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MFC Industrial Ltd. Message Board

northoil 11 posts  |  Last Activity: 13 hours ago Member since: Dec 6, 2000
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  • Reply to

    Note to all the 'geniuses' at SHU

    by heathersoil Jul 31, 2014 12:57 PM
    northoil northoil 13 hours ago Flag

    I’d make two points:
    1. What most people who frequent these boards don’t understand about the oil business and the situation with IOC, is how long a time frame is necessary to bring even a good situation (which IOC definitely is) to fruition. In the same vein, Hession is a LNG pro. He’s not thinking about this year or next year or the year after that, and he knows what it takes to monetize what they have and what they might find in the meantime. He partnered up with a major, received tons of cash with more to come, established credit lines, secured the acreage with an aggressive, 6-well drilling program, got rid of a distracting low-margin business for more cash and initiated a stock buy-back program. All within a year. That’s lightning fast in the oil business.
    2. There are people at SHU who have both technical knowledge and even higher level understanding of what’s going on. Unfortunately, that does not translate into stock market expertise. What we’re seeing now is speculative froth laid over a very solid outlook that will take years to realize. The froth will go up and down based on deals, drilling results, government actions, etc. People will lose their shirts on short-term transactions. It doesn’t alter the long-term fundamentals.

    As an aside, Shu's "enforcement crew" does keep out the garbage that makes this board all but useless. It's a restriction I can live with

  • Reply to

    Drilling Fluids

    by bullrush107 Jul 14, 2014 10:15 AM
    northoil northoil Jul 14, 2014 10:29 AM Flag

    Plus a different casing program. Everything will be more expensive, but at least they now know what they're dealing with.

  • Reply to

    Spin-off

    by northoil Jul 2, 2014 10:38 AM
    northoil northoil Jul 14, 2014 10:27 AM Flag

    Apparently, Wahoo encountered even worse conditions than predicted. The positive aspect is the presence of heavier hydrocarbons in the gas samples/detector. This is very, very positive as you can infer a rich gas source below. How much you don't know until you drill it. but no management is going to give up. See the rest of the drilling discussion.

  • northoil northoil Jul 3, 2014 10:57 AM Flag

    Buy the fear - Thanks for posting this. This a great article and is just what I said in "Spin-off". Also, the wells are MUCH more expensive than I thought, so the value of the farm-in is much higher. But from here on, the stock will reflect periodic drilling results for years.

  • Reply to

    Spin-off

    by northoil Jul 2, 2014 10:38 AM
    northoil northoil Jul 3, 2014 10:49 AM Flag

    Oh yeah, for sure. Once you encounter all the problems, usually you can plan around them on your second (or third or fourth) attempt. Depth and how you set your casing are the issues. These wells are shallow enough such that they give you a lot of options.

    The big picture is that management wants and needs information and evaluation at that particular site, and drilling engineers believe they can conquer any problem. It makes for a stubborn resistance to giving up.

  • Reply to

    Spin-off

    by northoil Jul 2, 2014 10:38 AM
    northoil northoil Jul 3, 2014 10:19 AM Flag

    There's a thing called the time value of money. also, Total is paying for a lot of drilling, I don't know the cost, but these wells look like the $25 million range each. Does anyone know? Farm-ins, almost by definition, mean the party farming-out has no risk and shares the upside.

    As an aside, for those worrying about the length of time to drill these current wells, I have to say I agree. BUT, according to the presentation at the shareholders' meeting, there's an over-pressured shale above the carbonate reservoirs. That is a drilling nightmare. One of the wells is already in the second sidetrack, which means they lost the first two. Young, over-pressured shales are like plastic. When the drill goes from normal to overpressure, the lower formation squeezes in and sticks the pipe. So you pour cement to it, come up the hole and drill out in a new direction. It's complicated, but all sorts of things are waiting to happen, including, if there's gas below, a potential blow-out. They have to go very slow and sometimes you have to junk the whole thing and start over.

  • Reply to

    Spin-off

    by northoil Jul 2, 2014 10:38 AM
    northoil northoil Jul 2, 2014 11:43 AM Flag

    I don't have a black box, but I do know exploration, production and LNG in a third world country. The stock price is another issue. I got totally burned in December, but I see that now as a trading mistake - the stock over-hyped then crashed on reality. The long term value hasn't changed. Total wouldn't pay $400+ million dollars, and IOC management go all in on reserves and upside that aren't there.

  • northoil by northoil Jul 2, 2014 10:38 AM Flag

    I think the spinoff of the downstream is a great move and very positive long term. Downstream is a trading game. Margins can be thin and sometimes negative as governments act as advocates for the consumer. Upstream is where the profit is and governments love to help you get those national assets out of the ground.

    Hession has just showed us that he intends to focus the entire company on LNG development. By spinning off the downstream, he is showing how confident they are in the reserves picture and in the exploration potential of what is a very large acreage position in a geological sweet spot. With the sale, they now have a billion dollar war chest and the credit lines to fund their share of development and future exploration.

    The LNG business has long lead times and enormous cost. Wildcat, appraisal and development drilling cost a ton, not to mention pipelines, infrastructure, processing plants, etc, etc. None of it happens overnight. With no other business to fall back on, IOC is now committed to large future costs over an extended period. Look for 3-5 years of losses on the income side (although many costs will be capitalized).

    That is what the stock price is showing – an initial pop because this was a very, very bullish announcement, followed by a return to a trading range. From here on, I think the stock will gap up or down with drilling results which will overlay an underlying slow movement up to some enterprise value as IOC approaches first production. All the rest is just day trading.

  • Reply to

    Very Exciting

    by northoil Jun 12, 2014 8:00 AM
    northoil northoil Jun 12, 2014 11:14 AM Flag

    Moose -you're totally right. I lost my behind on that deal. At least I put my money (lots of it) where my mouth was, to my sorrow. Timing is everything as I still think IOC is in a gas sweet spot with a huge acreage position. These things do take a long time to prove up. I was wrong on the deal as it was structured to put rewards out in the future; in the end, I think you'll see more gas found and the gas monetized either up front or through the LNG process. In the meantime, looking at whatever bright spots I can salvage, I have these great tax-loss carry-forwards.

  • Reply to

    Very Exciting

    by northoil Jun 12, 2014 8:00 AM
    northoil northoil Jun 12, 2014 9:06 AM Flag

    Not saying the other two wells are abandoned - just that they're the dogs that didn't bark. Hession singled out Wahoo and then gave his 1 in 10 statement. That may be an indicator that Wahoo is the "1" and the other two are in the "10" category. It's just a straw in the wind.

    Having said that, I am surprised at the length of time all this is taking. It shouldn't have taken 3 to 2.5 months to drill a dry hole. A possible explanation is that testing equipment is specialized and might have to be shared; ie, test one well and move the equipment to the next. That takes time. Still, you can want to test a well even if it's marginal and "not exciting". I'll stick to my original theory.

  • northoil by northoil Jun 12, 2014 8:00 AM Flag

    When a CEO says "very exciting" while trying to manage expectations, it tells me at least Wahoo is a discovery. While you are drilling a well there are all sorts of indicators. You have the actual geology coming up in samples while you drill, gas detectors which alert you to the presence of hydrocarbons and warn you to protect against blowouts, various logging devices which give you different physical properties and importantly, the presence or absence of hydrocarbons in detail. Finally you test the prospective zones to measure the flow rates and indentify the composition of any hydrocarbons. Then you button up the well by either by installing wellheads for later production or pouring the cement in to abandon. No announcements would be made until all this is complete.
    Two to three months after spudding is a long time to drill to the relatively shallow depths we have here. While it's somewhat dependent on rig capacity, and any trouble you run into, I would say they're probably done with the actual drilling. Logging is only 1-2 days. My guess is they're into testing (which can last weeks, probably on Wahoo) and likely abandonment on the other wells

    I think it's likely that they've identified reefal carbonates and a significant gas column; otherwise, it wouldn't be "very exciting".

MIL
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