Ukraine as an investment destination still being hit by Cadogan and Regal scandals hence why no major institutions are backing investment out there just yet.
The recovery in London market appears very slow. Regal had to sell half the company to an Oligarch to keep hold of the leases. Cadogan managed to blame their previous board of directors for their inability to meet obligations. Neither firm has ever recovered, even after positive news such as farm-ins by majors nor reinstatement to production lists.
JKX is the big listed producer and they are facing declining production rates and failure to achieve similar well results. For the last 3 years they have stated they will push production to 20,000 bbl/d and have failed to meet the target by about 5,000 bbls. Again this year the target is 20,000 bbl/d.
HOG is plagued by this and no matter what people say about sovereign risk discount being small, they are kidding themselves. These scandals hit hard over the last two years, so they are fresh in everyone?s minds. People lost huge money on both Cadogan and Regals fall from grace, due to expropriation of assets.
The other issue is that HOG may not be able to replicate well #201 results. The Upper Visean sandstones generally have a permeability of between 5-15 mD. Previous wells in the B-18b experienced similar measures of permeability after logging. The current well has a permeability of 73.1 mD. The company claim this is the result of superior drilling and completions technique. I have always hinted at the fact this may actually just be higher perm, given there is naturally occurring fractures. It is these fracture networks that firms target for drilling to gain superior flow rates. HOG initiated an extensive mapping of the Chernetska fracture network prior to listing. Its important to realise that anyone who knows anything knows HOG may not actually be able to claim flow rates of 10-12 mmcf/d. If anything expectations should be lowered to the average rates experienced in Ukraine from these reservoirs which is closer to 4-5 mmcf/d.
Those who have invested in Regal know the difficulties Regal experienced trying to increase flow rates. Stuck on 2,300 bbl/d, Regal embarked on a massive drill campaign and the majority of the wells flowed between 40-100 bbl/d while a few flowed at 700 boe/d from the same formations. This highlights the necessity to strike these fractured zones which have higher productivity, due to the formation being less tight. I should note that even after using hydraulic fracturing many wells still underperformed.
HOG may have cash-flow but their project is far from being de-risked. If you go abck to when I use to post on HOG, you will know I have always stated HOGs second well at Sorochynska will be its most important for 2 reasons (1) to test if B-18b results can actually be replicated and (2) if there is commercial potential from the deeper reservoirs.
HOG still have a long way to go. I have watched this slide from $0.56 after entering at $0.145 and am happy to hold until the second Sorochynska well. That is the well that will determine whether or not this company is set to do big things.
People who bag the company have every right, I mean right now we are not even getting weekly update on drilling operations under ASX continuous disclosure obligations. New MD needs to wake up. HOG need an agressive drill program to proved they are sitting on hot acreage.
Its no use being a Regal Petroleum 2.0 with 900 Bcf reserves and your unable to produce gas from the reservoirs economically.
HOG Price at posting:
29.0¢ Sentiment: Hold Disclosure: Held
