Hurricane Energy (HUR)

[Nimrod103]

Edison have popped out a updated research note
http://www.edisoninvestmentresearch.com ... 0/preview/

You can download a pdf that has additional discussion. They too have picked up the GOR issue and the need to either reinject or get an additional flare consent. They are hoping for a FO with a full carry of HUR through to first oil from an FFD. It would be nice if that could be achieved at a reasonable dilution as it is certainly one scenario. They've carried out a full DCF & oil price sensitivity analysis, but are holding lower reserves numbers than I used. They too are expecting a 5-well appraisal programme at $350m.

BTW (@Petroleum1 & @Nimrod) if I recall correctly are not HUR claiming to be able to get some fracture data from the seismic interpretation ? Fracture volumes (sorted into two classes if I recall correctly), connectivity, and orientation were all in their model as discussed in the last CPR. Technology is moving on. I am sure it will be further discussed in the new CPRs so I am not too fussed. Truth is in the drillbit mind you.

regards, dspp

If you recall, my doubts were about estimates of porosity in the CPR, which are largely unresolvable at this stage of the development. Truth will not come from the drillbit, but from perhaps 3-4 years of oil production, without a rapidly rising water/gas cut.

[Bink333]

I would add that the principle risk in a fractured reservoir is estimating just how much oil is in place, and to a lesser extent how much of that is recoverable. Something that the EWT will not tell you, if there are strong water or gas cap drives, which AIUI is the case in Lancaster.

Well said Nimrod. EWT will pay for itself assuming there is enough oil down there.

Really.

So if you establish that there's plenty of oil in place and that 0.01% of it is recoverable, this argument concludes that it isn't about how much is recoverable, but how much is down there.

Odd.

And we have not even discussed the quality of the oil that's down there.

I'm no expert by any means, but if you are simply trading on 'exciting news' then I can see how you'd have little interest in recovering the asset, selling it, making profits and distributing dividends to shareholders.

The talk is good, now where are the trousers?

[dspp]

And we have not even discussed the quality of the oil that's down there.

Re quality these are my notes re what has been found so far by the various wells. The GWA / GLA all looks to be pretty attractive quality imho. Producing Lancaster for a goodly while is exactly what is being worked on:

Lancaster: Light oil with fairly low GOR approx. 405 scf/bbl. 38 API no H2S or CO2 Little biodegradation

Whirlwind : Volatile light oil or gas condensate from different charge, 45 API or more. Very close to bubblepoint so production could cause near well bore gas blockage.

Strathmore : Asphaltene tar mats identified. Iffy permeability data. 23 API. Likely H2S.

Tempest / Typhoon : Heavier oils found by BP in Tempest sands in 1981 variously 10, 13, 24 API. Likely lighter oil deeper on flank protected from biodegradation by temperature

If you recall, my doubts were about estimates of porosity in the CPR, which are largely unresolvable at this stage of the development. Truth will not come from the drillbit, but from perhaps 3-4 years of oil production, without a rapidly rising water/gas cut.

Isn't it really poroperm, no real porosity to speak of ? I'm sorry but I was using the drillbit comment to mean the reality of doing it for a while as you say. If the aquifer is good then all one can do with each year (or barrel) is say that there is a reducing probability of things going awry (in the success case). We wait and see, both for the EPS itself and to see what the CPR writers are brave enough to say.

regards, dspp

[NigWit]

Hello again

I thought that since I have recently joined regulars here might appreciate a brief introduction before I attempt to make any serious contributions.

I am not an oil expert or even a long experienced investor. I am a design engineer by training and I have worked in my own design and marketing businesses for most of my 30-year career during which I have experienced cycles of success and struggle. I have consulted with hundreds of other businesses of many kinds and most sizes. I like to think that this has left me with more than an average amount of acumen.

I am a published writer in my field and have also worked as an undercover TV news journalist (for BBC 1) and travelled. I live in Kent, UK but some winters, when life has been kind, I am able to transport myself to a holiday apartment I own in Queensland.

I am not retired and plan to work a few more years.

I invested in Hurricane Energy about a year ago and it has become the largest constituent of my portfolio. It is my only oil and gas interest. The rest of my investments are spread. During the last year I have taken pains to inform myself so far as my technical abilities permit and I met and spoke personally about the project with Rob Trice and Alistair Stobie at the AGM. I also had some very pleasant and helpful discussions with Richard Bernstein and Crystal Amber fund’s consultant geologist David Craik. I like to think these efforts have given me some valuable insights into Hurricane Energy.

I am disappointed about recent share price performance but have taken a long view because I believe in the quality and size of the assets and in the management’s ability to exploit them. However, I do not share the common Panglossian view that this is a dead-cert investment. I can see that most small oil companies fail to deliver and we have already seen some salutary shortcomings this year in the failed DST and warrants mess-up, which has yet to be properly explained. I am pleased that, so far, the EPS seems to be on schedule.

I do not want to wade in to ongoing discussions or tread on any toes. I realise that on this board, more than others I have read and participated in, that there are many deeply experienced contributors who are generous with their time so I expect that, at least for a while, I shall take more than I give. If I do upset anyone it will be through ineptitude or clumsiness and not intention so I apologise in advance.

I am not one for ad-hominin remarks and do not think much of those who are. One of the main reasons I am here is because, whilst I see that this forum is not immune from occasional minor disgruntlements, they are far more gentle than everywhere else.

I will do my best to make a positive, polite but occasional contributions and I hope I’ll be made welcome.

No one should be interested in me personally but if, on the off chance, you think there is anything I may be able to answer about Hurricane Energy, no matter how small, then please feel free to ask.

[petroleum1]

dspp

Truth will not come from the drillbit, but from perhaps 3-4 years of oil production, without a rapidly rising water/gas cut.

As the well flowed about 10,000 b/d you can go now and install FPSO and produce the well right now. At $50 oil price a daily income of about $500,000 per day. This should cover the daily cost of FPSO of say $100,000 per day. This way you will get HISTORY without which you cannot make full field development plan.

Regards

[Nimrod103]

dspp

Truth will not come from the drillbit, but from perhaps 3-4 years of oil production, without a rapidly rising water/gas cut.

As the well flowed about 10,000 b/d you can go now and install FPSO and produce the well right now. At $50 oil price a daily income of about $500,000 per day. This should cover the daily cost of FPSO of say $100,000 per day. This way you will get HISTORY without which you cannot make full field development plan.

Regards

I suggested this approach quite a while ago on this or another thread. I'm sure it would be a commercial proposition, though I suspect FPSO costs would be higher, and the OPEX is likely to be substantial (but I don't even pretend to be up to date with costs).
The problem is, this operation may drain oil from the fractures, but the question remains as to whether there is oil in the matrix (as the CPR claims), and if it exists can it flow into the fractures and support production. I don't know how that model can be tested, except by continuing production until eventually the water/gas cut rises to untreatable levels. The risk is that having successfully produced dry oil with the EPS for a year or two, they commit to a full field development, and then the water/gas cut starts to rise steeply. Plenty of other fractured fields have behaved in that way. Onshore it is not so much of a problem rightsizing the development, but WoS?

[dspp]

dspp

Truth will not come from the drillbit, but from perhaps 3-4 years of oil production, without a rapidly rising water/gas cut.

As the well flowed about 10,000 b/d you can go now and install FPSO and produce the well right now. At $50 oil price a daily income of about $500,000 per day. This should cover the daily cost of FPSO of say $100,000 per day. This way you will get HISTORY without which you cannot make full field development plan.

Regards

To be fair you are describing the two-well EPS for Lancaster that HUR currently have in build/conversion. Earliest first oil is late 2018, latest mid-2019 according to plan. The two wells are drilled. So there is 12-18 months of waiting during which the only other serious milestone in the plan seems to be the CPRs due by end 2017.

regards, dspp

[NigWit]

What you may notice about the Q4 presentation most is that the the timeline has changed since the previous iteration. In the Q3 version the timeline was given as a gantt chart on page 6 and clearly showed potential farm out discussions ending Q1 2018 being followed by potential appraisal drilling next year. Now the project timeline has moved to page 5 and is set out in discrete boxes none of which refer to potential farm out for appraisal (as opposed to farm out of the FFD, which is clearly mentioned)

I was confused by this so I wrote to Vigo Comms, The Company's PR agents, yesterday for clarification and here is their very interesting and carefully-worded reply.

''Thank you for your email regarding Hurricane and for your interest in the corporate presentation on the company£s website. The presentation is being updated regularly and the style and content will continue to evolve as Hurricane progresses towards first oil on Lancaster.

With regards to farm-out discussions, the completion of the recent fundraising has allowed Hurricane to continue discussions with potential partners from a stronger negotiating position. As you know, Hurricane is fully funded for the EPS phase of development and does not need a partner (although it could bring benefits, including the potential to accelerate the appraisal of the company£s other Rona Ridge assets). A farm-out will only be pursued if the company believes the terms offered deliver suitable value to shareholders.''

-------

The rig contract is also not completely described (nor would I expect that). On reference to the Transocean website it is clear that the rig has been booked for work at Lancaster during summer 2018 but also with options for drilling in H1 2019, which I can only imagine is in anticipation that a JV will emerge to support further appraisal drilling unless the company is confident that FOIL will be early and therefore the appraisal can be funded internally.)

[dspp]

What you may notice about the Q4 presentation most is that the the timeline has changed since the previous iteration. In the Q3 version the timeline was given as a gantt chart on page 6 and clearly showed potential farm out discussions ending Q1 2018 being followed by potential appraisal drilling next year. Now the project timeline has moved to page 5 and is set out in discrete boxes none of which refer to potential farm out for appraisal (as opposed to farm out of the FFD, which is clearly mentioned)

I was confused by this so I wrote to Vigo Comms, The Company's PR agents, yesterday for clarification and here is their very interesting and carefully-worded reply.

''Thank you for your email regarding Hurricane and for your interest in the corporate presentation on the company£s website. The presentation is being updated regularly and the style and content will continue to evolve as Hurricane progresses towards first oil on Lancaster.

With regards to farm-out discussions, the completion of the recent fundraising has allowed Hurricane to continue discussions with potential partners from a stronger negotiating position. As you know, Hurricane is fully funded for the EPS phase of development and does not need a partner (although it could bring benefits, including the potential to accelerate the appraisal of the company£s other Rona Ridge assets). A farm-out will only be pursued if the company believes the terms offered deliver suitable value to shareholders.''

-------

The rig contract is also not completely described (nor would I expect that). On reference to the Transocean website it is clear that the rig has been booked for work at Lancaster during summer 2018 but also with options for drilling in H1 2019, which I can only imagine is in anticipation that a JV will emerge to support further appraisal drilling unless the company is confident that FOIL will be early and therefore the appraisal can be funded internally.)

Thank you NigWit. The things you have detected, and their reply is much as I expected when I saw the presentation had evolved, and is pretty much what I set out in my post(s) a couple of weeks ago. As well as the actual position having evolved (they can play harder for longer), it is nevertheless clear that they know they have to present/communicate differently over the next few years.

The options the rig gives are very helpful. But either the EPS needs to be spitting out cash, or the cash must be found elsewhere, before they can be taken up. I expect them to be taken up .....

Slides 9 and 14 give good insights into the possibility that GWA might be bigger than GLA. The ridge gets awfully steep & narrow heading north. I would like to have some good bulk rock volume info on the various lumps, but can't quite rouse myself to pull out the squared paper and cross sections yet. I ask myself what difference would my own bad estimates make to my own decision making at this stage, and conclude "likely none". By the time it would make a difference I expect better quality info to be available to us all.

Slide 13's map suggests to me that they need to be able to tie-back 10km if they are to flow appraisal wells in Lincoln and/or Warwick back to the EPS centre. To put that in context the EPS flowlines are 2km. Ho hum.

regards, dspp

[NigWit]

You’re most welcome dspp. Someone posted a link to a 2014 iteration on another board today, which I found reassuring since everything claimed three years ago has played out.

I’ve thought about tracing the contour maps in Autocad to produce scale 3 models of the fields. These would give me accurate volume data for the ridges but there are so many other variables to reconcile before one can deduce how much recoverable oil is implied so, like you, I came to the conclusion that the Company is best placed to advise and it’s risky to try and get ahead of them on the technical data.

Anyhow, I’ll post again if I come across anything else I think might help. Meanwhile, it’s nice to make contact.

[NigWit]

A small addendum to my previous post. Vigo have today confirmed in a further reply to me that the data room is open and farm out discussions remain ongoing.

[dspp]

RNS today https://otp.tools.investis.com/clients/ ... sid=948622

Hurricane Energy plc, the UK based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, provides an update on plans to explore a change in the Company's listing venue, corporate governance and a directorate change.

Consideration of Premium Listing

Following discussions with shareholders, and in light of the Company's increased institutional shareholder base since the recent US$530 million capital raise, the Company is exploring a number of options, including application for admission of its ordinary shares to a premium segment of a recognised stock exchange ("Premium Listing"). The Company directors believe that a Premium Listing could provide the Company with a more appropriate platform for its growth, raise the Company's global profile, potentially increase its trading liquidity and provide it with a wider addressable investor universe for its ordinary shares.

Listing and Governance Committee

The Board recognises the increased size and scale of the Company's operations as it moves towards target first oil. Given this, and the Premium Listing considerations mentioned above, the Board considers it timely to review its current organisational and governance structure. Accordingly, a sub-committee of the Board has been established, the Listing and Governance Committee ("LGC"), to evaluate the Company's organisation and governance structure, and provide recommendations for changes that will better suit the ongoing requirements of a company of Hurricane's scale and growth profile.
etc

[NigWit]

I think the move from AIM is expected. It's interesting to consider where it might end up though. The RNS rules in markets other than London.

I think that the phrase "The Board recognises the increased size and scale of the Company's operations" may hint at the new CPR


Of more surprise to me is the sudden movement of Robert Arnott. It must be sudden since there's no immediate replacement but David Jenkins is going to stand in.

At the AGM when asked by an angry shareholder what the board had learned from the warrants Rob Arnott said, and I quote "I won't do it again". I remember the word "I" because it stuck out at the time. In retrospect, since the board had taken collective responsibility, I now wonder if the warrants were his idea and that Alistair Stobie, who I got on fine with, was just the front man who took the brickbats.

[StepOne]

Thanks. For the small investor this RNS = "Business as usual" ?

Not if they decide to list outside the UK. And why did the Chairman leave?

StepOne

[PeterGray]

I think the move from AIM is expected. It's interesting to consider where it might end up though. The RNS rules in markets other than London.

It's slightly odd that they are leaving the site of a premium listing open. I'd be very surprised if they end up elsewhere than London - but maybe they are sensible not to predetermine any decisions?

Peter

[StepOne]

Thanks. For the small investor this RNS = "Business as usual" ?

Not if they decide to list outside the UK. And why did the Chairman leave?

StepOne

Ah..... OK. Outside the UK, why would they do that and what difference would it make to me? The company is still a registered UK company, I think. The chairman though, good question. Perhaps he fell out with Dr Trice?

It does seem unlikely but it's possible, and would open up potential admin and tax issues, depending where they listed. Maybe he resigned because he wasn't comfortable with private investors getting shafted? Hopefully they end up with a main market LSE listing.

StepOne

[StepOne]

. I missed out on the private investor shafting

But I'm talking about a potential shafting to come e.g. Trice "We're going to list in Singapore because it's cheap and low regulation, and provides access to easy money". Chairman "But all our private investors will have to remove the shares from their ISAs, and become liable to capital and income taxes both abroad and in the UK. I resign on a point of principle." Trice "Fair enough. I'll announce a team to look into our options."



StepOne

[NigWit]

My suspicion is that Richard Bernstein’s influence is being applied. His fund remains the biggest individual private investor, he claims to be engaged with management to release share holder value and he is the one who had the most experience of the capital markets. He may be in league with Pelham, the second largest holder. Richard told me that Kerogen know about oil but not about the capital markets. He’ll be activist and pushing hard for changes that will resurrect the share price and his fund. My sense is that if it’s not listed in London it will go to New York. I can’t see the board agreeing to a downgrade to a market with a lesser reputation.

[forsi]

From the Energy Voice

"The chairman of North Sea oil firm Hurricane Energy has quit in a disagreement over the firm’s future direction.

Hurricane announced yesterday Robert Arnott had resigned “with immediate effect”.

Senior independent non-executive director David Jenkins has taken over as interim chairman, while the Surrey-based company’s new listing and governance committee (LGC) hunts for a permanent successor to Mr Arnott.

The departed chairman has spent more than 30 years in the oil and gas industry, and a further 10 in investment banking.

A spokesman for Hurricane said: “It became apparent that there wasn’t an alignment of views between Dr Arnott and the rest of the board on certain aspects of the board’s processes and proposed changes.”"

Any thoughts on what the disagreement might be?

[forsi]

I am taking a deep look at HUR and trying to find some kind of margin of safety for this transition period.

Looking at page 22 of the last presentation.

Can anyone (with the right background) comment on the economics of the project?
Theoretically the project should generate good cash flow, but... is it really true? Which downside risk do you see?
I assume price of oil >$50.

Thank you.

Forsi