An action packed week by any measure for the Contrarian Investor UK portfolio, particularly on my largest holding Xcite Energy (XEL). A great deal of volatility to contend with and today some good entry points for some of the stocks in my watch list.
Xcite Energy (XEL) - I have written about the mini "flash crash" on a post yesterday so won't revisit this. Today the company issued an RNS stating that it had entered into an extension to the binding letter of intent (LOI) with British American Offshore Limited for the N-Class "Rowan Norway" jack-up rig.The LOI has been extended by mutual consent to 31st January 2011 with no amendment to the existing termination fee payable by XER in the event it does not enter into a definitive agreement by this date. Of course this was greeted with many rumours on the bulletin boards why the extension was on the cards, particularly that a takeover was imminent because of the 2 week extension (the original deadline was the 15th) but my take is that the legal paperwork is just taking a while to finalise or perhaps they are negotiating an earlier delivery of a another rig which is built (Rowan Stavanger rig is available immediately after contractee reneged) . I'd love it if Statoil was about to pounce, but this is probably unlikely until the resources are confirmed as bankable reserves in February/March.
Angel Mining (ANGM) - A week where the share price retraced heavily from the 7p area and was down nearly 10% to 5.5p today before bouncing back in the late afternoon to 5.88p. The fall was a good opportunity to top up the holding with the first shipment of doré for refining is expected to take place in January 2011 from the Nalunaq gold mine in Greenland. I am sure that this was Market Maker manipulation today to stock up on shares before the RNS due any day for the first shipment of gold. Spread bet opened (Sep 2011) at 5.841p. Though volatile, Angel is still a great opportunity for 2011.
Bowleven (BLVN) - The Cameroon explorer made relatively little share price progress this week despite some positive news from its continued drilling in the Sapele 1 well. Today Barcap named Bowleven as its top pick for this year in the oil exploration sector with a £5 target (it is currently 391p, up 5p on the day). Lots of news is expected from the company in the coming weeks as it continues to drill Sapele 1. The size of the resources already identified is significant. Estimates of oil in place have increased from 40 -290 million barrels to 65 to 430 million barrels in the Deep Omicron, mean 217 million barrels.
Sirius Minerals (SXX) - Potash explorer Sirius has been a share that I have traded in and out of several times in 2010. Sirius presently holds in excess of 7,425 net mineral acres of exploration leases in the Williston Basin in North Dakota covering known potash and salt deposits. It also owns properties in Western Australia and Queensland.The share price has been strong this week with a rise to around 17p, as rumours begin to grow about the potential size of the prize at it exploration site in North Dakota. On November 9th 2010, Sirius announced that drilling has commenced on its North Dakota property. An exploratory hole is being drilled to a total depth of approximately 2,740meters. Sirius had anticipated that the drilling, core logging and analysis would take approximately two months to complete ie. around mid January. An RNS on the 24th December confirmed that samples would be logged in detail, photographed and selectively prepared for geochemical analysis. Final analysis will then be completed by the Saskatchewan Research Council by mid February.
I took the opportunity today to start building a position with so much news just round the corner despite the rise from the 12p to 16p region in the last week. If Dakota comes in, the share price will be many multiples higher.
Overall a week where the portfolio showed little change in its value. Prior to the drop in Xcite today, I moved more of my positions from contracts for difference (CFD's) to spread bets since I believe that the talk of a doubling or tripling of the share price talked by Xcite at Oilbarrel yesterday is not pie in the sky. This could mean a very hefty tax bill in standard shares or CFD's, so a bit of planning needed for both 2010/11 and 2011/12 tax years. Next week should be exciting with news due from Bowleven and Angel.
Friday, January 14, 2011
Transcript of yesterday's Oilbarrel Xcite presentation
Thanks to Fowler the Prowler on iii.co.uk for transcribing the presentation.
(http://www.iii.co.uk/investment/detail/display=discussion&code=cotn:XEL.L&threshold=5&it=le&action=detail&id=7602365&prevpost=7602298&nextpost=7602377)
No apologies for going over old ground as I will just put words down as delivered and recorded to best of my typing abilities. I appreciate it is a little disjointed, but that is the nature of real time transcript recording from someone that kept falling behind! Comments in<> mine . The rest as near as possible to actual words spoken:
I am confident that Share price will double or treble in next 18 months, but can’t promise 700 and 800 percent rises last two years have seen respectively.
Extension of block that retain with more prospects in it . Oil in place billion barrel in place to be defined . More than know, but not sure how much, recoverable work in progress, some months because outside of range predicted.
Drill showed high porosity,high permeability and high productivity index. In a word exceeded all previous expectations.
Took 1200-2400 barrells expectations initially so maximum 2900 very pleasing. Shows mobility and reservoir qualities around or partially above our high end expectations.
500 metre well with no significant issues, stabilised flow rates which was one thing that people said could not be done, but did do, by paying attention to how facilites operated despite hose break and having to resort to 200 tote tanks one at a time over 2 day period .
Still a lot of work to be done to deliver new numbers of recoverable barrels not least because so much better than initially expected and more to map! Target date late feb early march, that’s when we expect to see more information coming . Not waiting though for this information though and priority to move to first stage production as soon as possible with fourth quarter still on target . Building same faciities does not change. Definitive number does not interfere with progress.
Process into bankable reserves gradual processs. When define and go forward reserves defined to that project then up to next level . 2 or 3 step process of building C1, C2 C3 into P1, P2 and P3 as add extra things extra reseource to end up with final reserves.
In other words the story will get stronger and stronger and the BOD will continue to add value bit by bit ,but ensuring they err on conservative scenario each time continuing to overdeliver.
Chance of Success now officially increased from 70 to over 90%. 90% barrier means happening and reserves will be proven. 750 million resource (not recoverable) expectation oil in place will be revised . Previous recoverable estimate of 120 million to low, 250 high for now, but expect 200 million barrels recoverable. Better recovery could increase this by 50 to 100 per cent .
Chairman has said all along that he expect half a billion barrels will be recovered when finished. Real confidence in this, but stage by stage process.
Valuation, encouraged by support with investors. 900 million dollars at the moment equivalent around $4.60 per barrel based on 200 million barrels.
Risks gone now, don’t sell up, potential to come up to range of $10 dollare or closer to $15 as C turns to P1,2 and 3.
Still comfortable scope to to double or treble as ‘safe bet’. Aim to give investors as much as that value as can achieved. Not instant, but not that long term in next 12-18 months as production kicks in and further fields are established.
Pilot well confirmed on eastern flank much higher than thought. Refractory in boulder challenging to determine. Gave us a path to follow to put horizontal well. 400-550 metres . Flowed 36 hours limited by equipment and time. The well flow behaved immaculately far better than they thought it would. Previous tests if not operate in right way can’t see wood from trees . 1,200 minimum then stepped right up when hit 2900 hit - limits that we can do . When achieved this view taken was let’s go home,well over highest expectations ...job done! . Using productivity index, half draw down easily 3,000-3,500 a day easily if use bigger facilities even at those rates acceptable draw done pressures.
Total belief that can move contignency resources will translate into reserves . Moving on with contractors and vendors make sure achieve before end of year. Rig in final stage of negotiating rates ...will be with us October.
Preliminary review of structure . Extra reserves have not discovered everything yet, much more there. Hugh improvement, helped us get high quality log a lot of confidence going forward . Sceptics say it can’t be that good, but difficult to show that it is not! High quality logs, ideal high porosity for putting horizontal well in. Lower down porosity lower. This is actually a good thing as they want low porosity layers to slow water down, because this will give higher recoverability.
Spreads right across reservoir. 73 feet of pay ended up being 113 feet nearly 50 per cent extra . Flat or domed not sure.... everything higher than original interpretations . Tracked rservoir down whole length of well . Very positive . No sign of roof coming down .
Beautiful sands if it was light oil, it would be called a bonanza. Now outside of original envelope. More work to convert into confident numbers. Need to produce a new in place number, full scale structure model. Interim reserves, multi stage process . Info in to get first level of reserves . Conservative initially definitely not less than that will fit with first stage prodcution. Very close to finishing negotating with rig. 15th not hard and fastg date . Will finish when finished wait and see .
First oil October/ November . Medium term whole process resources into reserves but have to remodel whole reservoir in parallel with everything else.
Field plant plan to government with full life cycle plans Will go in second quarter ready effectively for approval start of production last quarter . Will continue to add value. Delivering first oil first target just before Christmas will be determined on scale of things. Before end of year.
This opportunity is not finished, more to come now derisked for full value that we know we have. Successful flow tests gives no risk 200 million. Proved commerciality without doubt, proving reserves. Aim will be realised as number 2 independent in North Sea, still doubling or tripling sp just in this field alone and we’ll not going to stop here. We’ll leverage knowledge of using other opps to bear further fruits .
Question How does Bently alliance work?
Alliance is a framework upon which contractors can apply their net experience, degree of risks they feel they can take and as we ascertain next stage they will elect what stage of risk to next stage .
Encouraged by contractor community want to take some risk on this project . In reality risk normal, just that Xcite is a new kid on the block. Alliance partners are not equity partners. They are within costing regions increasing their ability to get more margin as project develops. Very controlled process. Opt in process.
What about the South east Jurassic?
South east Jurassic – 15 feet of something oil shows there, evaluating currently not enough to commit well to that area . Working example, currently have zero value on then and will until prove them, when wells down will continue. 2 wells in new blocks. Not flowable yet. Were not expecting it to.
Why did directors sell so many shares that will be worth 2 to 3 times?
Charles handed over to Rupert Cole on this. He explained that after 7 hard years sacrifice with loans, mortgages, pressures on family on line they felt entitled to take some out .
Will CPR increase data on east?
New blocks work first? High probability some, Jurassic higher risk. Live system know they are there. Main effort main field into production. During implenmentation stage of using FSP will be dipping into 12-24 month period.
Private questions asked after event by another investor.....Will there be a big placement/ dilution shortly?
£30 million shortfall after drawdown for rig contract etc, but may finance this through debt or if they raise the money by a small placement of no more than 5-7 per cent < this is fantastic news and makes sense>
(http://www.iii.co.uk/investment/detail/display=discussion&code=cotn:XEL.L&threshold=5&it=le&action=detail&id=7602365&prevpost=7602298&nextpost=7602377)
No apologies for going over old ground as I will just put words down as delivered and recorded to best of my typing abilities. I appreciate it is a little disjointed, but that is the nature of real time transcript recording from someone that kept falling behind! Comments in<> mine . The rest as near as possible to actual words spoken:
I am confident that Share price will double or treble in next 18 months, but can’t promise 700 and 800 percent rises last two years have seen respectively.
Extension of block that retain with more prospects in it . Oil in place billion barrel in place to be defined . More than know, but not sure how much, recoverable work in progress, some months because outside of range predicted.
Drill showed high porosity,high permeability and high productivity index. In a word exceeded all previous expectations.
Took 1200-2400 barrells expectations initially so maximum 2900 very pleasing. Shows mobility and reservoir qualities around or partially above our high end expectations.
500 metre well with no significant issues, stabilised flow rates which was one thing that people said could not be done, but did do, by paying attention to how facilites operated despite hose break and having to resort to 200 tote tanks one at a time over 2 day period .
Still a lot of work to be done to deliver new numbers of recoverable barrels not least because so much better than initially expected and more to map! Target date late feb early march, that’s when we expect to see more information coming . Not waiting though for this information though and priority to move to first stage production as soon as possible with fourth quarter still on target . Building same faciities does not change. Definitive number does not interfere with progress.
Process into bankable reserves gradual processs. When define and go forward reserves defined to that project then up to next level . 2 or 3 step process of building C1, C2 C3 into P1, P2 and P3 as add extra things extra reseource to end up with final reserves.
In other words the story will get stronger and stronger and the BOD will continue to add value bit by bit ,but ensuring they err on conservative scenario each time continuing to overdeliver.
Chance of Success now officially increased from 70 to over 90%. 90% barrier means happening and reserves will be proven. 750 million resource (not recoverable) expectation oil in place will be revised . Previous recoverable estimate of 120 million to low, 250 high for now, but expect 200 million barrels recoverable. Better recovery could increase this by 50 to 100 per cent .
Chairman has said all along that he expect half a billion barrels will be recovered when finished. Real confidence in this, but stage by stage process.
Valuation, encouraged by support with investors. 900 million dollars at the moment equivalent around $4.60 per barrel based on 200 million barrels.
Risks gone now, don’t sell up, potential to come up to range of $10 dollare or closer to $15 as C turns to P1,2 and 3.
Still comfortable scope to to double or treble as ‘safe bet’. Aim to give investors as much as that value as can achieved. Not instant, but not that long term in next 12-18 months as production kicks in and further fields are established.
Pilot well confirmed on eastern flank much higher than thought. Refractory in boulder challenging to determine. Gave us a path to follow to put horizontal well. 400-550 metres . Flowed 36 hours limited by equipment and time. The well flow behaved immaculately far better than they thought it would. Previous tests if not operate in right way can’t see wood from trees . 1,200 minimum then stepped right up when hit 2900 hit - limits that we can do . When achieved this view taken was let’s go home,well over highest expectations ...job done! . Using productivity index, half draw down easily 3,000-3,500 a day easily if use bigger facilities even at those rates acceptable draw done pressures.
Total belief
Preliminary review of structure . Extra reserves have not discovered everything yet, much more there. Hugh improvement, helped us get high quality log a lot of confidence going forward . Sceptics say it can’t be that good, but difficult to show that it is not! High quality logs, ideal high porosity for putting horizontal well in. Lower down porosity lower. This is actually a good thing as they want low porosity layers to slow water down, because this will give higher recoverability.
Spreads right across reservoir. 73 feet of pay ended up being 113 feet nearly 50 per cent extra . Flat or domed not sure.... everything higher than original interpretations . Tracked rservoir down whole length of well . Very positive . No sign of roof coming down .
Beautiful sands if it was light oil, it would be called a bonanza.
First oil October/ November . Medium term whole process resources into reserves but have to remodel whole reservoir in parallel with everything else.
Field plant plan to government with full life cycle plans Will go in second quarter ready effectively for approval start of production last quarter . Will continue to add value. Delivering first oil first target just before Christmas will be determined on scale of things. Before end of year.
This opportunity is not finished, more to come now derisked for full value that we know we have. Successful flow tests gives no risk 200 million. Proved commerciality without doubt, proving reserves. Aim will be realised as number 2 independent in North Sea, still doubling or tripling sp just in this field alone and we’ll not going to stop here.
Question How does Bently alliance work?
Alliance is a framework upon which contractors can apply their net experience, degree of risks they feel they can take and as we ascertain next stage they will elect what stage of risk to next stage .
Encouraged by contractor community want to take some risk on this project . In reality risk normal, just that Xcite is a new kid on the block. Alliance partners are not equity partners. They are within costing regions increasing their ability to get more margin as project develops. Very controlled process. Opt in process.
What about the South east Jurassic?
South east Jurassic – 15 feet of something oil shows there, evaluating currently not enough to commit well to that area . Working example, currently have zero value on then and will until prove them, when wells down will continue. 2 wells in new blocks. Not flowable yet. Were not expecting it to.
Why did directors sell so many shares that will be worth 2 to 3 times?
Charles handed over to Rupert Cole on this. He explained that after 7 hard years sacrifice with loans, mortgages, pressures on family on line they felt entitled to take some out .
Will CPR increase data on east?
New blocks work first? High probability some, Jurassic higher risk. Live system know they are there. Main effort main field into production. During implenmentation stage of using FSP will be dipping into 12-24 month period.
Private questions asked after event by another investor.....Will there be a big placement/ dilution shortly?
£30 million shortfall after drawdown for rig contract etc, but may finance this through debt or if they raise the money by a small placement of no more than 5-7 per cent < this is fantastic news and makes sense>
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