The Lemon Fool

The Lincoln horizontal producer may not be too bad - the Lancaster -6 and -7Z initially tested at 5300 STB/d and 6520 STB/d during natural flow, so 4800 STB/d is quite close. Without a released productivity index, this is all there is to go by. The GWA tie-back has been estimated to cost $187.5mm, of which Spirit should pay $140.6mm. The immediate result of this investment (from Spirit's point of view) is hopefully a net production of 5000 STB/d. That investment should pay itself down in less than 2 years, and yield a healthy NPV and IRR over the remaining 4 years of the sanctioned EPS lifetime. The only question is how the risk picture has changed, given the recent data from Lancaster. Any further increases in water cut will likely reduce the appetite.

From the latest RNS, the Lincoln tie-back might come somewhat earlier than the debottlenecking activities at Aoka Mizu. With a Aoka Mizu nameplate total fluids capacity of 35,000 bbl/d, it starts to look packed with another 10'000 bbl/d from Lincoln (assuming no water). Currently, optimizing the Lancaster wells for 20'000 bopd results in a liquid production rate of ~23000 bbl/d. If the total water rate from Lancaster increases to more than 5000 bbl/d, those wells would have to be choked back in favor of the Lincoln well. This puzzle could get tricky, and make it harder to reach a FID on the tieback without also committing to the debottlenecking scope.

FabianBjornseth wrote:The Lincoln horizontal producer may not be too bad - the Lancaster -6 and -7Z initially tested at 5300 STB/d and 6520 STB/d during natural flow, so 4800 STB/d is quite close. Without a released productivity index, this is all there is to go by. The GWA tie-back has been estimated to cost $187.5mm, of which Spirit should pay $140.6mm. The immediate result of this investment (from Spirit's point of view) is hopefully a net production of 5000 STB/d. That investment should pay itself down in less than 2 years, and yield a healthy NPV and IRR over the remaining 4 years of the sanctioned EPS lifetime. The only question is how the risk picture has changed, given the recent data from Lancaster. Any further increases in water cut will likely reduce the appetite.

From the latest RNS, the Lincoln tie-back might come somewhat earlier than the debottlenecking activities at Aoka Mizu. With a Aoka Mizu nameplate total fluids capacity of 35,000 bbl/d, it starts to look packed with another 10'000 bbl/d from Lincoln (assuming no water). Currently, optimizing the Lancaster wells for 20'000 bopd results in a liquid production rate of ~23000 bbl/d. If the total water rate from Lancaster increases to more than 5000 bbl/d, those wells would have to be choked back in favor of the Lincoln well. This puzzle could get tricky, and make it harder to reach a FID on the tieback without also committing to the debottlenecking scope.

Fabian,

Fair points.

Re Lincoln tieback there is a gas flare consent for Lancaster EPS. There is no gas flare consent for Lincoln EPS. That is a qualitative regulatory problem. Then there is the gas (flare) handling capability, though I don't know what that limit is (for long time use, i.e. not just safety blowdown purposes) if they were to get given a flare consent for a limited period prior to the WOSPs tieback.

regards, dspp

dspp wrote:

Nimrod103 wrote:

dspp wrote:So basically it is that we no longer trust HUR's confident predictions. It is not that we don't trust the HUR senior team - I'd have long fled for the hills if I thought that - but we no longer have confidence in their models. I bet you they don't either right now.

I don't understand your point. The HUR senior team approved the model (constructed by their consultants). The HUR senior team have a wealth of experience - I know, I have worked with some of them. What appears to have happened cannot have come as a surprise to them.

I guess there are different levels of trust. 1) There are some senior people wouldn't trust with a spare £5 note. 2) There are other senior people I wouldn't trust to do the technical aspects of their job correctly. 3) There are other senior people I wouldn't trust to tell me everything, including the bad news. 4) And then there are senior people who I would trust to tell me the bad news even if it was an unconfirmed and caveated rumour, or just a possible future risk.

Unfortunately I have come across examples of - in my opinion - 1, 2, and 3 at a senior level. I am however fairly confident that the (for me) key people in HUR do not fall into the 1 & 2 categories. I thought they were in the 4 category. Are you suggesting they are in the 3 category ?

Your well-voiced concern from 3-4 years ago about OWC contact levels remains amply justified.

regards, dspp

I am probably biased against fractured oil reservoirs. They usually flow very well, until they don't. The trick is to sell out while they are on maximum production.

Link to the Arden note on HUR below, PDF file:

https://ufile.io/nyjmlq5t

.

Perched water in conventional reservoirs is discussed in the paper below, which may be of interest:

https://www.researchgate.net/publication/301558692_Perched_Water_Static_Model

Hurricane's challenge is to fit this concept into a pervasively fractured reservoir.

FabianBjornseth wrote:Perched water in conventional reservoirs is discussed in the paper below, which may be of interest:

https://www.researchgate.net/publication/301558692_Perched_Water_Static_Model

Hurricane's challenge is to fit this concept into a pervasively fractured reservoir.

Fabian,

Thank you for that, which I will read more carefully next weekend.

In a similar vein I mentally did the slides in my post below whilst splitting logs in the day, then hacked them together in the evening. If you look carefully you'll notice that I inserted some extra fractures in slide 5 vs slide 3, at the base of the hypothesised perched pocket, and that is a potential 'choke' on access to the water leg. After all this granite ought to have micro fractures everywhere, at least in the hybrid stress zone, so what chance is there that a perched water pocket has no means of downwards egress at all.

In the evening I was mulling over the pressure differential that could accumulate between the water leg in the perched pocket and the oil leg in the filled fracture set, if there was perched water there and did a few mental sums with round numbers.

Directionally one could have a couple of hundred metres of depth in the perched pocket, and say a density of 900 kg/m3 oil leg vs 1000 kg/m3 water leg. So 1 bar dP between the two legs per 100m. In dP/m terms to drive open a fracture and flow that is pretty low, when considering the static case (especially of mineralisation or whatever is filling that microfracture). So that tends to justify HUR's contention that a perched pocket could be formed during charge, and not dissipate.

Then if producing at say 10,000 bopd and with a PI of say 200 b/d/psi that is a 50psi drawdown, say 3 bar in round numbers.

So would smaller fractures (pick whatever 'smaller' interests you from the exhaustive fracture taxonomy HUR are introducing) that are closed in one direction under a 1 bar dp, open in the other direction when the well is flowed at this rate ? (it would become, using these numbers, a 4bar dP when opened up rather than a 1 bar dP prior to opening up). I know that excessive drawdown can energise fractures, as that is a hypothesis that might explain one well's behaviour I was once involved with, that cut a field-terminating amount of water (we never did figure it out, the field was abandoned). However I struggle to find that hypothesis plausible when the dP is a scant 4 bar or so.

My struggle in this respect, makes the HUR perched water hypothesis more rather than less likely. As a shareholder that might be good news. Provided of course the water cut stops increasing.

It is all very vexing.

regards, dspp

I've had a look at how Hurricane has viewed perched water on Lancaster previously.

First, a paper written after drilling the sub-vertical 205/21a-4 and 205/21a-4, but before drilling the horizontal producer 205/21a-6. This paper features the jellyfish model, and treats oil below structural closure as an upside. Perched water is estimated to make up 5-20% of the volume above structural closure, and 30-70% below structural closure.

Basement exploration West of Shetlands, progress in opening a new play on the UKCS
https://sp.lyellcollection.org/content/397/1/81

The nature of the fracture network, described by the conceptual model, would result in significant permeability anisotropy and heterogeneity which in turn would lead to specific volumes of the GRV having relatively poor fracture connectivity. Such regions could be bypassed during phases of hydrocarbon fill, resulting in volumes of perched water. This phenomenon would be exacerbated closer to any aquifer with the fractures within the Pseudomatrix retaining significant volumes of connate water. In contrast, the Inner Fault Zones would be associated with the highest oil saturations with residual water confined to the fracture population having the smallest aperture fractures and, of this water volume, a significant proportion would be considered immobile.

Perched water has not been confirmed with the available well data; however, perched water is predicted to be present by the conceptual model and therefore requires inclusion.

Then, in 2015, the view has changed when building the first full-field reservoir model:

21 May 2015 Devex - Enabling Geological Scale Dynamic Modelling of a Fractured Basement Reservoir using a high-Resolution Simulator
https://www.hurricaneenergy.com/download_file/force/121/222

Hydrocarbon saturation is assumed to be 100% within the oil column in these first pass results:
• This is a reasonable assumption, as the fractures that make up the effective reservoir in this field are of such wide apertures that capillary pressure effects will not be seen, and there will be no relationship between height above free water level and water saturation. Irreducible water saturation should be theoretically zero (or close to zero).
• Formation water was seen on previous well tests, but the source of this water is uncertain. No formation water was encountered in the horizontal well 205/21a-6.
• Potential perched water should perhaps be dealt with as a N:G issue rather than a water saturation issue, as the water will be essentially immobile within any perched fractures.
• The effects of variable hydrocarbon saturation and hydrocarbon distribution is an uncertainty which will be examined in more detail in a second phase of simulation however Hurricane is aware that variable oil down too distributions al though acceptable in static models are a challenge in simulation modelling.

Finally, this is further expanded upon in the notes to a similar presentation, delivered in 2016:

2016 - Enabling Geological Scale Dynamic Modelling of a Fractured Basement Reservoir
https://www.hurricaneenergy.com/download_file/force/117/258

Fluid distribution data is provided by Hurricane’s deep inclined well, 205/21a-4. In the CPR, a model of varying fluid distribution was applied to take into account the downside possibility of perched water being encountered in this well. Re-interpretation of this data indicates that the water encountered could have in fact been coned from deeper down, rather than being perched water. Additionally, comparison with the extremely high
productivity of the horizontal well and observations of a highly connected fracture network make the model of perched water within the reservoir far less likely. Therefore, a Free Water Level has been modelled in the simulator rather than a complicated perched water model - this is useful as there is no way to distribute perched water effectively, and the simulator is unsupportive of running such a model as initialisation of the model enforces equilibrium and drops the water to the base of the structure.

It would seem that the Lancaster EPS results has changed the company view in that perched water is not just a net-to-gross issue, but a dynamic factor during production. Downward revisions to STOOIP estimates, and ultimately recoverable volumes for a FFD, seems to be a very likely outcome. Though not necessarily for the EPS reserves, assuming the water rates stabilize or decline.

dspp wrote:My thoughts are summarised in these two tables...

>> Reduce Lancaster volumetrics by one third to account for concerns about water causing reduced RF%. Hold $/bbl constant though this would also increase devex and opex so one can argue the $/bbl should reduce.
>> Delay Halifax by two years. Reduce Halifax volumetrics by one third.
>> Relinquish Whirlwind.

Thanks for sharing this dspp. When I compare it to the one from Sep 2018 (viewtopic.php?f=16&t=796&start=440#p166573) the volumes and value for Lancaster actually seem to have increased slightly, rather than being reduced by a third. Was there another update to these tables that I have missed somewhere?

Thanks,
StepOne

StepOne wrote:

dspp wrote:My thoughts are summarised in these two tables...

>> Reduce Lancaster volumetrics by one third to account for concerns about water causing reduced RF%. Hold $/bbl constant though this would also increase devex and opex so one can argue the $/bbl should reduce.
>> Delay Halifax by two years. Reduce Halifax volumetrics by one third.
>> Relinquish Whirlwind.

Thanks for sharing this dspp. When I compare it to the one from Sep 2018 (viewtopic.php?f=16&t=796&start=440#p166573) the volumes and value for Lancaster actually seem to have increased slightly, rather than being reduced by a third. Was there another update to these tables that I have missed somewhere?

Thanks,
StepOne

StepOne,

Not sure, but this is Lancaster volume EPS + FFD from my spreadsheets, in mln boe recoverable, which I ordinarily post when I update;

13 12 19 = 543 + 62
13 07 19 = 842 + 62
14 09 18 = 529 + 62
11 12 17 = 529 + 62
etc

So yes it does appear you missed one in the middle in which case I guess you'll find it posted here within a few days of the date above if you search carefully. The valuation in $/bbl that I have assumed may have moved as well if you look.

Regards, dspp

RNS Number : 5683X Hurricane Energy PLC 20 December 2019

Appointment of Non-Executive Director

Hurricane Energy plc, the UK based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, announces the appointment of Ms Beverley Smith as a non-executive director of the Company with immediate effect.

Ms Smith is a chartered geologist and an accomplished business leader with 30 years' experience in the upstream oil and gas sector. During a successful international career with BG Group, she delivered a portfolio of strategic, commercial, project and people leadership achievements, most recently as Vice President Exploration & Growth for Europe. Ms Smith has a proven track record of strengthening risk management capabilities, delivering improved safety frameworks and ensuring accountability and transparency through the implementation of robust processes and controls. Her work in the voluntary sector includes involvement with the Petroleum Exploration Society of Great Britain, where she will be President of the 2020 Executive Council, and as a Trustee for the Etches Collection at the Kimmeridge Trust.

Following Ms Smith's appointment, half of Hurricane's board of directors (excluding the chairman) are independent non-executive directors, in compliance with the Financial Reporting Council's UK Corporate Governance Code 2018.

--
my bold, regards, dspp

Yes, that came out in bold to me when I read it! I hope it's significance goes beyond just following good governance guidlines, which is welcome anyway. I suspect it would not be a mistake to interpret it indicating a further milestone in the path towards a full listing.

Interesting tweet here :

https://twitter.com/BurggrabenH/status/ ... 1849033730

This guy is incredibly knowledgeable and sensible. He wouldn't be saying this if he didn't have a very good reason to doubt the value of Lancaster.

That combined with dspp's excellent work was enough to convince me that I don't know enough to be invested here so I sold out at a thumping loss.

It hurts but that's life. I've learnt with experience if you are going to panic do it sooner rather than later.

FabianBjornseth wrote:I've had a look at how Hurricane has viewed perched water on Lancaster previously.

Finally, this is further expanded upon in the notes to a similar presentation, delivered in 2016:

2016 - Enabling Geological Scale Dynamic Modelling of a Fractured Basement Reservoir
https://www.hurricaneenergy.com/download_file/force/117/258

Fluid distribution data is provided by Hurricane’s deep inclined well, 205/21a-4. In the CPR, a model of varying fluid distribution was applied to take into account the downside possibility of perched water being encountered in this well. Re-interpretation of this data indicates that the water encountered could have in fact been coned from deeper down, rather than being perched water. Additionally, comparison with the extremely high
productivity of the horizontal well and observations of a highly connected fracture network make the model of perched water within the reservoir far less likely. Therefore, a Free Water Level has been modelled in the simulator rather than a complicated perched water model - this is useful as there is no way to distribute perched water effectively, and the simulator is unsupportive of running such a model as initialisation of the model enforces equilibrium and drops the water to the base of the structure.

It would seem that the Lancaster EPS results has changed the company view in that perched water is not just a net-to-gross issue, but a dynamic factor during production. Downward revisions to STOOIP estimates, and ultimately recoverable volumes for a FFD, seems to be a very likely outcome. Though not necessarily for the EPS reserves, assuming the water rates stabilize or decline.

Fabian,

Thank you for pulling together that evolution of ideas. I expect there will be more evolution to come.

Anyway I remember this third one you've dug out. In essence it boiled down to "let's ignore perched water as being impossible for us to model". Always a concern when one let's the toolset limitations dictate the assumptions regarding the behaviour of mother nature, rather than vice versa. I can imagine there might now be some people trying to write a module to expand the capabilities of the modelling tools.

In Bach Ho the effective produceable oil column is approximately 1000m tall, and we are aware that there is considerable heterogeneity in reservoir properties, with perhaps four distinct zones, and a general trend of deeper is worse. They have had to be careful with field management to get the production profile they have achieved.

The shallowest part of the highly fractured “buriedhill” at Bach Ho lies at a depth of 3050 m (Fig. 2), while the effective base for liquids production in the field is typically shallower than 4650 m. However, the deepest producing interval in the field is a fractured zone at 5013 m, with a flow rate around 100 b/d at a temperature of 162oC. Productive intervals in Bach Ho wells are invariably fractured zones. (from BACH HO FIELD, A FRACTURED GRANITIC BASEMENT RESERVOIR, CUU LONG BASIN, OFFSHORE SE VIETNAM: A “BURIED-HILL” PLAY Trinh Xuan Cuong* and J. K. Warren**)

In Lancaster the basement crest is at about 1000m depth, the horizontals are set at about 1200m, and the OWC is postulated at about 1600m (variously 1597m, 1653m, and 1678m) per https://www.hurricaneenergy.com/applica ... Q_2019.pdf, so a postulated 600m oil column, with a postulated 400m from the horizontal down to the water leg. Clearly 600m in Lancaster is less than 1000m in Bach Ho.

If you look at p36 of the presentation you linked (https://www.hurricaneenergy.com/downloa ... ce/117/258) it suggests that in the high Kv case the cone will develop by approx 400m over a 6-year time-period (I am doing my best to scale from a rather fuzzy image, so it might be 300m) but that breakthrough does not occur before going off plateau and drawdown reducing, i.e. relax everyone. Is that high Kv case sufficiently high to model these massively fractured zones that tend to be vertically orientated ? How fast might it move in a 9-month period ?

Reading through other literature there are various postulations regarding basement water properties, and reasons why that might be so. I suspect we will have an opportunity to listen to some more in the coming years because there will be a few papers written on the back of the fingerprinting studies that will now be underway.

Another aspect that has been at the back of my mind for months is that the board will have a fiduciary duty to act in the best interests of shareholders. In the event of good news flow that is fairly easy to manage. In the event of bad news flow that is less easy, as it may not be in the shareholders best interests for everything to be divulged too openly.

The 25 March 2020 CMD is going to be interesting. It is unusual that an explorationist gets to have to live with their own doings - ordinarily they go off and look for the next one, rather than having to sweep up the mess and defend their analysis. The risk of course is that they get over-invested in proving they were right all along. And of course the only person that is right all along is mother nature. However if past form is anything to go by the CMD will not be able to hold HUR properly to account.

That is an aspect that Alexander Stahel chap may be talking sense about https://twitter.com/BurggrabenH/status/ ... 1849033730 . It would be good if people like him were in a position to ask the relevant questions in public. However I note that the CMD is only for "sell-side analysts and institutional shareholders". So I guess buy-siders don't count ? (or private investors for that matter, though I wonder how many of them are left in HUR).

Hey ho, regards all,
dspp

nigelpm wrote:
This guy is incredibly knowledgeable and sensible. He wouldn't be saying this if he didn't have a very good reason to doubt the value of Lancaster.

That combined with dspp's excellent work was enough to convince me that I don't know enough to be invested here so I sold out at a thumping loss.

It hurts but that's life. I've learnt with experience if you are going to panic do it sooner rather than later.

A one man band based in commodity hedge fund tax dodging haven Zug suddenly pops up sounding the death knell for hurricane and you clamour for the exit!?! I’m sure his intentions are entirely honourable and the sensible and knowledgable sage, having never covered hurricane in any depth before, is sharing his spellbinding knowledge with us all on here for the good of his health.

Honestly. FFS. Get a grip.

dspp wrote:If you look at p36 of the presentation you linked (https://www.hurricaneenergy.com/downloa ... ce/117/258) it suggests that in the high Kv case the cone will develop by approx 400m over a 6-year time-period (I am doing my best to scale from a rather fuzzy image, so it might be 300m) but that breakthrough does not occur before going off plateau and drawdown reducing, i.e. relax everyone. Is that high Kv case sufficiently high to model these massively fractured zones that tend to be vertically orientated ? How fast might it move in a 9-month period ?

A subtle but significant point is that the reservoir modelling in that presentation assumes an average permeability of 256mD, (796 in the high case), derived from test analysis of the -6 well, which is cited as 265,000 mD.m over a 1000m test interval. If, however, the flow was coming from a few larger vertical fractures, say 10 fractures with 26.5 D permeability, then the coning is likely to be much more rapid.

AndersonSW wrote:

nigelpm wrote:
This guy is incredibly knowledgeable and sensible. He wouldn't be saying this if he didn't have a very good reason to doubt the value of Lancaster.

That combined with dspp's excellent work was enough to convince me that I don't know enough to be invested here so I sold out at a thumping loss.

It hurts but that's life. I've learnt with experience if you are going to panic do it sooner rather than later.

A one man band based in commodity hedge fund tax dodging haven Zug suddenly pops up sounding the death knell for hurricane and you clamour for the exit!?! I’m sure his intentions are entirely honourable and the sensible and knowledgable sage, having never covered hurricane in any depth before, is sharing his spellbinding knowledge with us all on here for the good of his health.

Honestly. FFS. Get a grip.

Nigelpm has been posting on versions of Motley Fool/Lemonfool since about 1999 to my knowledge. He is one of the investors I trust and take very good care to listen to, because I know he has a fair appetite for risk and a boat load of experience. I have learned a lot from his posts over two decades. Thanks Nigelpm!

Anyway, I have yet to read what has Nigelpm spooked but the fact he is out is a strong indicator that events have not necessarily developed in Hurricanes favour so take heed. More money off the table. They need more success with the drill to raise the share price, but their model is clearly not yet adequate to risk funding much more drilling In the near term. Once they have rejigged their model fractured basement remains difficult to guesstimate the sweet spots in due to the need to intersect the good fractures. The EPS has been taken for granted but could water out- the company is making soothing noises but I am not reassured. All in all we start 2020 in a far less confident position than 2019.

It is worth noting that none of this is down to management failure: Geology is what is kicking Hurricanes butt right now.

Nimrod103 wrote:

dspp wrote:If you look at p36 of the presentation you linked (https://www.hurricaneenergy.com/downloa ... ce/117/258) it suggests that in the high Kv case the cone will develop by approx 400m over a 6-year time-period (I am doing my best to scale from a rather fuzzy image, so it might be 300m) but that breakthrough does not occur before going off plateau and drawdown reducing, i.e. relax everyone. Is that high Kv case sufficiently high to model these massively fractured zones that tend to be vertically orientated ? How fast might it move in a 9-month period ?

A subtle but significant point is that the reservoir modelling in that presentation assumes an average permeability of 256mD, (796 in the high case), derived from test analysis of the -6 well, which is cited as 265,000 mD.m over a 1000m test interval. If, however, the flow was coming from a few larger vertical fractures, say 10 fractures with 26.5 D permeability, then the coning is likely to be much more rapid.

Thank you Nimrod. That is indeed exactly my point. regards, dspp

JoyofBricks8 wrote:
It is worth noting that none of this is down to management failure: Geology is what is kicking Hurricanes butt right now.

Precisely. dspp

AndersonSW wrote:

nigelpm wrote:
This guy is incredibly knowledgeable and sensible. He wouldn't be saying this if he didn't have a very good reason to doubt the value of Lancaster.

That combined with dspp's excellent work was enough to convince me that I don't know enough to be invested here so I sold out at a thumping loss.

It hurts but that's life. I've learnt with experience if you are going to panic do it sooner rather than later.

A one man band based in commodity hedge fund tax dodging haven Zug suddenly pops up sounding the death knell for hurricane and you clamour for the exit!?! I’m sure his intentions are entirely honourable and the sensible and knowledgable sage, having never covered hurricane in any depth before, is sharing his spellbinding knowledge with us all on here for the good of his health.

Honestly. FFS. Get a grip.

No, as I stated that combined with dspp's posts on here and a growing concern about water cut.

I asked myself the simple question - would I invest now with the sum of all my knowledge. The answer was an emphatic NO.

Things may well change and I'll be following closely but sometimes the right thing to do is hold your hands up and say "I don't know enough" That is what I have done.

Same for me, I sold out at a loss at 32p.

Quite simply too much unknown now and I asked myself the same question - would I buy HUR if I held none, answer was no due to the uncertainty, so I sold out.