Dear All, sorry I am late with this but great info is worth waiting for in my opinion. As you know I was at the Presentation in London with my friend Aberdeenman, please see HIS summary on the event and the get together with PB/DW/SS, Great guys and was great to share a few beers, Please take the time to read this through, it is a very honest and informative piece (Mr Selfridge)
==================================================================================================
Ok all, here goes, but first of all some info.
There were many conversations that went on, I have not discussed by email with anyone since the day, so they may have a different perspective on what was said, or they may have heard things I did not and vice versa.
What I am writing is what I heard, and the context I attached to it, again others may have had their own interpretation.
Nothing here is what I would call price sensitive, some is actually verbalised in the presentation, which will be online soon.
Some joker mentioned yesterday about the dichotomy about enough money till the end of the year but possibly a small fund raising in June, they showed a startling lack of imagination, I can only assume they don’t know much about investing or oil companies, I will deal with it a bit further on.
If anyone (who was there) disagrees with what I am saying, please contact me and we can discuss and come to a consensus.
If you were not there and disagree:
If you are a troll, tough, I will not even enter a dialogue with you. You can try email DW.
If not, contact me or DW and we can get clarification.
Ok, so to begin…
They already have offers on the table. But no way are they going to take them as yet, the phrase was, "why cash out now", not enough value.
DW is obviously invested, he has made money before, but had some dusters after that, this is the big one for him, his future is tied up in 88e.
In terms of JV/Farm out/Strategic investment, I said it was a very interesting and specific way of saying it “Strategic Investment/Farm Out”, I asked is this likely to be one or multiple events, answer was multiple.
There was much talk around this, and the pro’s and cons. If a major was to come in at this juncture they would want 51% now with an option on the table for up to 70% depending on the results of the next stage of wells.
There was some specific mention of the Chinese, but not fully in context, just thrown in as DW does, specifically he mentioned CNOC.
It seemed it would be DW’s preference to get Ice 2H out of the way (flowing) before having to give up too much, in this his interests are aligned with ours (more on that later). Bear in mind again, he said, they could easily get a major on board at the moment but the value is not right.
DW mentioned there is a lot of talk in Alaska and lobbying for them to use their reserve funds to continue the funding for exploration (rebates) at a higher level than the 35%, they have massive funds, a wealth fund, and could do this.
Now my take on what is happening, having given some thought to this, is that there are a lot of balls in the air at the moment, they could get a JV at any time, but they want better terms and are sure of what they have, the Alaskans may be able to fund the next stage to a large extent through rebates, depending on what decisions they make. They could easily obtain a strategic investment, and they can also use a fund raising (with perhaps an offering for PI’s) in conjunction with one of the above.
That is why the fund raising is on the table even though they have enough cash till the end of the year. I do not think they want to commit to anything till they know which way those balls are going to land. Fantastic thing is they have EVERY option open to them, and although they do not want the major JV till after ICE 2 something very positive will land way before then, possibly before June.
In terms of Cash, the GALP payment is not an issue in the short term, he has plenty of options to push that into the long grass.
I was wrong in terms of the long term plan for this company, not going to be around long term, preference would be an exit strategy in 2-3 years, but obviously value will increase greatly along the way. I was right however about potential multiple farm outs.
PB expects to make a billion on this (US), which he will then give away. I am sure you can do the sums yourselves. Some are calculating based on the recoverable amounts given in the IRR times the price above $35, but remember to get this off the ground a major will want 40-50%) (hint, the result is still a massive SP)
A figure of $600 million was mentioned for full field development
The model they have is that this is profitable at the moment (stated ‘breakeven’ in the presentation) there was some talk that this should be profitable at about $35 POO, I can confirm this is the impression I got as well.
Concerning the POO and what they have, the oil will be high forties API and they expect a premium to Brent.
PB is very very interesting, I had high hopes having listened to his presentations and knowing about his past, I was not disappointed. The guy is on a slightly different plane from the rest of us (Paul no offence meant (he reads these boards sometimes, and indeed was looking out for ‘Aberdeenman’, which caused me to chuckle)) He describes himself as ‘off the wall’ I would agree in the nicest possible way, he mentioned he hasn’t known what day of the week it is for several years!
They have started the design for ICE 2, it will be a 3-4 stage frac design to test different frac designs, not sure if that is 3-4 laterals, I will be finding out a lot more about this later.
I asked in the presentation whether they will generate any revenue from ICE 2, as they had said it would be a production well, but they said not really, some , but only as a by product (should be able to be heard in the video)
2D is well underway, it will be processed and delivered to the company later, PB will be the guy interpreting it, and he is also a Geophysicist.
They are expecting several significant conventional targets, but they are not of any real interest, going back to those balls in the air, this could be another avenue for funding ICE2.
Not really interested in exploiting any Gas at this point.
With regards the IRR, it is not really worth the paper it is written on, in terms of the D+M input. He said there was one consultant who wrote each report (one at $40,000 and one at $70,000). They had a meeting with him with PB in the room to discuss the methodology used, and the guy could not even keep up with or understand what PB was trying to tell him (PB on a different plain!). So as suspected, at least by me, PB knew way more about this than the consultant, or maybe anyone, “PB ran rings around him”.
You will hear in the presentation about PB being retired, he has no need to do this, he said this was his ‘Everest’ he wants to do it for himself, but give almost all the money away to help children in DR Congo, who can argue with that.
D+M didn’t properly model the “volatile oil” so don’t get too hung up on that, will be seeking more info on that.
Going back to DW, and how important this is to him, expect some director buying at some point in the not too distant future!!
All in all, this is great, what they are doing is maximising value for the benefit of both themselves and us. They have a lot staked here, and were in town meeting a great many people and companies. I have every confidence in what they are doing, and 100% certain this will come to fruition. They have offers and could get this to the next stage anytime, but are being clever to get the best deal. It is already profitable, and they expect no issue flowing ICE2, but the point of ICE 2 is to get technical info and prove flow to surface. What difference does it make, the short term SP, you either get out or you get in/hold and wait. For my part I think as we are now profitable, and a strategic investment or plan could come at any time, I will remain fully invested. Added to that with the POO potentially (almost certainly IMO) creeping up, we could see the value of 88e also creep up. I am not sure about the possibility of a hostile takeover, I do not think it is on the horizon at present.
One other thing, there was a mention of COP, but not in my hearing.
My overall impression was that these guys were super switched on in their different ways.
For everything I mentioned to DW, he could point out both the pro’s and con’s including some I had not though of. PB, nothing I can add, he just has a different approach to life, and work, if he was not who he is, I doubt he could do the things he has done, and is doing.
All is looking great here, I still have no doubt about my 30p in about 10-18 months, and potentially much much more if you are prepared to wait 18-36 months.
If this dips more I will be sourcing funds to buy more, so short term I don’t really care which way the SP goes, and medium and long term we will be fine IMO.
Oh and lastly, from the presentation (recorded) expected 2.5X the flow rates of Eagle Ford and 3rd best in world.
Aberdeenman
Expand
(20min delay)