Hurricane Energy (HUR)

[dspp]

A couple of other observations.
1. The size of the insider buys that were rns'd after the cmd were not exactly a significant vote of confidence. I may have misunderstood but I think they get a 50% discount under an employee share scheme. If so they had an opportunity to buy at 6p and the most they mostly felt comfortable with was £5k.
2. I notice it has taken A a fortnight to arrange to offload its shares.
Regards, dspp

[dspp]

Listened to the Q&A just now.

Folks clearly get the messages about there being issues with watercut, volumetrics, cash preservation, convertibles, capital allocation, LincCrestal, determinations, gas export, OGA consents, etc etc etc the whole shebang.

The watercut is by no means laid to rest, quite the reverse. But there is an understanding that only more data will tell. It appears that retrospective review of the existing drilling data in conjunction with the new production data indicates that they can now tell where water is present from drilling (LWD etc) data, by at least time of TD. That suggest that they have encountered other water zones in both wells that they can identify - at least I think it is unlikely from their phrasing that this is the only one.

That in turn may indicate a certain amount of compartmentalisation, and either localised perched water or localised high-set compartment OWCs (i.e. coning).

At the moment HUR are sticking to their guns on it being perched, due primarily to the temperature response and the post-shutdown rate response, but they acknowledge that it is not conclusive. As a shareholder I would very much prefer that to be the outcome as, if so, it will ultimately be drained by production and (tbd) dry oil might then resume (it depends on factors). However as an observer of the limited data they have shown us I am somewhat sceptical, and I worry that the reservoir will not heed my preferences. I am somewhat annoyed that they bothered to type themselves up a written answer on this very important subject, alluding to various data sets, but did not see fit to put them on a slide. Like, folks, how hard is it to be transparent with your shareholders. In the absence of that slide etc it is hard to look over their shoulder, which is why they didn't show it. Trust is one thing, verification is preferable. They now have history on being reticent with data.

Volumetrics is heading in a disappointing direction at present, based on pressure data. If compartmentalisation is present then RF% may decrease, and well cost increase. But to my mind volumetrics is second in the risk list, with watercut development right at the top.

Completion designs for future wells are likely to involve zonal control options. All sorts of interestng technical discussions to be had there, as holy grails are in short supply, expensive, and problematic. In the short term the cost ($30m-$40m) to renter the 7z well, yank the completion, attempt a 10m-40m water shut-off (!!!!), stick it all back together, cost the deferred shut-in production, accept execution risk, is all looking somewhat worrying.

Nobody asked them about watercut in the 6 well. Nobody asked them about whether the down-toe zones are water bearing.

There is a lot to be worried about. Personally I continue to hold, but now as a recovery play. It could of course be a failure play and watercut continue to increase in which case it would at some point become uneconomic. Time will tell.

Aiming for a CPR incorporating history matched reservoir models towards the end of the year is to my mind suggesting that they have a capital raise and/or bond refinance in mind at that time or early 2021, as that would be the most likely reason to have to produce worked answers of the CPR variety. That alone will act as a dampener on share price for at least another year, probably longer, as many trajectories suggest the convertibles could take control of the company (or a large chunk of it) in a couple of years. Dilution seems inevitable one way or another. The CFO left for a reason ..........

To avoid that they will need to be very lucky.

There are many reasons why insiders did not feel inclined to risk more than £5k at 6p.

None of this is new news.

They should do the Q&A live, just like everyone in the USA manages to do ...... it ain't hard.

regards, dspp

[petroleum1]

dspp
It is sad to see the share price is sliding.
https://uk.advfn.com/cmn/chrt/chrt_wrap ... nd_type3=0
Three years ago I posted that pressure build up and pressure drawdown can only apply to horizontal
sedimentary beds with porosity and permeability. It cannot be applied to vugs, fissures or compartmentlised reservoir

Hurricane reservoirs are non conventional reservoirs where the oil exists in fractures and not pores. In a conventional reservoir you have geological maps derived from seismic plus few wells that will give you porosity, permeability and other reservoir parameters. This together with long term flow tests of selected locations will help you determine oil in place and recoverable oil and hence full field development plan.

In fractured reservoir you do not know how many fractures exist and whether they interconnect with each other. More over you do not know whether the well drilled will hit a fracture or not. The fractures could be cemented with deposits over long period of time. I think this is the reason why the majors are playing a hard ball.
Rgds

I am glad I did not invest in HUR
Rgds
#91566
PostOctober 29th, 2017, 11:29 am

[dspp]

dspp
It is sad to see the share price is sliding.
https://uk.advfn.com/cmn/chrt/chrt_wrap ... nd_type3=0
Three years ago I posted that pressure build up and pressure drawdown can only apply to horizontal
sedimentary beds with porosity and permeability. It cannot be applied to vugs, fissures or compartmentlised reservoir

Hurricane reservoirs are non conventional reservoirs where the oil exists in fractures and not pores. In a conventional reservoir you have geological maps derived from seismic plus few wells that will give you porosity, permeability and other reservoir parameters. This together with long term flow tests of selected locations will help you determine oil in place and recoverable oil and hence full field development plan.

In fractured reservoir you do not know how many fractures exist and whether they interconnect with each other. More over you do not know whether the well drilled will hit a fracture or not. The fractures could be cemented with deposits over long period of time. I think this is the reason why the majors are playing a hard ball.
Rgds

I am glad I did not invest in HUR
Rgds
#91566
PostOctober 29th, 2017, 11:29 am

p1,
Good call. It is all down to risk / reward isn't it.
regards,
dspp

[Howyoudoin]

dspp
It is sad to see the share price is sliding.
https://uk.advfn.com/cmn/chrt/chrt_wrap ... nd_type3=0
Three years ago I posted that pressure build up and pressure drawdown can only apply to horizontal
sedimentary beds with porosity and permeability. It cannot be applied to vugs, fissures or compartmentlised reservoir


I am glad I did not invest in HUR
Rgds
#91566
PostOctober 29th, 2017, 11:29 am

p1,
Good call. It is all down to risk / reward isn't it.
regards,
dspp

An extremely rare case of 20:20 foresight.

RVF

Except of course that the share price doubled less than 12 months after 29 October 2017, so would have been a fantastic investment for some.

HYD

[dspp]

Brent price this morning within touching distance of $35 a barrel. I'd really like to think HUR has come off the bottom now and may see a steady climb back towards a sensible share price. Though no doubt, any price strength will be heavily sold into as usual with HUR stock.

RVF

Rises being heavily sold in to is par for the course with HUR.

I picked up that the bonds (HURCOVNT) are trading at about 75% of par. Since the coupon is covered, on the face of it that seems to indicate that bondholders are pricing in an event that causes the company not to be able to repay, in which case they presumably take control, and furthermore take control of a company that is of reduced value. I am sure bond people can provide more detail on those calculations and pricing. The ex-CFO probably did the refinancing calcs prior to departure.

It is an interesting needle the company needs to thread. I'm sure we are all watching the monthly OGA watercut figures.

regards, dspp

[dealtn]

Brent price this morning within touching distance of $35 a barrel. I'd really like to think HUR has come off the bottom now and may see a steady climb back towards a sensible share price. Though no doubt, any price strength will be heavily sold into as usual with HUR stock.

RVF

Rises being heavily sold in to is par for the course with HUR.

I picked up that the bonds (HURCOVNT) are trading at about 75% of par. Since the coupon is covered, on the face of it that seems to indicate that bondholders are pricing in an event that causes the company not to be able to repay, in which case they presumably take control, and furthermore take control of a company that is of reduced value. I am sure bond people can provide more detail on those calculations and pricing. The ex-CFO probably did the refinancing calcs prior to departure.

It is an interesting needle the company needs to thread. I'm sure we are all watching the monthly OGA watercut figures.

regards, dspp

Out of interest where did you get a Bond Price from. As far as I could work out it was a Private Placement, and I assumed to just one counterparty. I wouldn't expect it to trade.

[dspp]

Out of interest where did you get a Bond Price from. As far as I could work out it was a Private Placement, and I assumed to just one counterparty. I wouldn't expect it to trade.

Listening to rumours out there. It appears to be traded, but in quite large parcels. I rather suspect that some of the major shareholders are also bondholders - and if I am correct that means they can win both ways in the bad outcome case. I also suspect it informs some of the trading strategies that we glimpse.

regards, dspp

[dealtn]

Out of interest where did you get a Bond Price from. As far as I could work out it was a Private Placement, and I assumed to just one counterparty. I wouldn't expect it to trade.

Listening to rumours out there. It appears to be traded, but in quite large parcels. I rather suspect that some of the major shareholders are also bondholders - and if I am correct that means they can win both ways in the bad outcome case. I also suspect it informs some of the trading strategies that we glimpse.

regards, dspp

I would be amazed if they weren't (although I assumed only 1).

No major shareholder would agree to issuing a convertible bond to a non-shareholder without it being similarly offered to them.

Not sure what you mean by a "bad outcome case". Both shareholders and bondholders lose out on a bad case, and given the bondholder is both that must apply. They have more opportunity to decide the outcome(s) though so I guess you are saying the bondholding shareholder is relatively better off than a non bondholding shareholder.

[dspp]

Out of interest where did you get a Bond Price from. As far as I could work out it was a Private Placement, and I assumed to just one counterparty. I wouldn't expect it to trade.

Listening to rumours out there. It appears to be traded, but in quite large parcels. I rather suspect that some of the major shareholders are also bondholders - and if I am correct that means they can win both ways in the bad outcome case. I also suspect it informs some of the trading strategies that we glimpse.

regards, dspp

I would be amazed if they weren't (although I assumed only 1).

No major shareholder would agree to issuing a convertible bond to a non-shareholder without it being similarly offered to them.

Not sure what you mean by a "bad outcome case". Both shareholders and bondholders lose out on a bad case, and given the bondholder is both that must apply. They have more opportunity to decide the outcome(s) though so I guess you are saying the bondholding shareholder is relatively better off than a non bondholding shareholder.

Correct. Kerogen could end up as (say) 80-100% owner via bonds, rather than (say) 30% owner via shares. Such a proposition puts a different light on Ker's derisking some 12-18 mths ago. With hindsight I should have - but with hindsight I would do many things differently.

I think that knowing who holds how many bonds, or more accurately controls how many bonds, might be very worthwhile information. However as with much that is important about the bonds we private investors are not being told.

regards, dspp

[dealtn]

I think that knowing who holds how many bonds, or more accurately controls how many bonds, might be very worthwhile information. However as with much that is important about the bonds we private investors are not being told.

Who do you expect should be telling you?

A private placement is a private contract between the issuer and the buyer. If those bonds have changed hands the company might not even know (although I suspect they do).

In practice I think you just have to let this one play out. The operational cash flows will primarily determine the outcomes here for both sets of holders rather than the financing.

[dspp]

Quite a lengthy analysis update from Edison this morning, worth a look -
https://www.edisongroup.com/publication ... ages/26882

Water production from the wells is identified as being perched water and is expected to stabilise with time.
... Our risked valuation stands at 70.4p/share, or 21.9p/share excluding any value beyond Lancaster EPS.

In many ways it really is a 50/50 bet on exactly that issue.

regards, dspp

[wanderer101]

Indeed, it does not look good:

Achieving the 20,000 bopd target rate "at a sustainable level has not been possible as the impact of increasing production rates resulted in instability in the flow regime on the 205/21a-7Z well as a result of interference between the wells. This has led to a decision to shut-in the 205/21a-7Z well for the time being and return to a period of testing maximum sustainable rates from just the 205/21a-6 well."

Water production from 7Z 'in line with the water production that had been seen over the previous weeks'.

6 well currently producing at 'approximately 10,300 bopd'.

'The Company plans to increase this rate incrementally, to determine its maximum sustainable level. This process will result in a period of production substantially below forward guidance of net 18,000 bopd and Hurricane is therefore suspending previous full year guidance of net 17,000 bopd. Production has averaged 15,500 bopd year to date.'

It seems the geology is throwing up ever more problems, on top of the oil price.

I hold, much reduced, but perhaps not for much longer

[wanderer101]

Link: https://www.investegate.co.uk/hurricane ... 00087394N/

[FabianBjornseth]

It seems the geology is throwing up ever more problems, on top of the oil price.

Indeed. The company states that the production has been increased which cause the instability, but looking at the chart from the CMD, it's really just the liquid (oil+water) production that has increased since August 2019. Unstable flow is the result of an increased water cut combined with a reduced reservoir pressure. While it is stated that:

The water production from the 205/21a-7Z well at the time the instability was experienced was in line with the water production that had been seen over the previous weeks

This may simply mean that the water rate was relatively constant while the oil rate dropped. Getting the ESPs up and running may help, but the company has not to my knowledge made a firm estimate on when that may happen. The Aoka Mizu could also be liquid/water rate constrained sooner rather than later.

Further signs of worry is the oil rate from -6, which is now reported to be 10'300 bopd. HUR allocated ~14'000 bopd to this well. The reduced rate suggests that things that the water cut is starting to make a dent in the production rate from this well too, and the company specifically avoided adressing. Extrapolating the development of the -7 well onto the -6 well will make any HUR shareholder a sad panda.

[dspp]

It seems the geology is throwing up ever more problems, on top of the oil price.

Indeed. The company states that the production has been increased which cause the instability, but looking at the chart from the CMD, it's really just the liquid (oil+water) production that has increased since August 2019. Unstable flow is the result of an increased water cut combined with a reduced reservoir pressure. While it is stated that:

The water production from the 205/21a-7Z well at the time the instability was experienced was in line with the water production that had been seen over the previous weeks

This may simply mean that the water rate was relatively constant while the oil rate dropped. Getting the ESPs up and running may help, but the company has not to my knowledge made a firm estimate on when that may happen. The Aoka Mizu could also be liquid/water rate constrained sooner rather than later.

Further signs of worry is the oil rate from -6, which is now reported to be 10'300 bopd. HUR allocated ~14'000 bopd to this well. The reduced rate suggests that things that the water cut is starting to make a dent in the production rate from this well too, and the company specifically avoided adressing. Extrapolating the development of the -7 well onto the -6 well will make any HUR shareholder a sad panda.

Fully agree with FB.

Generally instability is the result of a heavier column (i.e. more water), or less 'drive'. The company is being reticent about the watercut. To be frank, this looks like a trajectory of news that one would expect if the wells were drawing in water from a compartment-wide OWC rather than from a perched water body. Coned not perched.

Whilst I can to an extent understand why the company has defended one particular interpretation for so long, there comes a time when the independent technical NEDs will either force a reconsideration of the company's stance on this; or force fuller disclosure of the facts; or step down. Sooner or later individuals will consider their positions. Indeed some did, that is why they only punted £5k at 6p !

Re-entering either of these wells is about the same cost as drilling a #8 well. What happens in the slightly lower well sooner or later also is happening in the higher well.

Bond repayment has to be in considerable doubt. Refinancing it would be very expensive (dilutive for shareholders).

must dash, dspp

[dspp]

Unaswered question I would pose, were I able - Only a couple of days ago, Edison released a pretty darn positive update on HUR. An update paid for by HUR. HUR provided the information to Edison to publish. This situation has most definitely not arisen in the last couple of days. As I posted before, my confidence is shattered and I have pretty much assigned my HUR stock to the bin. Many of us trusted Dr T 100%. I don't any more. No point selling now.

RVF

Quite. And it is not the first time.

regards, dspp

[StepOne]

... No point selling now.

RVF

I disagree, and sold all mine this morning.

[nigelpm]

The business is still being valued at £132m which based on all the knowledge out there and today's dreadful RNS is probably £132m too much. There's a chance things turn out ok but I'd say those chances are almost nil.

[dealtn]

The business is still being valued at £132m which based on all the knowledge out there and today's dreadful RNS is probably £132m too much. There's a chance things turn out ok but I'd say those chances are almost nil.

No, the equity in the business is valued at that, not the business. The business is valued higher.