Nautical Petroleum - Kraken spuds

Friday, Aug 13 2010 by
11
Nautical Petroleum  Kraken spuds

 

Nautical Petroleum (LON:NPE) have put out an RNS today confirming that the 9/02b-D appraisal well on North Sea Block 9/2b has spudded. According to the statement, the drilling activity is being performed by the Ocean Nomad semi submersible rig, the full programme is expected to take approximately 45 days and a further announcement will be made once the drilling is completed.

 

Nautical is the operator. Thay have a 35% share, but they will be paying 70% of the well cost as Canamens has chosen not to participate - I think this says less about the chance of success/size of the reward than the fact Canamens have very favourable terms for backing-in later if it is a success (see this very sceptical thread for further comment on this and other Nautical matters.) The other partner, Celtic Oil Ltd, is partcipating.

 

 


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From Nautical's recent presentation:

well to be drilled in southwest of field

  • Appraisal well (east of fault) to confirm sand distribution and obtain fluid samples to optimise the planned  Phase I of the field development
  • Exploration sidetrack (west of fault) will target prospective resources of 114mmbo (gross)

This is the 4th well. The first two went well, but the third missed the reservoir as this map shows. The presentation give the chance of success of the well as being 80%, and 60% for the side-track.  The 45 days quoted in the RNS is for the well and side-track.

 Let's hope that the D well encounters  "many a wondrous grot and secret cell" which are full of oil.Good luck to all holders!

Disclosure of Interest: The Author holds shares in Nautical Petroleum (LON:NPE) .


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61 Comments on this Article show/hide all

oilretire 27th Nov '10 42 of 61
1

Heavy oil seminar in Aberdeen yesterday


Seminar chairman Bob Ross, engineering director at Baker Hughes in Aberdeen, said several fields in the UK North Sea were classed as heavy oil – among them Mariner, Bressay, Kraken and Bentley – and at current crude prices the timing was good for developing them.

I had no idea Shell were after a heavy oil project in the NS??

Norman Hessler, of Shell, said that for years the company had been trying to get a heavy viscous-oil discovery off the ground, and now a viable project was within its grasp.

Read more: http://www.pressandjournal.co.uk/Article.aspx/2028309?UserKey=#ixzz16TfdOJf2

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Leekgo 27th Jan '11 43 of 61

I dont usually like to comment on share price moves, but anyone aware of a cause for NPE`s recent strength, and particularly it being up 7% today? (27.5p up at 5GBP as we speak....)

Little move in Encore so cant be Catcher excitement.....

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doverbeach 27th Jan '11 44 of 61
3

nice, innit?

No idea. I did wonder if Nautical would do better this month than Encore if Varadero came in, as having less already in the price, and with Catcher North having spudded...

db

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bugsmunny 11th Mar '11 45 of 61
5

Just pointing out that Nautical have issued a reserves upgrade for Kraken.

I'm at work so haven't had a chance to fully assess what this really means but it looks positive at quick glance.

As usual the market is not really interested.

Originally I was interested in Nautical for Kraken not Catcher ....I still think this is seriously under-estimated by the market.

RNS Number : 7784C
Nautical Petroleum PLC
11 March 2011

Kraken Oil in Place Estimate

Nautical Petroleum plc (NPE) is pleased to announce new estimates of the stock tank oil initially in place (STOIIP) in the Kraken accumulation, located in Block 9/2b (Nautical 35%) and Block 9/1a (Nautical 100%).

The highly successful 9/02b-4 well and 9/02b-4z sidetrack, completed in late September, provided a wealth of new subsurface information...

In the case of the widespread Heimdal Unit III sand, the revised geophysical mapping, undertaken earlier this year, has been incorporated into a new geomodel. The new STOIIP range has been estimated at 635-1182-1507 million barrels (Low-Mid-High). Net to Nautical this represents a range of 231-438-602 million barrels. This STOIIP range is higher than that from which the previously published best estimate contingent and prospective resources were derived.

....a considerable increase over Nautical's previous estimates of STOIIP for the Heimdal I. This summer, the Company will be acquiring 3D seismic across Block 9/1a to better define the Unit I reservoir distribution, prior to drilling an appraisal well.

Nautical will now carry out a suite of reservoir simulation cases on the new Heimdal III sand geomodel to determine the recoverable (best estimate contingent) resources. The resulting recovery factor will be used to estimate the contingent and prospective resources for the Heimdal I sand. A Competent Person has been engaged to audit the Company's estimates.

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Biggles 11th Mar '11 46 of 61
2

Hi, these are not reserves, they are contingent and prospective resources. That means that there is no commercial development plan and there won't be even after the CPR has reported: only more work/capital expenditure can chnage the categorisation of this oil.

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bugsmunny 11th Mar '11 47 of 61
2

Yes - thanks for the clarification...my lax use of language while typing at work - still my point is the upgrade and it looks like a pretty decent RESOURCE.

 

There most certainly is a development plan - although if you mean officially submitted not yet, but hopefully this year.

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marben100 11th Mar '11 48 of 61
1

In reply to Biggles, post #46

Hi Biggles,

Another thing that strongly affects the likelihood of crossing the threshhold to commerciality is oil price expectations. The higher those are, the higher an acceptable level of OPEX and CAPEX can be. Neverheless, as you say, the work - and time - still has to be put in to determine those cost figures with any accuracy.

Hence I regard plays like this and Xcite very much as geared plays on the oil price - they will clearly have higher OPEX figures than most straightforward "conventional" plays. To a certain extent the size of the resource is irrelevant until (some of) it can be shown to be commercially recoverable.

For those reasons, not really my sort of investment. I do not wish to speculate (to such an extent) on future oil prices. But they will appeal to oil price uber-bulls.

Cheers,

Mark

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loglorry 11th Mar '11 49 of 61
2

Mark I'm not sure you are totally correct in your assumption that one needs a very high POO to support these oil developments. Obviously, it does require more Oppex and Cappex but there are economies of scale and also the type of reserve makes a big difference.

In the case of XCite and Bently the almost 100% net to gross pay and larger than expected pay zone is very significant. Also significant is the horizongal porosity at the OWC which is higher than expected in Bentley which means that there is likely to be less ingress of water from the water injectors into the reservoir.

All these factors mean that less wells might need to be drilled than first thought.

Also having bigger heavy fields nearby Bressey/Kracken etc. will help a lot and Statioil are obviously highly involed.

Log

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bugsmunny 11th Mar '11 50 of 61
2

I'm pretty sure you will see that the break even oil price for this field estimated last year by Nautical was around $30 to $40 per barrel. , off the top of my head.

That hardly counts as "uber-bull" range.

Furthermore if we all waited to invest until all the plans and numbers were quantified then there would be little upside.

personally I think the market reaction is bizarre, but then that's nothing new.

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loglorry 12th Mar '11 51 of 61
2

The heavy oil tax breaks are also important for the early stages of production.

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repobear 13th Mar '11 52 of 61
8

In reply to marben100, post #48

Come on Mark you were in XEL and made strong money there so don't go getting too precious about heavy oil.-)

If you hold Encore and SLG, as you do, you might just want to consider whether a little NPE gives better risk protection to Burgman and the rest of the Catcher block than Encore. I believe it does I already have a huge portfolio exposure to Cladhan through SLG. I have to come clean here and admit that I sold a few Encore (less than 10%) and some other stuff to buy Nautical on Friday. I might be quite actively switching between the two if the market doesn't recognise this on any news.

My reasoning is that I think that Kraken, further upside on the Catcher block, the rest of the assets shared with Encore will turn out to be worth at least five to ten times the 80-90p now in the price (see the post here)http://boards.fool.co.uk/valuing-catcher-at-300mm-bbl-oip-a-recovery-12206492.aspx). They also have plenty of cash, which when the market goes tits up, as it well might, will see them through. In fact the Burgman result could mean that Kraken and the rest, except for Catcher drilled to date, Mariner and cash is in for free and that could be the case within a couple of weeks!

Anyone taking a couple of hours to look will surely conclude that these assets are worth more than 70-80m quid.

The ADVFN thread has some decent posts and a good board. Amongst the better ones I have seen to date are 5660,5700,5708,5830,5856,6124.6356,6539 and 6605.Like here

The comparison with the much hyped, and more troublesome technically, I believe,  Bentley field is worth a look. For example

http://www.iii.co.uk/investment/detail/?display=discussion&a...

cannot believe this RNS...

I'm still in a daze! I never for one moment thought these numbers were possible.

It's effectively 2 x bigger than Xcite's Bentley lol! Sure, the interest is nearer 35% on some areas but the 100% sidetrack looks meaningful. Then there's the 100% in the new licence via 26th round issued in Oct 10.

Currently - Kraken could command a £700mln market cap on the low side figures (net 200mlnboe+)

Stunning and if it wasn't for our pathetic seller - we'd be 500p+ by now.

Still - gives plenty of time to top up!

HUB

He seems one of the better posters there.

As I have said my numbers suggest about £80m for Kraken and the rest. If XEL is priced at £500m one could reasonably conclude that either XEL is hugely overvalued and NPE is quite cheap to cheap or that XEL is fairly priced and NPE is an absolute steal. I suspect that XEL has a lot to do before reality catches up with the price, but NPE is looking very cheap with plenty to go for and the firepower, aka cash, to get a good way there, FWIW.

Heavy oil, light oil, gas, North Sea, Kurdistan, Vietnam or whatever NPE is looking a good risk reward at the moment. You might want to take another look maybe?

The latest presentation and reports on NPE are here

http://www.nauticalpetroleum.com/

There are a lot of assets in common with Encore Mark1 and perhaps Mark 2,  if we ever get there, as I'm sure you have remarked. Excuse the pun.

repo

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marben100 13th Mar '11 53 of 61
15

In reply to repobear, post #52

Hi Repo,

Come on Mark you were in XEL and made strong money there so don't go getting too precious about heavy oil.-)

I know you like frankness, so I'll give a one word response to that: bollocks!

My post had nothing to do with "preciousness". I will freely admit to not having studied NPE adequately - and I doubt that I will, becuase I put it into the "too hard" category and I've already got a backlog of more straightforward potential investments to review thoroughly. What my post was all about was building on the lesson I learnt with Nighthawk and, I hope, giving pause for thought to other investors. That lesson was the following:

Before investing in Nighthawk (nearly 3 years ago now), my focus on oil investing was largely based on probable resource sizes. This was straightforward: you just take the resource size, a CoS, put in conservative recovery factors and $/bbl and, Bob's your uncle, you get a valuation for a resource. Well for "unconventional" resources, including heavy oil, life aint like that - as I learnt. I have nothing against heavy oil and Bankers Petroleum (LON:BNK) , for example, appears to be a fine company doing very nicely out of heavy oil - though I note that even for Bankers progress has been slower than investors would have liked.

The point I'm trying to make is that, for unconventional resources economics is more important than absolute resource sizes. It is a mistake to be fixated on the size of the resource. The simple point I was making in my last post was that an important factor to consider in judging the economics is the POO. Even using Bugs' figure of $40/bbl (does that include discounted CAPEX?), the value of Kraken is much more sensitive to the POO than, for example, Catcher which (at a conservative) guess may have costs of $20/bbl. For Catcher, on that basis a variation from $60 to $80 in the POO changes its value (as judged by earnings) by 50%, whereas for Kraken on the basis of $40 costs the value would vary by 100%. My point was simply that gearing to the POO is much greater - and sensitivity to an oil price collapse (not that I foresee one) is much greater.

Another point I'll make now is that whereas the CAPEX and OPEX for a good conventional reservoir like Catcher can be worked out (by experts) relatively straightforwardly and with a good degree of confidence, you cannot do the same for a field like Kraken without undertaking long term trials to validate the development approach/technology, decline rates and costs. In the meantime, you may have to contend with cost inflation, e.g. steel prices which will be a significant factor in CAPEX. Moreover, without having done that preliminary work, marketability of the asset (should NPE consider a sale or farm-in) will be tough.

I am neutral on NPE, as I haven't done the (difficult) work to judge the heavy oil assets - if it's possible to do so at all at this stage - but anyone investing needs to be fully away of these matters and go in with their eyes open. Unless you're intending to trade it on market spikes/slumps, be ready for a long-haul and a roller-coaster ride. This could be a great trading share for those able to do some realistic economic modelling and judge value, so they can judge under- or over-valuation under prevailing economic conditions. If I were to do so, I'd also watch NPE's cash position very carefully (I don't know what it is right now) and would be wary if I wasn't confident that they were well funded at least a year ahead. You never know what's round the corner, economically.

I am not "bashing" but just pointing out issues that investors here need to consider.

Finally, coming back to XEL, I bought that when it was seriously cheap (40p), as a pure punt - well aware of the risks above. As the price rose, I progressively sold tranches of that punt, recouping my original investment a long time ago, and am fully out now. I very much agree with you that, as a "one trick pony", it's much riskier at its current market cap than NPE.

Cheers,

Mark

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repobear 13th Mar '11 54 of 61
2

In reply to marben100, post #53

Hi Mark,

Good points and I was aware of, and agree with most of them. However you clearly missed the smiley on the comment the quote you responded to and the main point of my post was that regardless of the economics on Kraken, there is next to nothing in the current share price for it . Indeed if you check your numbers you'll probably find that it is indeed cheaper than when you first got involved in XEL and far far cheaper than when you sold you last shares.

As far as I can see the project stacks up far better than Bentley too.

if you and everyone else here doesn't take a look then so be it.

cheers,

repo

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marben100 13th Mar '11 55 of 61
4

In reply to repobear, post #54

lol - fair enough! Hope it works out for you and other NPE investors - and it may well do. If I get time, I'll try and take a look but need to study Keller (LON:KLR) 's webcast (just re-entered there in small size for now), Minco and a certain other oil company you suggested ;0) first. Am also monitoring events in Japan for their impact on my substantial investment in Kalahari Minerals (LON:KAH) - luckily will be able to see market behaviour re Extract in Aus tonight before London opens. Bit of a panic would be a perfect time for Rio to launch a knock-out bid there.

[apologies for the O/T]

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repobear 13th Mar '11 56 of 61
1

In reply to marben100, post #55

Hi Mark,

No sweat about that. NPE is a lot easier than getting into HRT, Brazil via Canada to suss in my view. Darron, you can choose to miss that one too;-)

However the rec count here and for a similar post on TMF says it all.

repo

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loglorry 14th Mar '11 57 of 61
1

Mark

Your analysis is spot on as usual. Companies like NPE and XEL will benefit enormously from higher oil prices or put another way their share price should be geared to the POO. You also state that you don't expect the POO to be much lower than it is now going forward. Most O&G investors expect $100+ POO for the next few years certainly $80+. Obviously this is very hard to predict but analysts from the big US banks like Goldman also concur that the price is likely to be around these levels.

Most NPV calculations on fields like Bentley are done at POO around $75 and there is still considerable upside.

What I don't then understand is your reluctance to invest in companies geared to higher oil prices. It sounds like you are being riks averse and quite righyly so but investing is about forming a belief of the future and positioning yourself to maximise that. I therefore see nothing wrong with being exposed to companies whtat will make out like bandits on higher oil prices.

As for which is best NPE vs XEL it does look like if you subtract NPE's other assets its price per barrel for Kracken is very very cheap. The trouble I have is that I feel I'm missing something here. Perhaps what I'm missing is that XEL is too expensive!

I do understand that there were some sand control issues with Kraken and I'd very much like to hear from folks like the captain on Advfn or some of our knowlegable oil guys here JPGH perhaps? I know some are very bearish on heavy oil and therefore there might be some very good technical reason as to why we should apply a much bigger discount to these fields.

Log

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doverbeach 14th Mar '11 58 of 61
1

Rig contract for Kraken RNS'd:

The WilHunter semisubmersible rig has been engaged to drill a horizontal appraisal well and carry out a production test during the summer 2011.  The key purpose of the well will be to prove a commercial flow rate and gather further information on reservoir quality and distribution, within the core area of the field.  Assuming success, the well will be suspended such that it can be used as a future development well.

db

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tournesol 14th Mar '11 59 of 61
7

LogLorry

you say "...investing is about forming a belief of the future and positioning yourself to maximise that...."

I strongly disagree - to me that sounds more like a definition of speculation than anything else. You speculate as to the future and you then bet on it.

IMHO investing is more to do with optimising outcomes despite the future being unpredictable/unknowable. One of the very important things that is required is to manage risk. Optimisation and risk management have to be done at the level of the whole portfolio not the individual stock. Which means you cannot deduce whether mark's strategy is optimum by considering just one or two of his holdings.....

I'd just add that it is a brave man who questions Mark's investment strategy/execution. I think his ability is quite remarkable. I've made a small fortune by tailgating some of his ideas.

T

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loglorry 14th Mar '11 60 of 61
3

OK perhaps I was a bit strong in my wording. I do actually agree that it is very much about optimising possible outcomes. However I think the point I was trying to make was that Mark clearly has the view that commodities in general and oil in particular will stay in demand and yet he was shying away from being long a company which is geared to a high POO.

I too have made money from stocks that Mark has pointed out as very cheap. I also agree that not knowing the full picture of his portfolio means that it is hard to say if he has or has not exposure elsewhere.

I'm 100% sure that Mark will do very very well in his investing career - he is already full time as I understand it and I wish him all the best. I think he won't mind us questioning his logic though.

There is no doubt being too risk averse is a bad thing though.

Log

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loglorry 14th Mar '11 61 of 61
2


http://boards.fool.co.uk/whilst-i-have-a-neutral-view-on-the-value-of-npe-12208354.aspx

Which I didn't know and is perhaps why such a big discount exists for Kraken right now.

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