Sunday, 29 September 2013

#XEL Xcite Energy

I sense a perfect storm with Xcite - investors split firmly into 2 camps of thought.

On the one hand you have investors who joined the dream 3 years ago during the heady rise to £4. At the time the O&G market was crazy. A company only had to spud a drill to see 15% added onto it's share price and it was quite possible to make a 25% return in no more than 6 weeks, selling out before results were even known. Having seen XEL rise 6 fold, investors didn't take profits, hoping it would double again - who wouldn't hold on for a 12 bagger! Quite forgetting that they already had a 6 bagger! This was partly fueled by comments at the time that the SP would top £10. Irresponsible, probably, but equally common sense was put to one side. I did exactly the same with Range Resources, watching my investment rise from 4p to 24p and still thinking I would hold for a little more. I can't blame anyone but myself and inexperience but what was I thinking??

Since then, the 3 years have been extremely frustrating for Xcite investors. The share has had it's a**e traded out of it and those not brave enough to join the traders have had to sit and watch their paper losses grow bigger and bigger. Not only that, but the months of waiting have given plenty of time to reflect on the loss and build up frustration against the BoD who are perceived as rich, out of touch with the PI's and not doing anything fast enough. Some of that frustration no doubt also reflects back on the investor themselves who feels stupid, annoyed with themselves, and then also turns overly critical and negative about everything to do with their once darling Xcite - desperate to just wash their hands of the rotten investment irrespective of what has been achieved.

But on the other hand, removing emotions, the other camp of investors are those who can hold true to the following story, which goes something like this:

2003 - P1078 Licence awarded during the 21st Promote Licencing Round
2007 - CPR prepared based on well data from 1977 AMOCO and Conoco appraisal programmes. Xcite raises $20m in private equity raise. Initial Public Offering raises $30m
2008 - Successful flow test of 9/3b-5 well 2009 Updated CPR prepared based on results of 9/3b-5 well test
2010 - Agreement with BP to market and sell Bentley crude oil in return for an incentive-based fee per barrel. Successful commercial flow test on 9/3b-6z well
2011 - Blocks 9/3c and 9/3d awarded during 26th Licensing Round. Bentley upgraded to Reserves with 28MMstb of 2P and 87MMstb Contingent Resources. Submission of FDP to DECC
2012 - Reserves upgrade to 116MMstb 2P reserves for Bentley core-area. Signing of US$155m Reserves Based Lending Facility with leading group of institutions. Successful conclusion of Phase 1A
2013 - Bentley Reserves increased to 250MMstb of 2P and 46MMstb of Contingent Resources. $15m sale of data from Extended Well Test.

So what do we have at this point in the journey? Well to remind us all, the Bentley field has been independently assessed by TRACS who have assigned the following:
- Petroleum Initially in Place of approximately 768 MMstb (1P), 907 MMstb (2P) and 1,052 MMstb (3P).
- Oil reserves of approximately 198 MMstb (1P), 250 MMstb (2p) and 312 MMstb (3P).
- And an NPV10 (after tax) for the oil reserves of approximately $1.496 billion (1P), $2.170 billion (2P) and $2.803 billion (3P).

But that's not all. What about the future potential to enhance recovery and prove up further reserves in their other licences adjacent to Bentley?

Xcite plans to undertake enhanced oil recovery tests which, if successful, will be followed by the implementation of an EOR programme for the entire Bentley field as soon as practicable during First Phase Development. It is anticipated that the EOR programme will incur additional costs to be met from cash flow being generated at the time, but will give rise to additional recoverable crude oil that will generate additional revenue in excess of the associated costs. Reserves estimates only include volumes that are currently planned to be produced within the initial 35 years. It is intended that the assigned Contingent Resources assumed to be produced in the 20 years after this period will be the subject of optimization and either brought forward within the initial 35 years, accelerated and captured by implementation of the EOR facilities, or produced through life extension methods during the later stages of field life. Funding for such work programmes is assumed to come from cash flow generated from previous production from the field. It is expected that these work programmes, if successful, will give rise to additional reserves being assigned to Bentley.

It is also planned that prospective resources currently contained within the adjacent and other prospects will be the subject of separate appraisal and development programmes, with funding for such work assumed to come from cash flow generated from the core area of the field. It is expected that these work programmes, if successful, will also give rise to additional reserves being assigned to the Bentley field.

So not only do we get EOR and increased reserves from Bentley core, there is the potential to see increased reserves from adjacent licenses.

Still thinking you can't wait to sell up with Xcite valued at a £340m market cap and sitting on all of this?

The BoD are at a critical and significant point. Having proved up a massive field of heavy oil, proving they can flow and sell it, they will be in highly complex discussions around the best way forwards. With majors all around the Bentley field, support from many banks, and Bentley a "significant strategic North Sea asset", then it doesn't surprise me at all that we are still waiting to hear about what negotiations have been taking place. This will be a highly significant and highly confidential agreement for all parties involved, and I don't expect it to be just one other party. There could easily be multiple parties working together on the best arrangements for the future.

So whilst I share some of the frustrations, and the boredom of waiting, I keep focused on the prize and consider the following... I have not done anything to contribute to the complex operation that has proven up 250,000,000 barrels of P2 oil over the past 10 years. All I have done is buy a few shares from my armchair and then made a few hundred pounds trading it during the last 2 years. I'm basically sitting around waiting for others to do their job. And what a job they are doing - if in any doubt at all I recommend you watch this video again to appreciate the size, scale, and technical complexity that Xcite Engineers have managed to achieve.

And so, if I have to wait another year or 2, or 3, I think on balance I will do so, as the oil isn't going anywhere. Someone is going to get it out, and it will either be Xcite with others, or others without Xcite. Either way, Xcite's share price will be a long way from £1.20 when Bentley starts pumping 45k bopd. That's 1.64 million barrels per year, which at $100/barrel is $1.64 billion dollars top line revenue PER YEAR.

Sometimes the hardest thing to do in this game is to sit on your hands :)

Friday, 27 September 2013

#BHR A Beacon of Hope for investors in BHR?

Beacon Hill
Today saw BHR release their long awaited JORC compliant reserves report. Expectations were running high after the company promised this by the end of Q1. (The delay is another matter altogether I shan't comment on that!). When it arrived it was met with some confusion on certain boards as some PI's, already under water, made a comparison with the earlier resources RNS and compared apples with pears, panicked, and promptly sold up. Fine if all you want to do is trade, but not a great time to sell out in you have been invested for many months in my opinion as the share price is now at all time lows. 

The earlier year resource statement (22.02.12) reported a 31% increase in resources to 86.8m tonnes. Today's updated reserves statement showed a total run of mine proven and probable reserves of 39.4m tonnes and total saleable proven and probable reserves of 16.16m tonnes. Easy to think in the heat of a 7am bleary eyed scan of an RNS that we've lost several million tonnes of coal. (For more detail on the difference between reserves and resources please see my other page linked above on the headings)

However, I've read a bit more about the difference between resources, probable reserves, and proven reserves, and I actually think today's statement, in light of the recent weakness in the price of coking coal which I shall come onto in a minute, could be reassuring. Especially when you consider that to class coal as proven, it needs to meet the following strict criteria (from the Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and the Minerals Council of Australia)

30. A ‘Proved Reserve’ is the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. A Proved Reserve represents the highest confidence category of reserve estimate.  

In other words you've got to be pretty damn certain that it is there and is economically viable to extract - which means it has to take into consideration the currently depressed price of coking coal and still be viable. Here's the bit from the report where it comments on the factors that must be taken into consideration when reporting something as proven:


  • The derivation of, or assumptions made, regarding projected capital costs in the study.
  • The methodology used to estimate operating costs, 
  • Allowances made for the content of deleterious elements. 
  • The source of exchange rates used in the study
  • Derivation of transportation charges
  • The basis for forecasting or source of treatment and refining charges, penalties for failure to meet specification, etc
  • The allowances made for royalties payable, both Government and private.
Market assessment

  • The demand, supply and stock situation for the particular commodity, consumption trends and factors likely to affect supply and demand into the future.
  • A customer and competitor analysis along with the identification of likely market windows for the product
  • Price and volume forecasts and the basis for these forecasts
  • For industrial minerals the customer specification, testing and acceptance requirements prior to a supply contract

  • The inputs to the economic analysis to produce the net present value (NPV) in the study, the source and confidence of these economic inputs including estimated inflation, discount rate, etc
  • NPV ranges and sensitivity to variations in the significant assumptions and inputs

So all in all I'm reading this that today's news confirms that we have over 16.16m tonnes of proven and probable reserves of saleable coal, of which at least 8.3m tonnes is coking coal which is viable to produce under today's known conditions. 

This report is presumably based on current and future prices of coal. This is where it gets interesting compared to the maiden reserves report which was released on 2nd February 2012 - over 18 months ago. Take a look at the price of coal at this time versus now:

At this time coking coal was around $210/tonne which I presume explains why that JORC statement reported 23.45m tonnes of saleable proven and probable coal.

Todays price is around $140/tonne and yet it looks to me like we are still able to say, that we have 16.16m tonnes of saleable proven and probable coal. This presumably helps explain why the difference between the two reports of proven hard coking coal is fairly small (8.7mt Feb 2012 vs 8.3mt Sep 2013) as it remains less susceptible to the economic "viability" question as it remains higher priced?

I don't think today was the time for long term holders, or new investors to sell out based on the reserves report. In my view we've just had confirmation that we have proven reserves, that are economically viable even at the current prices (which do look like they are moving up) and having reflected myself I added to my holding today by another 33% at a price of 2.14p. The wording from today's RNS paints a positive picture and might be worth reflecting on again:

Beacon Hill CEO, Rowan Karstel said, "This Reserve statement not only demonstrates that Minas Moatize remains robust during this period of depressed coal prices, but also acts as an important step in optimising the Company's reserve inventory to provide significant upside as coal prices recover.  In January 2013 the Minas Moatize Resource statement was increased by over 30% to 86.8 Mt and by following the same methodology, through additional exploration work and value engineering, we expect to make further improvements to our Reserve base.  We are also active in reviewing opportunities in adjacent properties for expansion of our life of mine, scale and efficiency, with the aim of generating significant additional value upside.

 "This Reserve statement has been developed concurrently with our development objectives at Minas Moatize, as we continue to ramp up coking coal production following the completion of the first phase of our wash plant upgrade.  This development work is anticipated to further demonstrate Minas Moatize as a low cost producer with access to an economically efficient logistics solution, being the SENA rail access to the Port of Beira, Mozambique.  Together with this Reserve statement, I believe Beacon Hill continues to demonstrate its advancement towards developing a tier 1 asset at Minas Moatize."

Thursday, 26 September 2013

#AMER If Amerisur wrote RRL's updates......

Amerisur today updated the market that their Plantillo field which had been temporarily shut in as a precaution due to civil unrest and potential protests from farmers, had been restarted and was moving back to full production. At the same time they released their interim results.

What a cracking update to the market! If only others could take a lead from Amerisur and concentrate on building their core interested before diversifying elsewhere. (PLEASE TAKE NOTE PETE LANDAU)

I missed Amer when they were under 40p less than a year ago and have watched them since - they moved up to almost 60p earlier in the year but have drifted back to the low 40's recently. The chance to buy at 42p was last week on the day of the announcement that they were temporarily shutting in production as this had no real long term impact, but I had no spare funds and kicked myself. This looks like a company that will continue to grow over the next 12 months - their results suggest an increase in reserves and production well over 10,000 bopd by next year.

Ivestec today reiterated a "buy" with target price raised from 71p to 73p.

One to watch and look out for the dips in my opinion.

"Amerisur Resources Plc, the oil and gas producer and explorer focused on South America, announces results for the six months ended 30 June 2013 (the "Period").
·      Revenue  US$64.4m (H1 2012: US$6.0m)
·      Operating profit  US$30.9m (H1 2012: US$1.2m)
·      Profit before tax  US$29.1m (H1 2012: US$0.4m)
·      Cash position at period end US$40.4m (2011: US$11.2m), all H2 2013 and 2014 commitments and planned programmes fully funded
The first half of 2013 has seen a continuation of the very successful Platanillo drilling with seven new wells, three of which were side track wells on top of the four new wells drilled in the Platanillo block in 2012.  The results of that programme have been very encouraging as we continue to delineate the size of the oil field and as we have considerably de-risked the middle sector of the block which to date remains unappraised.  The drilling results have been at the top end of management's estimates with our 100% success rate in Platanillo still standing.
Production in the first half was 672,533 barrels of oil, or 3,715 BOPD, with significant momentum of production growth with the new wells coming on stream as we go into the second half.
Following receipt of an independent reserves report as at 31 December 2012 undertaken by Petrotech Engineering Ltd using the standards set by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers, the Company reported that Platanillo field 2P reserves more than tripled from 7.7 to 29.9 MMBOAdditionally the independent assessor calculated 3P reserves at 46 MMBO. Importantly, the upgrade came following just four of the Platanillo wells and the Board expects a significant uplift in 2P and 3P reserves when this exercise is repeated at the year end and announced in March 2014.
 In country, John Wardle the Company's CEO, has pulled together a first rate operational team which has worked tirelessly to deliver the results. This work has been undertaken professionally, efficiently and safely and I congratulate them on their hard work, attitude and importantly, their engagement with the local communities."

Wednesday, 25 September 2013

#SLE What next for San Leon? acreage on the moon?

San Leon announced another purchase of acreage today - this time in Turkey. Seems there is no end to the thousands and thousands of kilometers of acreage that they will keep acquiring.

First there was the giving up of their 30% stake in Barryroe (Doh!) which has proven to be a monster field - just before the monster was confirmed, but at least they retained a 4.5% revenue day....Rodney.

Then they purchased Realm energy, secured more acreage in Spain, purchased Aurelian oil and gas, more acreage in Poland and more acreage in Morocco and of course don't forget Albania. 

SAN LEON Share Graph
They certainly have plenty of the "E"xploration for an E&P company. The problem is they don't have any "P"roduction which when times are tough and markets are not easy is kind of a pretty big flaw in the business model. And so the shares keep on rising, from 385,000,000 shares in May 2010, to over 2.5 BILLION shares by the time this latest acquisition is completed. Their revenue for the last year of trading - a massive, whopping, exciting 1.3m Euros. I think the balance between exploration and production is a big wonky.

So my humble advice to the board of San Leon is, if possible, can you deliver some production in the near future, so the share price can recover from today's low of 5p, which is 86% down on where it was 3 years ago.

Which is kind of what you are meant to do as a BoD - create shareholder value, not the biggest land owners in the western world - or on the moon? 

Tuesday, 24 September 2013

#MXP Stupid bleedin private investors

Today Max Petroleum issued a RNS relating to the new takeover code coming into effect at the end of the month. All the RNS stated was that they would be complying with the code. Here it is to read:

and here is another one similar to this issued by Beacon Hill resources yesterday:

But for some reasons many BB posters decided to take this simple RNS as a sign that Max is about to be taken over and get all excited about that. Goodness knows why they interpreted the above in this way - maybe it's a full moon or something (or maybe just completely desperate to sell out of Mxp) but either way I can only assume that this RNS is purely an admin formality and Mxp are no closer to a takeover than they are close to finishing the NUR-1 drill. Now on that subject how long do we think it will be before we get news on that???????................2014?

Saturday, 21 September 2013

First post. Now where will this lead to?

So here we are. First blog and lots of reading to do about blogger. The idea? Bring some balanced observations from a small investor to a blog , track my performance, and offer some thoughts to others in this game.

Nice to see my holding in Xcite #XEL rise further today but I'm not selling yet. Today I watched Bowleven #BLVN drop to 56p, wish I had some funds for a cheeky purchase. Now where can I scrape a few pennies from?

Lets see where this thing goes........