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Hurricane Energy (HUR)

nigelpm
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Re: Hurricane Energy (HUR)

#310959

Postby nigelpm » May 22nd, 2020, 11:44 am

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
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Re: Hurricane Energy (HUR)

#310961

Postby dealtn » May 22nd, 2020, 11:47 am

nigelpm wrote: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.

ReallyVeryFoolish
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Re: Hurricane Energy (HUR)

#310966

Postby ReallyVeryFoolish » May 22nd, 2020, 11:53 am

nigelpm wrote: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.

I fear (much too late for me) that you are correct.

RVF

nigelpm
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Re: Hurricane Energy (HUR)

#310984

Postby nigelpm » May 22nd, 2020, 12:29 pm

dealtn wrote:
nigelpm wrote: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.


You what? The equity is the business.

dealtn
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Re: Hurricane Energy (HUR)

#310986

Postby dealtn » May 22nd, 2020, 12:42 pm

nigelpm wrote:
dealtn wrote:
nigelpm wrote: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.


You what? The equity is the business.


No the equity is the equity. Market Cap alone isn't the value of the business. In this case there is also a convertible loan, but there can be many different claims on the business that together sum to it's Enterprise Value.

nigelpm
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Re: Hurricane Energy (HUR)

#310992

Postby nigelpm » May 22nd, 2020, 12:53 pm

I think there's some confusion around terms and suspect we are in agreement so probably worth setting them out.

The simple value of a business as assigned by the number of shares in issue x by the market price = the market capitalisation of the business.

Which is what the market is saying Hurricane is worth. A simple measure but also an important one since if you could get every shareholder to agree to sell at the prevailing market price that is what a third party would pay for the business excluding debt repayment and cash etc...

Enterprise value is a different metric and a fair one to use but it's not giving a direct value of the equity since as you say it's considering the debtand cash as well which may well be a useful one to determine what its value is if all the debt needed to be repaid.

So probably fair to use both but you would also need to include cash and other short term cash like assets in the calculation.

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Re: Hurricane Energy (HUR)

#310995

Postby dealtn » May 22nd, 2020, 12:58 pm

nigelpm wrote:I think there's some confusion around terms and suspect we are in agreement so probably worth setting them out.

The simple value of a business as assigned by the number of shares in issue x by the market price = the market capitalisation of the business.

Which is what the market is saying Hurricane is worth. A simple measure but also an important one since if you could get every shareholder to agree to sell at the prevailing market price that is what a third party would pay for the business excluding debt repayment and cash etc...

Enterprise value is a different metric and a fair one to use but it's not giving a direct value of the equity since as you say it's considering the debtand cash as well which may well be a useful one to determine what its value is if all the debt needed to be repaid.

So probably fair to use both but you would also need to include cash and other short term cash like assets in the calculation.


Call it confusion if you like. But if the "business" was worth £150mio, say, and that was the price an acquirer was able to buy all the net assets for, then the equity would be worthless (and the bondholders would take a haircut too).

There is some difference between the value of the business of £150mio (that which a buyer would be paying) and the value of the equity £0.

nigelpm
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Re: Hurricane Energy (HUR)

#310999

Postby nigelpm » May 22nd, 2020, 1:01 pm

That then depends on how you then value future cashflows etc...

Probably done this to death now though.

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Re: Hurricane Energy (HUR)

#311008

Postby dealtn » May 22nd, 2020, 1:16 pm

nigelpm wrote:That then depends on how you then value future cashflows etc...

Probably done this to death now though.


We both go in to a car dealership and buy identical cars at a price of £35k.

I pay cash. You pay £13.2k and negotiate a £21.8k loan.

The cars are both valued at £35k, which is what they are worth.

Now replace "car" with "business" and multiply the numbers by 10,000. You (appear) to be saying the "business" is worth £132mio, when to the "car salesman", and me it is worth £350mio (or £35k).

The financial structure, and the value of any of the components "attributable", are independent to the worth of the business.

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Re: Hurricane Energy (HUR)

#311053

Postby nigelpm » May 22nd, 2020, 2:24 pm

Yes - we are in agreement!

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Re: Hurricane Energy (HUR)

#311160

Postby MrContrarian » May 22nd, 2020, 6:14 pm

Some broker comment at https://ftalphaville.ft.com/2020/05/22/ ... -May-2020/ including:

"In this 12kboe/d scenario we do not believe Hurricane would be free cash flow positive at $35/bbl." - Barclays.

"We believe that management’s immediate obligations are to assess the impact of switching on the installed ESPs and, depending upon the results, recompleting 7Z so that it produces from a larger, more distant, portion of the wellbore. A recompletion might also enable Hurricane to address the well’s water-production issues.
Timing: Even working within the constraints of Covid-19, the ESPs could be commissioned relatively quickly; indeed, a well recompletion could probably be undertaken in H2/20. We believe that these options need to be exhausted before we revise our outlook for the business and investment case." - RBC

and

"We believe today’s announcement of suspending the production guidance will not be well received by the market." -Morgan Stanley. No manure Sherlock.

MrC

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Re: Hurricane Energy (HUR)

#311192

Postby Tinderboy » May 22nd, 2020, 7:20 pm

The HUR dream is all but lost, the last chance saloon is the board getting someone onboard who will negotiate from a tentative position to something positive, unfortunately there aren't many folk around who can convince folk to invest on a gamble.
A lot of people have lost a lot of cash investing in HUR, ordinary folk, people hoping to enter retirement in good place, its a risk of course as we all know.
Yet even today there are imbeciles on other lower echelon BB's still touting a falling knife, they should be ashamed of themselves.....

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Re: Hurricane Energy (HUR)

#311626

Postby FabianBjornseth » May 23rd, 2020, 10:03 pm

An interesting post from Alexander Stahel of Burggraben Holding:

https://twitter.com/BurggrabenH/status/1263965750861221889/

On @hurricomms - Always do your own homework. We did in Q4 2017 & gave it a pass after negative geological DD. Below, we share some findings back then for the first time in public (although we warned others on this channel about the risks)... Today, CEO Trice said the following on HUR’s fractured basement: “The results of the recent tests are “disappointing,” The degree of “interference” between the two wells requires further study before Hurricane can determine long-term production rates.


This is not a hater gloating as HUR struggles, but simply shows how other parties looked at the same data long before the EPS was in place, and drew very different conclusions. Conclusions that now appear justified, as the data to date suggest that the EPS may produce less than even Hurricane's low case estimate. A commissioned CPR may have less value as a second opinion than one would like.

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Re: Hurricane Energy (HUR)

#311647

Postby ReallyVeryFoolish » May 24th, 2020, 1:51 am

FabianBjornseth wrote:An interesting post from Alexander Stahel of Burggraben Holding:

https://twitter.com/BurggrabenH/status/1263965750861221889/

On @hurricomms - Always do your own homework. We did in Q4 2017 & gave it a pass after negative geological DD. Below, we share some findings back then for the first time in public (although we warned others on this channel about the risks)... Today, CEO Trice said the following on HUR’s fractured basement: “The results of the recent tests are “disappointing,” The degree of “interference” between the two wells requires further study before Hurricane can determine long-term production rates.


This is not a hater gloating as HUR struggles, but simply shows how other parties looked at the same data long before the EPS was in place, and drew very different conclusions. Conclusions that now appear justified, as the data to date suggest that the EPS may produce less than even Hurricane's low case estimate. A commissioned CPR may have less value as a second opinion than one would like.

Put simply then - It boils down to, who do you believe? There's a 50/50 chance of right v wrong. In this case, it seems the trust placed in a (formerly?) highly reputable industry specialist and world authority on fractured basement resource exploitation is largely wrong. And may even be guilty of being rather economical with the truth. What do we do? For me, it's a salutory lesson in no matter how good the story is, if it's a small company reliant mostly on one man, drilling a few holes in the ground with someone else's money and it's traded on AIM - Then avoid at all costs. Run a mile.

RVF

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Re: Hurricane Energy (HUR)

#311655

Postby Dod101 » May 24th, 2020, 7:36 am

ReallyVeryFoolish wrote: For me, it's a salutory lesson in no matter how good the story is, if it's a small company reliant mostly on one man, drilling a few holes in the ground with someone else's money and it's traded on AIM - Then avoid at all costs. Run a mile.


Never in a million miles would I ever be anywhere near this sort of share but it has taken a while to get to that eternal truth.

Dod

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Re: Hurricane Energy (HUR)

#312343

Postby dspp » May 26th, 2020, 2:32 pm

Over the course of the last 12-months the HUR share price has reduced from 60p to 6p following bad drilling results in Lincoln/Warwick, Kerogen selling a load at 46p in July 2019, and water influx into Lancaster. My understanding is that the convertibles are now trading at 75%.

On each occasion I have looked at the results and taken the view that the post-news share price continued to represent a fair risk/reward balance. So that with the benefit of advance warning of the news I would have sold, but that following the news and the price reductions it remained appropriate to hold. On each occasion I have felt that the remaining value represented a reasonable bet for that part of my portfolio allocated for high risk.

These are very large geological structures, which clearly have some good quality mobile oil in them. Depending on exactly how much there is, and what fraction of it could be produced, then the potential reserves upside is very large indeed. Provided of course it is accessed in a reasonable timescale. That is why the success case reward justifies the risk that is inherent in fields of this nature.

I personally have had technical concerns that differed from the company’s view, most especially with the water, but also about other aspects such as distribution of fracture volumes. These greatly affect the probability and size of the success case vs the failure case. Nonetheless I also appreciate that the company has full visibility of detailed information, and so have always given them the benefit of the doubt. That is part of why I have not traded out, as I felt that the company is being very clear and so must have very firm evidence. Nevertheless I have taken the time over the years to set out my developing concerns so that I understand the risk that I am taking, and en passant anyone reading my posts would have seen that.

I ordinarily prefer to think the best of people. So although I have long also had my own concerns about the way in which the company releases information I have not previously taken that aspect into account when forming a risk/reward view. Some typical information patterns have worried me. The first is where they have repeatedly been silent about the contents of information sets which are relevant and material, and/or competing hypotheses. The second is where they have released information only to follow up very soon after with contradictory information. Examples of the former are that they still have not put out the temperature signatures in the Lancaster wells, the Lancaster wells’ horizontal profiles & related geology, or the bond default terms, or the analyses that the company suggests would refute coning upwards through faults from a compartment base aquifer OWC, or the updated Lancaster well PIs. Examples of the latter are the 7z flow instability information that was released last Friday, only days after the company sanctioned release of the post-CMD company-sponsored Edison broker report. A third pattern is their reluctance to put company people into an environment where they can be tested by proper questioning, instead they prefer to control both the timing and the content of information release, and sometimes the audience is pretty tame and market release is not uniform (in this day and age, not releasing live Q&A is unacceptable).

As I say I have not taken these informational concerns into account until now. If I were to have done so, then that would have been me saying to myself that I do not trust the HUR senior management team. And if I do not trust them, then why be invested at all. Yet I also have known that explorationists, especially ones who are not afraid to challenge orthodoxy, can become target-fixated and not take a balanced view of the merits of alternative hypotheses and risks. It has been a concern of mine that this is going on inside HUR, and that effective peer review and governance is lacking at the top. Yes, they may now superficially tick the LSE main market governance boxes, but they certainly don’t demonstrate it when it comes to the core matter : is the reservoir hypothesis correct or incorrect and are we dealing fairly with all our shareholders regarding the evolving informational story ? It is being very satisfactorily demonstrated at the more mundane operational level, but not in some other key respects.

Over the weekend I came to the view that I could no longer trust the company as much as I need to. I have now seen too many RNS’s that have clearly had the red pen wielded to chop out the more unwelcome bits. I have now seen too many presentations that are missing key slides, or reports missing key pages or consideration of alternative hypotheses. And quite clearly the CFO felt the same way, and was no longer prepared to be the fall boy, hence leaving 27 Feb 2020 when the share price was 14p. He, like most of us, could see that finding funds to repay the convertible bonds was going to be a very difficult thing to do. Perhaps he had seen the red pen take too much of a 90/10 rose-tinted view, and too little of a 50/50 view, for the information to be trusted and he no longer wanted to be the fallboy.

Therefore I sold out of HUR this morning at 7p. For me it is a loss, but it was my high risk pot, and it largely arose as a result of making good calls on some other oil shares a few years ago, and is eased by another high risk call going well. I had been on the verge of selling last week at 12p but reviewed the Edison report which I felt was somewhat optimistic, but within a believable range, and so concluded that the risk/reward balance was still acceptable. I rather suspect Edison now feel somewhat burned – but in their case the fee will ease things – indeed there are some caveats in the Edison report (and other broker reports) that indicate they are protecting themselves. For me I will watch with interest but from the sidelines for the time being – it is a fascinating play technically, and there will be lots of interesting technical stuff. I wish everybody who is a long term holder and who is going to remain so the best of luck.

My personal learning points are 1) although I don’t like trading, sometimes I need to do it, so best get better at it; 2) I must factor management quality in more than I have done in the past, especially if there are cultural and/or messianic worries; 3) never be afraid to take profits. Given that my other big high risk share is TSLA that is quite a tough challenge, however 4) I’m up 3x over there, and 5) it is a sufficiently large and distributed business that it cannot control the message so as to manage away or suppress key information.

Good luck all, regards, dspp


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