Hurricane Energy (HUR)

[dspp]

AM TANKER UPLIFTS - updated listing, note HUR's oil sales are as of date of lift, not date of offload at a refinery.

#0, 11 May 2019, real first oil into AM FPSO
#00, 4 June 2019 (first oil per RNS, i.e. simultaneous flow from both wells for 72-hours iaw contractual definition)
#1, approx 18 June 2019, 47,389 tons =356,429 bbls @ approx 39 days open-up to lift, so approx 9k bopd (AMUNDSEN SPIRIT), cum = 356,429 bbls
#2, approx 21 July 2019, 56,000 tons = 421,680 bbls @ approx 32 days lift-to-lift, so approx 13k bopd (*5) (PETRO ATLANTIC), cum = 778,109 bbls
#3, approx 17 Aug 2019, 60,595 tons = 456,280 bbls @ approx 28 days lift-to-lift, so approx 16k bopd (*2) (AMUNDSEN SPIRIT), cum = 1,234,389 bbls
#4, approx 16 Sep 2019, 61,753 tons = 465,000 bbls @ approx 31 days lift-to-lift, so approx 15k bopd (*3)( (NAVION OCEANIA), cum = 1,699,389 bbls
#5, approx 13 Oct, 2019, 59,000 tons = 444,270 bbls @ approx 27 days lift-to-lift, so approx 16.5k bopd (*4) (NAVION OCEANIA), cum = 2,143,659 bbls
#6, approx 13 Nov 2019, .............. = 350k bbls @ approx 31 days lift-to-lift, so approx 11.3k bopd (*6) (NAVION OCEANIA), cum = 2.45 mln bbs (assume 350k for lift #7, so lift #6 must have been cum 2.45 mln bbls)
#7, approx 22 Dec 2019, .............. = 350k bbls @ approx 42 days lift-to-lift, so approx 8.3k bopd (*6) (STENA NATALITA), cum = 2.8 mln bbls

*1 : It is 38 API, so for 38 API I get 56,000mt = 421,894 bbls, i.e. 7.53 bbls/mt, see https://en.wikipedia.org/wiki/API_gravity however there are a variety of different conversions being used so there is a discrepancy somewhere.

*2: AIS draft increase from 9.2m unloaded to 11m loaded. Actual draft on Rotterdam departure after unload was fwd 7.20 meters and aft 9.20 (which is the AIS unloaded max draft state), though we do not know how much ballast compensation is in play. Actual load of 60.5kt corresponds to avge draft per londoner7 tanker calcs. However if trim constant then max unloaded to max loaded is a good indication. IF trim constant.

*3 : no good data on lifted volume available so I have assumed 15kbopd x 31d = 465,000 bbls

*4 : using Amaja's report of 58-60,000 tons with some empty tanks on this occasion.

*5 : the original data on this #2 lift yields a conversion factor of 8.124 bbls/mt because various information sources gave both a mt number and a bbl number (initially 56,000 tons = 455,000 bbls), which I noted as a problem (*1). However subsequently some of my other numbers used this erroneous conversion. I have (17/18-10-2019) been alerted to this by divecentre and recalculated them all to be consistent using the 7.53 factor. The recalculation affects #2, and thence #5 in earlier posts. Mea culpa.

*6 using HUR RNS 13 Dec 2019 that stated "Production since 20 September has averaged approximately 12,500 barrels of oil per day. This is below the average rate achieved since start-up due to individual well testing. Total production for the year is expected to be approximately 3.1 million barrels of oil, an average of 13,300 barrels of oil per day from introduction of hydrocarbons on 11 May 2019. Hurricane is targeting a seventh lifting from the Aoka Mizu FPSO on or around 22 December 2019, taking total oil sales for the year to 2.8 million barrels. " to get insight into vols in lift #6 and lift #7.

(as always thanks to Amaja, divecentre, laserdisc, planetgong, londoner7, bountyhunter, etc)

==========
DSPP comment : this #7 lift and the RNS info implies that AM will be sitting with 300k bbls oil in her tanks on 31-Dec-19. The avge production numbers calculated above are always assuming AM pumps out to the same state on each occasion, which may well be an erroneous assumption. There is a possibility that what may be a reducing oil production rate is being constrained to fit within a) produced water handling limits, b) desirable drawdown limits on preferential production from one dry well, vs the other wetter well, or c) there are other factors and/or missing/misunderstood information. There is a possibility that draught-mark watchers may be misled depending on what they are doing with the produced water, i.e. there is a slight possibility it is being taken off by tanker in a segregated tank. This may be why they are no longer using Rotterdam as they wish to conceal any water development info because of its market sensitivity. Mind you that is just a possibility and is imho.

regards, dspp

[JoyofBricks8]

To digress: I have been looking a bit more closely at Crystal Amber, one of the larger holders of HUR shares as a possible play before the capital markets day in March. They seem to have a pretty patchy recent record as stock pickers- Johnston Press being one example where the company went subsequently awry. I see they have recently made the rather brave move of purchasing a stake in De La Rue.

A glance at the charts shows Crystal Amber has disappointed when compared to 5 years ago.

On the basis that a company can be valued at the value of its assets plus the value of its management, currently the huge discount to NAV at Crystal Amber indicates the market does not appreciate the skills of the team at CRS or their fees in a positive way. There is also a previous link to the now anathema Neil Woodford , see this article : https://www.telegraph.co.uk/business/20 ... ls-danger/

I am rather left wondering if Hurricane is going to be another brave pick by Crystal Amber. The fact they are on board in a big way is not really comforting to me.

[Mikjjo]

DSPP "There is a possibility that draught-mark watchers may be misled depending on what they are doing with the produced water, i.e. there is a slight possibility it is being taken off by tanker in a segregated tank. This may be why they are no longer using Rotterdam as they wish to conceal any water development info because of its market sensitivity. Mind you that is just a possibility and is imho."

From the EM statement March 2017
“Prior to discharge to sea, the oil-in-water content of the produced water will be determined by an integrated analyser located at the outlet from the water coolers. The analyser has a divert system so, if the dispersed oil concentration exceeds 30 mg/l, produced water will be diverted to the vessels slops tanks.”

“Produced water will be diverted to slops tanks during upset conditions or if the quantity of water produced is particularly low.”

ALL Produced water will be discharged to sea when on spec and only if issues with topside treatment facilities (low rates, commissioning activities etc) will see the need for it to be discharged via slops tanks. I’m not sure they will have moved from Rotterdam to conceal water volume, as, when treatment facilities are running efficiently, ALL produced water will be discharged to sea.

[dspp]

DSPP "There is a possibility that draught-mark watchers may be misled depending on what they are doing with the produced water, i.e. there is a slight possibility it is being taken off by tanker in a segregated tank. This may be why they are no longer using Rotterdam as they wish to conceal any water development info because of its market sensitivity. Mind you that is just a possibility and is imho."

From the EM statement March 2017
“Prior to discharge to sea, the oil-in-water content of the produced water will be determined by an integrated analyser located at the outlet from the water coolers. The analyser has a divert system so, if the dispersed oil concentration exceeds 30 mg/l, produced water will be diverted to the vessels slops tanks.”

“Produced water will be diverted to slops tanks during upset conditions or if the quantity of water produced is particularly low.”

ALL Produced water will be discharged to sea when on spec and only if issues with topside treatment facilities (low rates, commissioning activities etc) will see the need for it to be discharged via slops tanks. I’m not sure they will have moved from Rotterdam to conceal water volume, as, when treatment facilities are running efficiently, ALL produced water will be discharged to sea.

M,

Thank you. You wouldn't necessarily know, but I have operated quite a few oily water treatment systems in my time on ships and in the oil patch, of various designs etc; and written the odd EIA section etc The EIA etc sets out some but not necessarily all of the story.

What we don't know at present is the extent to which the AM's prod water system is fully functional and commissioned. If it is not yet fully functional & commissioned then they have the ability (which a platform, or land facility does not ordinarily have) to offload to other vessels. By offloading to a shuttle tanker at the same time as an oil offload they could (if they wished) conceal what was going on. Especially if they were not to discharge at Rotterdam because they know that the shipwatchers (i.e. Amaja in this instance) would get the data.

Whether they are doing this I do not know. I am merely offering the hypothesis up. What prompts me to consider this is the apparent discrepancy between the offload volumes implied by the draught mark watchers, and the company's cumulative production & offload numbers in the last RNS.

regards, dspp

[dspp]

Latest OGA data. I also took the time to put the units in correctly etc. The water issue is obvious.



- dspp

[feste]

Hi dspp,

Thanks for this - hard info is always good, if not necessarily welcome !

You previously raised the (admittedly remote) possibility that HUR might be being ' economical with the actualite' in its disclosure re watering levels. Would it be fair to say that the figures disclosed to/by OGA can be relied on ? Would OGA have independent audit rights - and be likely to exercise them - or would they simply rely on what was being reported to them ?

It also seems from release of this info that figs are updated on a monthly basis and not only quarterly in arrears - as I'd previously understood - so it now appears that if there is an emerging issue, we won't have to wait until late March CMD to get some portents.

John 8:32 maybe : "Then you will know the truth - and the truth will make you free " ?

ATB

[dspp]

Hi dspp,

Thanks for this - hard info is always good, if not necessarily welcome !

You previously raised the (admittedly remote) possibility that HUR might be being ' economical with the actualite' in its disclosure re watering levels. Would it be fair to say that the figures disclosed to/by OGA can be relied on ? Would OGA have independent audit rights - and be likely to exercise them - or would they simply rely on what was being reported to them ?

It also seems from release of this info that figs are updated on a monthly basis and not only quarterly in arrears - as I'd previously understood - so it now appears that if there is an emerging issue, we won't have to wait until late March CMD to get some portents.

John 8:32 maybe : "Then you will know the truth - and the truth will make you free " ?

ATB

feste,

I don't think HUR are telling porkies regarding any facts. However regarding facts I do think they are being very careful regarding what they disclose, when they disclose it, and the manner/place in which disclosure happens. I also think that their opinions on some matters are not demarcated as well as they might be from matters of fact. And right now I think that they are operating the reservoir in such a way as to skew the observed facts, plus using an offtake destination to conceal facts. Put this little lot together with unwary/unknowledgable investors and it has the potential to make for a right old mess.

The OGA data is absolutely to be trusted. It comes direct from HUR (who as I have said before I fully trust with facts), goes through a validation checker (to make sure the decimal points are in the right place - and I think I have mine about right, but please can anyone let me know if they spot an error) and gets posted publicly after a time lag. It is this sort of fact that I really don't mind whether it comes direct from HUR, or via OGA.

What we don't know is the extent to which they are favouring the dry well over the wet. Nor do we know the pressure data, or temperature data, or the choke data. Nor do we know if there is any fingerprinting clues, at least not at the level of facts as opposed to HUR's opinion. Nor are we certain of the actual capabilities of the production system on any given day (i.e. status of the prod water system, or the ESPs, or any pigging interruptions, or for that matter any ESD-etc testing or any well testing). So there are lots of uncertainties.

As you indicate the OGA data is coming out monthly and is clear, but lagging. The tanker data also comes out about monthly and is not as much a lagging indicator, but is less clear. I would expect some of the large funds have made it their business to find out what info can be gotten out of the other offload ports, but that is not level-playing-field public data. Really it would be better if HUR just issued a terse RNS of "offtake of XX bbls dry crude and YY bbls prod water slops totalling ZZZ bbls occurred at YY:MM:DD - HH:MM via tanker QQQQ to port PPPP" to accompany each offload. It would at least ensure a level playing field as the poor PI can't afford satellite (tank lid) feeds, or gumshoes in the refinery bars.

Truth will out. The reservoir is what is really calling the shots here.

regards, dspp

[MrContrarian]

Latest OGA data. I also took the time to put the units in correctly etc. The water issue is obvious.
- dspp

The water production is only 660bpd below the maximum possible from HUR's guidance for well 7, at 30% water cut.

It's possible of course but how likely is it without the water cuts from the wells increasing from negligible (well 6) and 25-30% (well 7).

Anyway, it's tipped me over the edge to sell out.

MrC

[MrContrarian]

Latest OGA data. I also took the time to put the units in correctly etc. The water issue is obvious.
- dspp

The water production is only 660bpd below the maximum possible from HUR's guidance for well 7, at 30% water cut.

It's possible of course but how likely is it without the water cuts from the wells increasing from negligible (well 6) and 25-30% (well 7).

Anyway, it's tipped me over the edge to sell out.

MrC

A friend (MrX) points out this is wrong. I made a schoolboy error. The max water production is 4000bpd. So 2162bpd is way below the max.

MrC

[Tinderboy]

Wouldn't think a chartered offload vessel would offload an oil cargo, then change all the jewellery to offload potentially corrosive produced water into another tank with all the complications and paperwork that would be involved with that palaver.

[dspp]

Wouldn't think a chartered offload vessel would offload an oil cargo, then change all the jewellery to offload potentially corrosive produced water into another tank with all the complications and paperwork that would be involved with that palaver.

The draught mark watchers are coming up with tanker offload numbers that exceed the RNS'd offload numbers. So either they have the draught/volume calcs wrong, or the vessel trim assumptions are wrong, or something else is being offloaded, or there is another explanation.

It could just be coincidence that the offload port got switched. Maybe not.

There have also been some shipwatcher comments that might indicate other vessels handling slops from the AM.

Until HUR give a full account there is no alternative for us except to consider this from every angle.

HUR know that they are being watched, and know that we know, and ....

regards, dspp

[thehaggistrap]

Hi DSPP

Interesting analysis and I appreciate it you taking the time to post the plots and data with your thoughts.
What you highlight is a concern - mainly because it is all bets on Lancaster EPS at present...
*if* there were a problem with Lancaster then it would be seriously bad news.

There is however a chance that your are misinterpreting the limited data available - something you acknowledge yourself. We are told than one well (6-well) is dry and the other (7Z-well) is producing water. In which case of course water content will increase with volume as it requires production from both wells. This may not be bad news : it is very possible that the wet well (7Z) has crossed a pocket of perched water which will deplete over time or stabilize (however I am not a geologist). The real question then therefore is why they are preferentially producing from the drier well? There could be large number of legitimate reasons for this. Without full data it is simply impossible to second guess what is actually happening. However the company themselves state in last RNS that they plan to run both wells concurrently from January onward. Therefore I am inclined to give them benefit of doubt for now as I trust the management.

It is not all bad news :

1) The two wells apparently have excellent pressure communication suggesting that together they act as a single well.
Despite being only 300m apart the 6-well is not currently seeing water.
2) the bottom hole pressure showed minimal decline
3) according to RNS the management still believe in longer term productivity of the field.
4) company testing (temperature / shut in periods / pressure gauges) lead them to believe it is perched water
5) production due to increase to 20K bopd. So either company is lying to us, or they remain confident.

I agree there are lots of reason for HUR holders to be nervous. The drilling campaign on Lincoln-Warwick wasn't an obvious roaring success (1/3 hit rate) and the jury is still out. Personally I always thought that HUR would benefit from economy of scale. West of Shetland is an expensive place to operate and take over by a major for FFD seemed most likely with large proven reserves in place. With question marks over Warwick / Halifax that may not be likely. However if they do successfully ramp production up to 40K in 2022 then current share price would give P/E ratio of 1! So even with
just Lancaster and Lincoln then £2 a share in a few years time doesn't seem improbable.

2020 will likely be make or break for the company.
Currently they are making money / debt free.
However you are correct to highlight the possible risks.

Out of interest (and because I respect your opinion / posts) do you remain invested ?

[nigelpm]

Excellent work dspp.

Very glad I sold out of these a few weeks back but will keep a watching brief.

Sadly, I think you are bang on the money though - phenomenal analysis worthy of being poached by the City!

[thehaggistrap]

^ exactly.
also...

1) running 6z well on its own, and proving its remains dry, is arguably a valid data gathering exercise.
2) HUR have said themselves in last RNS that both wells will be run concurrently from mid-January

I agree the data above is interesting. However it is one small part of the picture - which makes some of the accusations being made clearly ridiculous / unfounded.

[dspp]

Clarification - Once the oil has left the Aoka Mizu, it belongs to BP. It's 100% their call where they send the oil for refining. Right?

Not necessarily. The offtake agreement between HUR and BP is for oil. If there is a need/wish/desire to also offtake produced water then HUR would ink a variation to that agreement, and could (? would ?) use that to also reach in and choose to specify where (etc) prod water was to be disposed of. Not necessarily, but possibly. If anyone out there wishes to eliminate the possibility that prod water is not being removed via tanker then they also have to explain away the rather substantial mismatch in offload volumes between those calculated by the draught-mark watchers, and those RNS'd by HUR. Personally I am indifferent on this, merely noting it as an anomaly in the apparent data that is worthy of further exploration & understanding. It does, after all, make a difference to anyone who is using ship-watcher insights to make decisions !

I continue to hold. I don't think my holding has changed for a year or so (E&OE, as I don't go and look at the detail that often).

From a macro-perspective :
- HUR tends to trade at about 60-70% of the most-current of my fag packet valuations that I post up here from time-to-time. Those are done on a 50/50 basis, i.e. there is about as much downside as upside. If I was negotiating on the buy-side of a farm-in or acquisition then I wouldn't be aiming to buy at the 50/50 value so the market discounting to 60-70% seems fair.
- HUR are not under immediate cash-flow pressure, but nor are they a humongous money machine. If one tots up the bills incoming, and the cash anticipated, then there is no immediate concern but nor is there a reason to celebrate. And the cash incoming is hanging on a delicate thread: what happens if watercut keeps climbing. It went from 2% to 30% in the wet well in a 6-month period, what happens if it goes to 60%. What happens if the dry well starts cutting water. At the very least the gross liquids and prod water capacity constraints on the AM would start throttling oil production (and many other factors would also be in play). So HUR are not a distressed seller, but there are potential situations in which they could be.
- KER sold a substantial chunk at 46p, and they probably didn't do it altruistically merely to broaden the shareholder base. CA have variously sold, and then bought back at about 30p, and again they didn't do it altruistically to provide support. That tends to set a trading floor and ceiling, unless of course circumstances & knowledge change. The instis that bought from KER at 46p will hesitate before selling lower, at least prior to CMD.
- The UK is incredibly high sovereign risk right now for large scale oil development. The Brexit negotiations are barely beginning, but the direction of travel is towards a rupture with the EU. That in turn is quite likely to provoke an even firmer Scottish indyref position. Both of those will become substantially clearer in the course of 2020 (i.e. a known outcome in Brexit direction; and perhaps a unequivaocal 'not-in-this-Parliament' indyref stance from the Johnson administration).
- The UK economy could easily go down the tubes, plus the world is overdue a recession. The former affects tax regime, the latter oil price. Plus climate change risk to long term stranded assets. Short term this bodes against a full-throttle FFD, but longer term the clock is ticking down to end-of-oil. These Rona Ridge fields are in that sense trapped between these two perils by their size & complexity. If they were 'just' 100-mln-bbl sandstone reservoirs they would have been sold off to an acquirer long ago.
- The clear disappointing results from the 2019 drilling campaign (i.e. the models are wrong); plus the disappointing results so far in 2019 from the EPS production (i.e. the models are wrong). Let us be in no doubt whatsoever that, apart from providing aquifer support (a mixed blessing) the presence of water is bad, bad, bad. It is STOIIP down, RF% down, reserves down, capex up, opex up, risk up.
- HUR have clearly been playing for time, and seeking to control the message. The Oct production data was issued by OGA on 1 Jan, the Nov will be issued on 1 Feb, the Dec will be issued on 1 Mar. The CMD date of 25-Mar is as late as they could get away with prior to the 1 Apr release of the Jan data. The RNS of 13 Dec was pretty much as late as they could get away with prior to the holidays and the release of the 1 Jan. I don't suppose it is that hard to get a conference room booked in central London in March .... Anyone who thinks that the HUR board are not experienced and unaware of exactly what they are doing needs a reset.
- Anyone farming in is going to need an absolutely convincing explanation to the perched water hypothesis, i.e. CMD plus data room access and would then need to put their own team on it for a few months studying the issues. Ideally they would take the HUR explanation of (say) Mar 2020, and then compare it with results from 6-months later, say Sep-2020 to see how reality compared with forecast. So a farm-in before end-2020 is unlikely. Not impossible but unlikely.
- There are $230m of bonds due on 24-Jul-2022, cash or convert (and I'll bet you some bond holders will be considering their position whilst watching that watercut, after all who wants worthless shares in the tanked-HUR outcome ?). Plus the OGA wells to drill. Plus a third producer to get in the ground asap. Plus a spare rig to hire away as it is surplus to requirements.
- So it is still a buyers market and there are many good reasons for the buyers to remain on strike. If you were a decision maker in a buyer you'd be looking at Spirit and thinking hmmm...... "they got taken to the cleaners, professionally". Do you want to put your signature on that ?
- So HUR still have to keep working away for a base case of a DIY staged field development.
- And they will have to find & fund that, and convince the OGA to approve the (staged) FFD as being an appropriate way forwards. Why exactly is that gas line tie-in slowing down ?
- Which all leads to risk of HUR making sub-optimal decisions from a full value release perspective, but doing so in order to protect against the downside-outcomes that they cannot withstand. My suspicion is that is exactly what is going on with the wet well right now. They ought to be producing it sufficient to understand whether it really is perched water (and what exactly is that), or to prove up aquifer ingress (which of course cannot be reversed), and in a way they don't really want the answer unless it is of course a good one.
- And as I watch the chatter out there I can see a lot of investors way over their heads, and I rather suspect that some of them will be professionals. So that creates the risk of sufficient market weakness that HUR gets taken over by a cheapie low-ball bid. I bet you a majority of the instis and the privates would bite your hand off for 50p right now.

regards, dspp

[Tinderboy]

Excellent post dspp, it will probably not be everyones cup tea, but it is more or less where we are at the moment........

[feste]

Hi dspp,

Thanks, again, for this assessment.
Amongst other things , you raise the possibility of a 'low ball' offer.
In a previous post, you concluded …"HUR know that they are being watched, and know that we know, and ...."
They'll also know that, far more importantly than 'we', that BP will be on the inside track - esp. if there have been supplementaries re water disposal.
And, as you say, HUR will know that they (BP) know.

That would put BP in a pretty strong negotiating position, I'd have thought ! And one that the HUR BoD - all things considered - might feel duty bound (you also raised the question of fiduciary responsibilities) to recommend with more than the customary alacrity ?

ATB

[PeterGray]

I'd certainly agree that a low ball offer, and quite possibly from BP, is on the table if the water cut proves to be a problem (rather than a disaster - in which case all bets are off!) going forward. And it would likely be successful.

However, while the risk of that being the case is obviously real (it was after all one of the issues the company put forward for doing the EPS), I'm certainly not about to act on those concerns yet. In fact I topped up in Dec, and am slightly underwater overall at present prices. I will certainly be watching the issues very closely, but I expect that none of us will have a clear idea till the CMD, and unless HUR are forced to produce a significant change of interpretation there, or before, since the last update I would be surprised not to see the SP move positively afterwards.

[dspp]

Just to follow up on the tanker offload issue I have taken the time to enter my tanker data into a spreadsheet. I ought to have done this long ago, but there was always something else going on. Anyway if you compare my version with that of the shipwatchers who are using the draught mark data you will see a discrepancy in the last few offloads. I am constraining my oil lifted volumes to match the info in the HUR RNS, whereas they are using the AIS draught data to calculate lifted volume.



To check whether my tanker oil data is consistent with other data here is it integrated with the OGA oil data, and the last HUR RNS.



regards, dspp

[Tinderboy]

dspp

You certainly are ruffling a lot of feathers, which I find personally extremely amusing, IMO your views are a real breathe of fresh air.
One can clearly see you mean NO menace but in fact actually strive for a more comprehensive understanding of the current status.

I would imagine HUR COMS will be astounded at your level of detail, as you say perhaps a tweak here or there otherwise extremely accurate....

The produced water issue If it remains in either Well or otherwise IMO will be handled by HUR as a general production issue and NOT a market concern, they will most likely dispose of existing PW or store and run it back through the process at an appropriate time or until it can be disposed off overside, thats the way it should be handled.

FYI im a modest LTH with HUR.

Keep up the excellent work my friend...