Cairn update – Kraken making good progress

Cairn issued a pre-close update this morning and as a partner in Enquest’s flagship Kraken development, provided a little more beef on the bone for investors to chew over.

Enquest should soon issue an update on all their ops including Kraken but for now the below information is about as good as it gets. All going well, on time and more importantly ahead on budget.

As majority owner and operator of Kraken, it certainly bodes well for Enquest.

Enquest is part of thesharehub top ten for 2017.

From Cairn’s RNS this morning…

“Catcher and Kraken developments in the UK North Sea on track for first oil in 2017; peak net targeted production to Cairn of 25,000 boepd.

• Kraken (Cairn 29.5% WI) development progressed well in 2016 finishing the year ahead of budget and on schedule for first oil in Q2 2017.*

• Following mechanical completion, bulk of commissioning activities onboard the Kraken FPSO completed in the Far East. FPSO currently in Rotterdam for inspection and certification.

• Drilling programme made excellent progress in 2016 and drilling continues throughout 2017; results from the producer and injector wells drilled and completed, met or exceeded pre-drill predictions with four producer and five water injectors completed.

• Subsea installation programme completed with all three Drill Centres fully connected to submerged turret production buoy for hook up to FPSO and last mooring pile and wire/chains installed.” END.

 

Hurricane Energy spuds Halifax Well

At last Hurricane has managed to battle through the scottish weather to get Halifax well underway. No small feat, but with the Transocean Spitsbergen Hurricane investors are in safe hands. This really is the rolls royce of Rigs and should be able to cope with the majority of what the north sea can throw at it. That said, Investors should be aware that this is a dangerous period to drill any well and if weather deteriorates further, operations could be paused or delayed. The well is potentially a game changer for Hurricane. To date, discoveries and appraisals have been nothing short of astonishing. Billions of barrels discovered and a high chance that at least 25% to 30% can be recovered. There are several key objectives targeted by this well, which potentially makes it the most important and exciting of all wells drilled to date. First objective is to prove oil extends beyond the Lancaster Licence boundary. Second objective is to prove that the oil flows and determine the grade and pressures. And finally, discover the OWC. If they hit the jackpot on all 3, then the discoveries and licence areas collectively could or should be the largest ever discovery in the North Sea. And that’s not for minnows. That’s the type of resource that requires a super major… like BP.

It’s going to take a decent 20 to 30 days to get first objective sorted and possibly longer if weather continues to challenge as anticipated at this time of year. Possibly another 14 days thereafter to flow test and finally another 10 to 20 days to drill down to OWC although that could take a handful of days if OWC is just below TD. I would expect HUR to update the market as it progresses through the targets but it will be a highly confidential well due to its importance so do not expect too much detail especially as HUR will be discussing farm out options with prospective companies. All above timings are estimates and for guide use only.

Just when you thought it couldn’t get any better or more exciting…

………………………………………………………………………………………………………

16 January 2017
Hurricane Energy plc

Halifax 205/23-A – Well Spud

Hurricane Energy plc, the UK based oil and gas company focused on hydrocarbon resources in naturally fractured basement reservoirs, announces the spudding of well 205/23-A (the “Halifax Well”) on 15 January 2017.

The recently drilled Lancaster Pilot well (205/21a-7) encountered a minimum oil down to (ODT) of 1,620m TVDSS, indicating that the Lancaster oil accumulation is likely to extend beyond the Lancaster licence boundary. The recently awarded P2308 licence (“Halifax”) is contiguous to, and extends north east from, Hurricane’s existing Lancaster licence. The Company believes that if mobile oil can be demonstrated outside of local structural closure by the Halifax Well, then the Lancaster field could extend further north east along the Rona Ridge.

A previous well (205/23-2) drilled on the Halifax structure encountered oil and gas shows in sandstones immediately above the basement. In addition, Hurricane’s analysis of basement cuttings from the 205/23-2 well indicates the presence of oil thus mitigating the oil charge risk to Halifax. Seismic interpretation indicates the presence of a well-defined fault network within the fractured basement of the Halifax Prospect, analogous to that seen in Lancaster.

The Company plans to drill the Halifax Well below local structural closure and will then perform an open hole drill stem test (“DST”). In the event of a successful DST, it is envisaged that the well will be deepened to investigate the oil water contact.

Dr Robert Trice, Chief Executive of Hurricane, said:

“This has already been a hugely successful drilling campaign for Hurricane and the Halifax Well marks an exciting opportunity with which to close it. The prospect is also a logical conclusion to the drilling programme as, following the success of the Lancaster Pilot Well, we believe that the oil column extends beyond the Lancaster block boundary and potentially up to the Halifax Prospect.

We look forward to updating the market with initial well results towards the end of Q1 2017.”

ShareHub Hotlist 2017 Results – Week 2

I said last week that I thought it was going to be a good competitive year amongst the ShareHub hotlist and selected top newspaper tips. The Daily Mail top ‘9’ picks is kicking some ‘derrieres’. 14.2% up in just 10 days trading. The bulk of the advances can be attributed to one stock but with two names. It started the year as Aurum Mining only then to transform itself in days into Shearwater Group. Of course this was in the planning and the Daily Mail picks will have known this. Shearwater say they are now looking to move into cyber security investments. It’s quite a leap away from mining but after a 4p placing some weeks ago, the stock is now testing 9p+. The first multibagger of 2017 top picks looks like going to the Shearwater Group and the Daily Mail picks. Well done to them. The game is afoot!

After some strong gains in the first week of trading albeit reduced to 3 days, the sharehub continued it’s strong end to 2016 and notched up a decent 7.5% gain. But what of week 2?

Week 2 was always (and historically rarely fails) going to see a little pullback due to normal market conditions resuming after the seasonal break. Doubts still remain over the impact of OPEC cuts or for that matter the adherence to pre agreed totals. It will take a couple more weeks before these numbers begin to reveal themselves. The Saudi’s appear to have reduced by more than their quota and the Iraqi’s/Kurds continue to flirt with ambiguities and finger pointing while stupidly producing at record levels. Do they understand the meaning of honesty? Libya are still fumbling around to get quotas back up to normal levels and threats of flooding the market have failed to appear… yet. The future of PoO looks destined for higher prices as the rebalance gets ever closer hastened by OPEC action. The market (and many of the hedge fund gamblers) still seem convinced that the rebalance will not happen anytime soon. It’s that kind of pessimism that has cost them billions. Some left in ruins and ego’s/credentials in tatters. What’s worse, is that the money lost is not their own but their clients. With the Saudi’s firmly behind an oil price recovery, PoO does not look like it wants to go sub $49 again. Equally it is too early to price the black gold into the mid $60’s. So instead until firmer data comes in to placate the doubters, it looks set for a range of $50pb to $60pb. When (and it is not IF) data does firm up the rebalance story, the range should move to $55pb to $65pb. Of course OPEC can only manage ‘supply’ and the all important ‘demand’ catalyst rests firmly with India and China. The latter should be closely watched in 2017 as growth numbers are important for the markets worldwide.

Onto the hotlist results… week 2 below:

The Sharehub finished up 8.63% which was a decent 0.9% increase on week 1. And as said earlier, week 2 is historically weak. Which makes the Daily Mail 14.2% rise to date, all that more impressive. Hats off to them. The game is very much on.

Sharehub stock performance review:
A strong performance from Premier Oil and Enquest continues as the market begins to price back in some of the hefty discounts applied in 2016 due to debt fears and lower PoO. Enquest’s Armada Kraken vessel arrived in Rotterdam which is a milestone in itself after months of construction in South Asia. The company looks on track to get first oil from kraken in H1 as forecast. This should see the company producing 50kboepd+ which is a huge number when taking into consideration the low opex costs. With debt discussion resolved late last year, Enquest looks set for a very strong 2017 and is thesharehub’s star pick thus far. Following close behind is Hummingbird Resources. The gold miner is still some 10 months off delivering first gold pour and revs and it is understandable that the market is slow to price full production into the sp right now, but I would expect this one to tick up to multibagger status (36.5p) as key stages of development get passed and finalised. Faroe Petroleum announced a high impact exploration well spud last week and looks in fine shape for a great 2017 based on the newly acquired DONG assets. For a company with $125mln+ in cash and zero debt with 18kboepd in production, one has to scratch the head a bit at the £370mil market cap. It should be £470mil minimum against peers in my opinion. DELEK (investment company division) recently bought up DANA’s 13%+ stake at 89p and like their 19% buy of Ithaca Energy at 53p, will no doubt be seeking a multibagger from Faroe too. Finally, QUADRISE (QFI) is expected to reveal the long awaited LONO data around March to April period. It could come sooner. Like Hummingbird Resources, stocks like this can only languish for so long before interested investors arrive. I would expect QFI to tick up quite quickly in coming weeks as the LONO news is within 12 to 14 weeks away. That time will fly. It too could multibag (21.75p is first multibagger target) before Q1 is complete.

As always, nothing is a guaranteed so read the risk caveats and never invest more than you can afford to lose. Seek advice from an FCA regulated advisor if in any doubts.

Upcoming news event: OPEC Monthly Oil Report – Jan 18th 2017

One to watch for mid next week – This is forward looking so may have some more bullish words from the Saudi’s than usual as they are mighty keen to see PoO back into the $60’s.

Monthly Oil Market Report

The OPEC Monthly Oil Market Report covers major issues affecting the world oil market and provides an outlook for crude oil market developments for the coming year. The report provides a detailed analysis of key developments impacting oil market trends in world oil demand, supply as well as the oil market balance.

http://www.opec.org/opec_web/en/publications/338.htm

Ithaca Energy – More delays at Stella

There’s not too much more that I can add to the earlier update this morning. The update was a mixed bag of good and not so good news. Firstly, Stella first oil is still being held up by electrical works. Why these issues were not sorted months ago is anyone’s guess. Investors could be forgiven for taking managements FEB first oil date with a pinch of salt. IAE’s top brass seem to have made more wrong calls than right of late. That could have as much to do with their Petrofac partners as it does IAE but nonetheless, delays it is and investors are growing tired. Production guidance of 22kboepd to 25kboepd was given in 2016 on the basis of Stella coming online in October as planned. Guidance has now been revised to 19kboepd to 22kboepd. This reflects a natural depletion in some non core production and does not effect the expectations for Stella. Last of all… debt. This was $598m in September and 3 months later, still stands at $598m. It’s pretty clear that to reduce this debt the company are going to need all the net interest volume at Stella and the sooner the better with debt repayment deadlines beginning to loom in the rear mirror.

Now, on to the good news stuff… production for 2016 was ahead of expectations by 300boepd. Plans on harrier (GSA) look very interesting and the company plans to move this forward with a view for first oil in H2 2018. Costs have been sliced by over 50% which is impressive and will help the business going forwards. Overall spend for 2017 is set at around $70m.

Assuming the company gains around $55pb on average for 19kboepd (bottom end of estimate), rev should be around $381m, less opex of circa $173m, less Capex of $75m = Cash into business of around $131m. Forecast debt total at end of 2017 should be around $470m.

The first amortisation step for the RBLs is this month (January 2017) which will see the RBL facility drop. $300m of senior unsecured notes are not due for repayment until mid 2019.

The sooner Stella starts producing the better!

Premier Oil edge closer to debt deal

Today’s ops and trading update was never going to offer a comprehensive guide and conclusion to the debt negotiations. Placing that aside for the moment, the broader business is performing well although Solan continues to cast a dark cloud over management and the business as a whole. It was and still is a huge project with costs in the billions. And thus far all they have to show for it is 12k to 13kboepd. It’s a shocker and unsurprisingly the company has come clean at last and admitted that a solution on Solan now looks unlikely. Certainly in 2017. News on Tolmount is a surprise and perhaps shows that PMO are looking to remain focused on the North Sea and leaving the higher risk developments at Sealion alone for time being. My hunch here is that they have no interest in developing Sealion and will instead seek a buyer or considerable farm down.

Debt talks look close to a conclusion now with possible signatures being pen’d at end of Jan. It’s unclear when the deal will be officially sanctioned and may require several more weeks if courts and legals are involved.

I mentioned a while ago that I thought the best way to incentivise debt holders would be to offer some kind of sweetener in the form of Warrants. Obviously this is in addition to the reneg debt terms. Nothing has been agreed as yet, but one would hope that any Warrants issued on equity will be minor and in the sub 5% of shares issued range. But much depends on the new debt deal. Any warrant deal is likely to be based on VWAP (3 months) which may see debt holders gain an exercise price near 70p levels.

The company have been cautiously wise to secure 33% of 2017 production at around $51pb as Saudi’s / OPEC can be unpredictable. It still leaves around 50kboepd of production open to PoO increases and Catcher volumes to come in H2.

But does make PMO 33% behind on any price value above $51pb ish.

In summary, the Solan disaster takes the shine off the upcoming Catcher volumes. The business was looking like doing 100kboepd at one point but that now looks unlikely.

Conclusion to debt talks, warrant pricing and amount of warrants are now a key concern for investors followed by the inevitable reneg of debt interest and possible unsecured terms. All in all, still plenty to be finalised and it could get choppy for the share price over the coming days and weeks as hedges and arbitrage trades are put in place. But once all sorted and done, PMO should progress back into the £1 levels and leave the penny status behind. PoO and general market will need to remain solid of course.