great detail in due course in a data room, hopefully by some very serious parties - that's going to be the real moment of truth - if HUR still owns Lancaster by then!

Peter

There were some large trades on Friday.

Awal Bank of Manama, Bahrain have been in administration since 2009

https://uk.reuters.com/article/awalbank ... V720101022

Here is an RNS from 13 February 2014 confirming they held 35 million shares in Hurricane on behalf of Chase Nominees at the time of the IPO.

https://otp.tools.investis.com/clients/ ... sid=393303

And an RNS from 13 May 2016 when their holding was diluted

https://otp.tools.investis.com/clients/ ... sid=721018

Again on 14 November 2016

https://otp.tools.investis.com/clients/ ... sid=816904

From scanning news articles it seems that the administration is complex involving multi-billion dollar litigations in several jurisdictions, including Bahrain, The Caymans and in Europe

Eg. http://tradearabia.com/touch/article/BANK/280947

Is it possible that the shares are being liquidated as part of the winding up process? If so the sale is not a judgement on the merits of Hurricane Energy and may therefore present a trading opportunity ahead of the CPR. Anyone planning on increasing their holding may wish to research and verify.

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

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

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

Various notes:

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

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

regards, dspp

Re note 6 on the Kerogen Top-up Right I have now checked the details which are in Shareholder Circular and Notice of GM dated 18 April 2016 on p18 of http://www.hurricaneenergy.com/investor ... -circulars or available directly at http://www.hurricaneenergy.com/~/media/ ... 160418.pdf (this last link may not work).

On p18 it says "on any exercise of CA Warrants, the Kerogen Group is entitled to subscribe, at a price equal to the relevant exercise price, for up to such number of shares in the Company as will result in the Kerogen Group, following such exercise and such subscription, holding the same percentage of the issued share capital of the Company as it held prior to such exercise and such subscription (the “Kerogen Top-up Right”); and ...."

So it is a moveable target which I read as having the intent of giving Kerogen pro rata the same number of warrants/shares as CA. Which whilst being a meaningful number (23m) is not that material as things stand now. Please feel free to correct me if I am misunderstanding something.

regards, dspp

So it is a moveable target which I read as having the intent of giving Kerogen pro rata the same number of warrants/shares as CA. Which whilst being a meaningful number (23m) is not that material as things stand now. Please feel free to correct me if I am misunderstanding something.

I looked at that and started by thinking that would mean Kerogen increasing their holding by about 3x the 23m, as they have a holding nearly 3x the size of CA's.

However, playing out the calculations on my calculator I've come to the conclusion the effect works in the other direction. Since Kerogen only has 22% of the total the impact of CA increasing by 23m on K's % shareholding is infact quite small. My elderly brain is too rusty to be able to work out the correct formula at this time of evening, but it looks to me as though the shares needed to be issued to K to balance CA's 23m are only around 1/2 of the 23m.

Total shares = 1,959,210,336
CA 157,312,500 (8.03%)
K 428,531,211 (21.9%)

CA add 23,000,000 - so now 180,312,500
Shares in issue 1,982,210,336
K now has 21.62% (was 21.9%)

K adds 12,000,000 shares
Shares in issue 1,994,210,336
K now has 438,531,211 shares - 21.99% (a slight increase)

So K only has to add around half the 23m to keep their % stake.

End result as you say is pretty much irrelevant in the big picture!

Peter