Cut from the LSE
Summary notes from Clive0909
On the train back from London so here goes... buzzing with the long term prospects here.
Very impressive event, well done to Tim & Graham. I didn't linger for drinks and canapes as I need to get home. Maybe next time when we're in double figures...
It was hugely useful to have attended this event and I learnt a lot from it. In some ways it's not new information, because obviously that would have to be RNS'd for equality. But really the benefit was in the 'colouring in' or joining the dots between the information that has been RNS'd, or just plain educating of non-oil experts!
It's clear that the RNSs only show the very tip of the iceberg when it comes to technical data, PB reeled off so many different tests and correlations that they've been running that my head began to spin. Essentially it's all maths and physics, that is being cross-referenced against a huge wealth of existing data from other oil plays to try and figure out what we've got.
All of this data is being worked on by a team of experts in Houston and then cross checked and essentially stress tested to see if anyone can break it. Most significant of these tests was done by Ken Peters at Stanford:
https://earth.stanford.edu/kenneth-peters.
Ken was behind Great Bear's choice of acreage to the north of Icewine. It seems as though got it wrong by 25 miles, because the sweet spot for shale is under our acreage, not theirs. So if anyone had an axe to grind about disproving the Icewine play, it would be Ken. But he can't, because the data says we've got one hell of a reservoir. DW 'once in 10-15 year reservoir, the other being Eagle Ford'.
My overriding impression is that I think we're in great hands. There is an obvious chemistry between Dave and Paul. Their experience is fantastic. PB the wacky genius who dares to believe the impossible. DW the business mind who will get us the best bang for our buck. Staley brings the experience of having done it all before (on a smaller scale!) with Cove.
Setting expectations is probably the most important thing any LT investor can do after this event, so here is the first one: DW was at pains to point out that news on the bigger seismic patch was not due in 4 weeks. It would be 4-8 weeks.
What would this tell us? Essentially the 2D gives us leads to follow up on with 3D at a later date. But crucially it will allow a preliminary volumetric assessment of conventional oil potential.
If Great Bear and Otto have success in their January drill for conventional oil (as detailed in their recent presentation), then DW reckons we will see significant benefit to our share price. Conversely, if they have a duster, we'll feel that too, as the value of our 'conventional backstop' will be slashed. Currently I don't think we have any value for our 'conventional backstop' so I'm assuming this will be coming in the 4-8 week window... interesting times.
Talk of an IRR after the 2D RNS was a little muted, there was some follow up questioning about this but it was really around the unconventional, not conventional. That's not to say there won't be a new IRR, but it was left a little vague I felt.
It's worth pointing out that the conventional and unconventional can be thought of as two completely different technical and financial challenges, with different timescales too.
Conventional is on a longer timescale because if we see any juicy 2D leads, we'll need to 3D them, but that wouldn't happen until winter 2018 (Jan - May) and any drills would be done the following year, 2019.
Back to the relatively near term and the unconventional, and Icewine 2. Oh boy, this will be exciting... Spud in March and flow testing until July, so don't get your expectations set solely for March news.
One of the big things DW wanted to clear up was why a vertical well and frac was better now than a horizontal. Going horizontal immediately (as previously expected) was really missing out a stage that would normally be done. Part of the Icewine 1 data was lost or compromised during the drill (contamination I think) so having analysed all the available data they had to make the call that skipping the vertical test and moving straight to horizontal would be too risky - they wouldn't know for certain which horizon or landing zone to aim for, and 'the LZ is absolutely critical for a successful frac' (PB).
However, understand this... Icewine 2 should take us from our current 50% chance of success to nearer 85% assuming it's successful and we prove flow rates of 100-150 barrels, which is what they're publicly stating as their expectations (personally I got the impression that perhaps they were low-balling this so that when news comes, we'll exceed expectations).
Of course if Icewine 2 doesn't flow then we're back down below 50% and watch out as the share price crashes. So it's a "very high risk period of 6-7 months" to quote DW and I respect him for laying it out like that... because we should all be aware of the risk!
If Icewine 2 is successful, then the next step is horizontal wells, and with them immediate production, and revenue. Icewine 2 could be reused for this purpose too.
DW corrected the assumption that 88E will never be a producer. The only question is how the funding of those horizontal wells would be made, wither via a placing or from an arrangement with an oil and gas company. Either way it's dilutive, the former being more shares in issue and the latter being a share of the revenue. DW was very open about this and really it comes down to what's the right approach at the time and the environment we find ourselves in, driven primarily by the price of oil and appetite for investment in oil.
The plan would be to drill in multiple places around Icewine 2 and really start to cream the curve by demonstrating how much value there is to be had from the 271k acres. But with 1,000 drills needed at $15m each, it certainly won't be 88E drilling them! But at that point, ker-ching and we're all very rich indeed...
Hopefully that was useful, it's taken me 40 minutes to type on my phone!
One last thing that was intriguing- as the LTIG now represents 30% of the value of the company and 780 people, we are clearly the largest single investor body. This may give us some leverage in approaching a broker to help fund 88E in the future, rather than a share purchase plan which crashed the share price a year ago due to traders selling out. The benefit of LTIG funding would be 'stickier money' and less volatility in the share price.
Right that's it before I get RSI typing on a phone!!!
(20min delay)