Catcher - further exploration starts

repo,

I remain long. Just not so outrageously long. It's a matter of position sizes, or repositioning your chips to where you reckon the best opportunities lie. These are the first Encore shares I've sold, and it's been a good multibagging run.  Now I've got to deal with the CGT issues...

I've completed selling a large fraction of my holding into today's strength above 145p, and will remain long of Encore but at a modest size. I believe the chances of success of Encore's forthcoming drilling are greater than the sceptics who reckon the shares are overvalued, but nevertheless there is sense in their arguments. Fortunately what appears to be a good selling opportunity has presented itself.

I am interested as to any views on Tudor Rose discovery, Buffallo, Spaniards and Merrow.  I recall from the AGM decisions would need to be made early this year and no later than April on Tudor Rose.  The normal form has been to farm down and have a % between 15-20.

Whilst EO. have a very good cash position (£37m at AGM before further Catcher 4 drill programme) , I note proposed Cladhan activity could be 4 wells and SLG have indicated a cost to them of $40m - so EO.'s share will be approx. £11m.

Whilst I am not initially concerned as to the cash position I have no idea what kind of costs would be involved with the above - any ideas ?

Reo

Sector watcher comment from FTalphaville today.

NPE and its partners announced the spudding of the Catcher North exploration well yesterday morning, the second in a four-well programme on licence 28/9, and hot on the heels of the Varadero success.
Estimates of the size of the prospect appear to vary, with operator Premier Oil assuming 20m barrels recoverable whilst NPE are going for a punchier 26m barrels. Assuming the higher number and a $70/barrel long-term oil price this equates to around 30p/share net to NPE's 15% interest unrisked, or 45p/share if we assume the forward curve. Even after the stand-out 700% share price performance last year, we continue to like NPE.
Our current risked NAV of 592p/share represents a 23% premium to the current price of 480p/share, although I reckon that using more aggressive oil price assumptions, derisking the Kraken discovery and allowing some risked exploration upside, then this is a 1000p/share stock

The main objective of the well is to appraise the Tay and Cromarty reservoirs to the North of the Catcher discovery made in June 2010, at estimated depths of approximately 4,300 feet (Tay) and 4,500 feet (Cromarty) True Vertical Depth Sub Sea.

Catcher North is the second well in the current drilling campaign after the group took advantage of a weather window suitable for mobilisation from Varadero to the Catcher North location. Burgman will now be drilled following Catcher North.

http://www.investegate.co.uk/Article.aspx?id=201101241030049553Z

http://www.nauticalpetroleum.com/AGM-Nov10v2.pdf

P23. One of the smaller prospects on the block.

repo

are movement opportunities, ie NS weather, so variable on a day to day basis that the rig operator is unable to risk carrying out a flow test when the movement forecast is poor, or is it a pre campaign decision not to test which requires too much head scratching and resource upheaval to change?

The answer is likely to be (b): a pre campaign decision not to test which requires too much head scratching and resource upheaval to change?

As a well as a rig, you also need quite a lot of kit on-board, along with the specialists to screw it together and read the dials. Getting it out there involves boat-trips - even screwing it together is quite an undertaking...

SW10

There's been quite a bit of speculation elsewhere about an imminent spud on the next well in the Catcher programme, which I hope is correct, but the ship/crew/supplies movements identified look more like an acknowledgement of a few days of poor weather with no chance of movement to me.

But what does interest me is why, in a situation where movement between drills is so weather dependent and the work is going on in a North Sea winter, the opportunity to carry out a flow test doesn't seem to be catered for.

Presumably, once the rig goes out to sea it stays "on hire" until return to port. My understanding (which is probably wrong) is that flow testing might take a week, or less if say a single interval was tested. So I think my question really is, are movement opportunities, ie NS weather, so variable on a day to day basis that the rig operator is unable to risk carrying out a flow test when the movement forecast is poor, or is it a pre campaign decision not to test which requires too much head scratching and resource upheaval to change?
Regards.

Biggish upgrade for NPE I notice.

(Be nice to see the detailed overlap with EO.)

1226 GMT [Dow Jones] Canaccord raises Nautical Petroleum (NPE.LN) price target to 592p from 522p after recalculating the company's net asset value. Using a Brent crude oil price of $70 a barrel, and with a 12% discount rate, Canaccord estimates Nautical has a net asset value of 592p a share. "The past year has been transformational for Nautical with positive newsflow from each of its key assets leading to a material de-risking of the portfolio," says Canaccord. The rating remains buy. Shares gain 0.8% at 470p.

Mark,

I can't recall where, but I am certain that I read a quote from Premier stating that they were very happy with the job that EO were doing as operator. I guess this will only change when we are bought out.

EO seem very keen to get on with drilling. I assume this is because they want to keep the SP moving north as a defence against opportunistic bids. :^}

I also recall AB confirming that Carnaby is dependent on Burgman, and so it's definitely either Burgman or Catcher North next.

Buffy

well the advfn bulls would no doubt say it is Premier hoping to buy Encore on the cheap

db

Hi db, That looks like a narrow range of target sizes, suggesting a higher degree of certainty, as compares with perhaps previously? fb

Perhaps not Burgman next! From today's Premier Update

Following the successful Varadero well previously announced, the next well on Block 28/9 will be either Burgman or Catcher North, with the drilling order dependent on the weather window available to move the rig from the Varadero location.  The success at Varadero has de-risked several of the remaining untested prospects on the licence, which could add considerable reserves to a Catcher development. [my bold]

This is good news - previously drilling Carnaby was dependent on getting a good result at Burgman - now they must be confident enough after Varadero to drill it straight away.

PMO give target sizes, as:

db

Pro,

I wouldn't place much weight in Goldman's rating Encore a "Sell" either, they did after all give Hawk a "Buy" rating! Despite that their weighty tome that was the 296 page research report into the Oil E&P sector was a thoroughly interesting and informative read. Whilst I agree most of their ratings seemed to be spot on, the above two were the glaring anomalies in my view.

Surely it sould've been Encore Buy, Hawk Sell, the latter clearing being an utter disaster.

Proselenes,

Interesting you got so many thumbs down - it's just as much a mark of an iinteresting and valuable post as thumbs up.


Nobody's come back with a decent set of numbers that justifies the current price except by pricing in a lot of oil that is yet to proved or even found yet.

In the end if the markets get worried, all the froth gets blown off the top extremely quickly - and that means all non-booked resources at the very least.

I think caution is well advised at the current market cap..

B.

Suffice to say in summary, as its my last post on the subject for now :


Goldman Sachs said EO. was a sell, 12 month target price 112p and the link is below :

http://www.mediafire.com/?u829hmdq2qv0zdi



This week the directors did just that, and sold a load of shares, link below :

http://www.investegate.co.uk/Article.aspx?id=201101061555020509Z



Good luck if you are holding, you might need it.

What have you got thats drilled and likely proven ?

Catcher which PMO say in an official RNS, and therefore under the regulations, is perhaps 60MMBO to 100MMBO.

http://www.investegate.co.uk/Article.aspx?id=201007050700097863O


So Catcher with the mid figure 80MMBO and 15% of that is to Encore.

So 12MMBO is all there is for now as per official RNS releases for Catcher net to EO.


---------


Cladhan, well the figure is from EO.

http://www.investegate.co.uk/Article.aspx?id=201010190700115938U

So thats P50 of 89MMBO recoverable, and so with a 16.6% share thats 14.78MMBO recoverable.



Lets add them up

12 + 14.78 = 26.78 MMBO recoverable to Encore, lets times that by 12 US$ = £207m


£207m against the market cap today in excess of £400m



Seems to me that there is a whole load of hope in the share price - which comes back to my original point, its overvalued already and loads of success is already priced in, which is why the share price is stagnant and probably given its high price why the directors chose to bank some profits.

Any drills go wrong and the share price is going to collapse down fast........and if more drills are successful the price reaction will be muted as lots of it is already in the price.

The bull case is that Catcher and now Varadero has greatly increased the chance of success on the rest of the block.

I'm not wholly convinced, but say 500M barrels in the other blobs on the map (excluding that big blue one!). 50% recoverable, 15% stake = 60M to Encore. 30% CoS? Another 20M to price in.

Then there are the new licenses, which a very "lucky" or skilled management thought it was worth buying into. And is $10 the right price to be using, especially since the company's stated aim is to find oil and then put the discoveries up for sale?

An awful lot of hope and future success in the price - maybe, but I've seen much higher valuations with much less reason elsewhere in this sector. (And yes, I've also noticed them come crashing down on failure).

repo I'm sure you are aware that the director sales are offset by options that they can exercise at very low prices to restore their holding back to where it was prior to the sales. This means they are taking out a very well deserved bonus while still retaining their stake as long as they expercise the options which I'm sure they will do. It also provides them with the money to exercise the options at their strike price.

Director sales are never a good thing but I think buys are more indicative and sales of a proportion of their stake when they have options to replace the sale at lower prices makes some sense to me. If a director was never going to sell their stake in the company then there would be little point in them holding them.

I too sold at around 17p after the FD sold and it was a terrible mistake. I think then though the company was a bit becalmed and had suffered from the gas storage news. It was hard to get enthusiastic then but after Cather and Cladhan and the new blocks it is much more exiciting. I don't hold though but might consider a buy if the stock sells off below £1.

Log

Market Cap is £407 million.

If you go on 10 US$ per barrel in the ground for them then they need 63 million recoverable barrels to justify the market cap.

Given their small holding in the licenses and the OIP figures from PMO, one could suggest they may have just 20 to 30 million barrels recoverable , and that makes them quite overvalued.

  If you are very very generous and give them 30 million recoverable then 30M x 10US$ = 300,000,000 US$ or a market cap of just over half what it is today.

Thats an awful lot of hope and future success already in the price.

Run the figures with a more conservative 20 million barrels they have at the moment P50 recoverable potential and my word, they really are overvalued.

I have seen so many people on other BB's crying at why the price has not risen and its all MM's and conspiracy, no its not IMO, its simply far too much future success is already priced in.

Cannot blame them, EO. is grossly overvalued if you take things in "recoverable" barrels proven potential and also their "net percentage" of those figures.

Way too much future success is in the price already, and there may be failures ahead with the drill bit.

Therefore it makes sense to sell some and lock in some profits while the price is presently way over inflated and far too ahead of itself.

Goldman Sachs said sell..... the directors agree !

davjo,

I'm not at all surprised by these sales, who wouldn't want to take some money off the table at this point, especially with more options coming, and with closed period coming up.

what does seem very odd to me is the sales 14 months ago, I do recall some sales at around 15p, but I hadn't realised that mr booth had sold some then. I find this particularly surprising because I recall feedback from a meeting with management where they thought the price fall to 15p was non sensical, strange then to have them cashing in some of their shares at this price. I guess this might have been after a fall below 10p, and on the way back up.

Still shows very little confidence in the company's prospects to be selling shares at cash value,

cheers K

Would be interested to hear from others about their topslicing strategies

Well Messrs Booth, Whyms and Dore weren’t shy today, disposing of 4m shares between them :-
http://www.investegate.co.uk/Article.aspx?id=201101061555020509Z

Have to say I was a bit surprised, given the potential upside from forthcoming drilling but more particularly because the same directors sold 4.88m about 14 months ago, saying in each case that they do not intend to sell any further shares in the foreseeable future.

http://www.investegate.co.uk/Article.aspx?id=200911130700064496C
http://www.investegate.co.uk/Article.aspx?id=200911041215019386B
http://www.investegate.co.uk/Article.aspx?id=200910281523295353B


For me, 14 months is well within the foreseeable future. So are these latest sales a pointer to the risks faced going forward? Note :-

a) these directors’ salaries are £150k to £175k, minimum benefits and no cash bonuses
b) between them they have 12m options in the money + 2.65m performance units which are certain to be awarded.
c) options are awarded in March following interims

It seems pretty likely that directors will be in a closed period from now until after the interims and March option awards are announced, so now is the last opportunity to deal. Clearly, as industry standards go, they’re not highly salaried but they are highly geared to performance, so it‘s not surprising they take some cash now, especially since they’ve got chunky options/incentive awards representing approx 5% of the company, yet to be exercised. I’d also observe that Booth and Co are strict risk management fellows and they might justifiably be a wee bit concerned as to the financial climate going forward. It’s also interesting to compare EO with SIA director sales, the latter never having pocketed a cent. Would Booth have taken the TGD risk? I don’t think so, it’s not in his nature. Two very different strategies of risk/reward.

Given the above, I don’t think too much can be read into these sales re future prospectivity, other than to realise we ain’t necessarily looking at a slam dunk beautiful outcome from here. I wish they hadn’t commented about not selling in the foreseeable future but I wonder in fact whether they had some inclination at the time that an offer was not that far off. Who knows? For the mo, I’m holding…likely till the end.

"Surely you meant "imminently"? "

Ha ha! Could there be any faint possibility you have any experience in this!

Thanks for your concern, but liquidity, my sale size, its timing and so on mean anyone seeking to front-run me isn't a concern to me just now! I'm not "irritated" at all on the subject - its a fairly academic issue that I'm just clarifying. As ever I tend to keep my dealing as under wraps as is appropriate to any discussion I'm in, but I won't be dealing Encore either way at all "imminently"! I'd never announce on a BB an intention to deal shortly before doing so, and please note that any such Encore dealing would be to go from very long to quite long, not as the result of losing bullishness.

I was lucky because with interest rates so low I viewed Encore @15p with the share buyback in place @14.5p as a place to park my spare cash.

I was unlucky because I've topsliced at 28p, 53p, 89p, 113p,124p & 139p - the last one 2 hours before Varadero came in!

So my experience is pretty similar to your's...with hindsight I'd have held the lot...in reality if it happened again I'd follow exactly the same strategy - topslice every time the position size becomes too big in my portfolio for my own personal risk characteristics.

I've previously held a small-cap share which 5 bagged to become a pretty large % of my portfolio only to see it drop to to 1/75th (!) of its peak value in the credit crunch without ever selling a meaningful amount...its a mistake that (I hope) I'll only make once!

As a relatively inexperienced investor who started dabbling in the oil & gas sector at the start of 2008, I actually find these discussions about when to top slice quite interesting, as I find this one of the most difficult things to decide and learn.

Having bought into EO from 25p all the way down to 10p, I went rather overweight at 10p since I liked the probabilities of what was in for free. But being somewhat overweight, I decided to topslice 40% of my position at 33p. Obviously in hindsight not ideal, but at the time it seemed a sensible way to manage my risk. It seemed sensible risk management to diversify into some other plays, and I also had a tax bill to pay. Additionally my failure to topslice other positions, where I later came to regret not doing so, had some bearing on my decision.

Since then I have held off topslicing EO until yesterday. Whilst I think there is a lot of further potential, I felt it was right to topslice a further 4% of my EO position with it becoming 18% of my portfolio.

Perhaps I am too risk-adverse? I top-sliced my Nautical position in a similar manner over the last year. I dont think I could ever run a concentrated portfolio of just a few shares like some here do without a severe impact on my sleep. My portfolio size is about 40 different shares with 9 of those being in oil & gas.

Would be interested to hear from others about their topslicing strategies.

EF

I believe the difference between the cautious view on Encore (ie say ee's above) and a more bullish view, such as is required to justify a chunky holding, is all to do with probability of success and size of prospects in the event of success. IMO this difference between my estimates of probability and size and what seems to be implied in the SP has existed all the way up.

As ee notes, at 14-16p expectations of drilling success were very low, but bulls might have hoped there were actually some free options with reasonable probabilities in their portfolio, one of which, Catcher, luckily worked out spectacularly well. So the mkt was underestimating probabilities.

Now, bulls will believe that not only are the probabilities of success at the likes of Burgman, Carnaby, Catcher N and Buffalo (and later the 26th round blocks) greater than the mkt has currently priced in, but that those prospects are actually potentially larger than the 40-60mmbo sort of sizes mentioned in the top post of this thread. Those numbers are Premier's, and Premier wants to downplay things to buy Encore cheaply. If we cast our minds back, predrill the first Catcher well was only targeting 21mmbbls http://www.offshore247.com/news/art.aspx?Id=16729 . My response to ee "finding it really quite difficult to keep running a big stake" is that we are looking at different forward-looking estimates of probabilities and sizes. On my estimates, a decent holding still is fine, but I admit that the sheer large size of my holding relative to the rest of my portfolio means I'll have to rebalance soon, ie sell some, just on the grounds of portfolio management (my Encore holding is, by my standards, having about ten-bagged in not many months, very large).

Without dredging up the Ben Hogan quote again, I think Alan Booth and his team have proved beyond doubt that they are more likely to be lucky than most.

Once the company starts drilling into the big ball we all live on, all of the good work has been done. AB is of the opinion that it is better to have smaller stakes in lots of blocks than larger stakes in one or two. Doubtless this is due to the unavoidable role that luck plays in the process. Having some skin in the game is the only way to make money in this business, and Encore have lots of it. Looking at what we have, I think an unbiased observer would agree. Packaging some assets off to Egdon to crystallise the value was a smart move. Keeping Tudor Rose, Merrow, Spaniards and Buffalo mean that the story doesn't end with Caldhan and Catcher.

I found ee's point interesting; although I agree with repo that we could perhaps double or triple from here (I'm wildly+ paraphrasing you here repo!)

I have always had a concentrated portfolio. Moving on when the vast bulk of the SP appreciation in a share has taken place is important. I think there is quite a way to go yet. :^}

Buffy

Hello all,

The thing is that Encore clearly fall into the "lucky generals" category. (Napoleon apparently once said something like "Give me Generals who are lucky"-not brave or clever, just lucky.) Or , to put it another way their Mojo is clearly working at the moment.
This isn''t just a matter of how often the coin falls the way I called it, but is also very much a question of experience, alertness, practice, ("The more I practice the luckier I get.")and good judgement, often based on experience and attention to detail. If a team or a company is involved, teamwork is also a factor. It often manifests (for individuals) as good timing, for instance-being in the right place at the right time.

Mojo needs maintenance-an individual or group can lose it if they become complacent, cocky, lazy or inattentive, or simply tired.

I suppose a lot of what we do as investors is try to train ourselves to spot whose Mojo iscurrently working, as it were. Numbers and results are a diagmostic tool, but don't tell the whole story. For instance a run of apparent "bad luck" or a succession of "unexpected problems" or missed targets can be indicators of, shall we say, early stage Mojo failure.

So just now I,m inclined to agree with repo, (whose Mojo, btw, appears to be functioning pretty well just now!), buts let's not forget Nautical who have been jolly "lucky" and shown (in hindsight) rather good timing.

w

163 to 175 pence....

It looks like that is just a short term target over the next few weeks. No doubt they'd raise it again if the next drilling results are good enough......

fb

"...The analyst maintained his ‘Buy’ rating whilst upping his target from 163 to 175 pence...."

that's versus a current price of around 150p

I don't understand the thought process displayed by analysts at all. Why would anyone buy a share in a sector which is notoriously difficult to value and where share prices are notoriously volatile if the upside is only 15%? How can that possibly make sense?

I tend to buy shares when I think the upside is 100+% and the downside is -20%. ish. That means I build into my purchases a safety margin / margin of error which provides some protection from valuation errors and price volatility.

If you buy shares because you hope they will rise by a mere 15% then you have no safety margin at all - especially when you allow for the spread and for transaction costs. I simply wouldn't contemplate it.

The only exception to this rule is where there is a cast iron certain upside with no downside - for example the Caledon take-over looks quite close to that at the moment - but even that isn't a shoo-in.

What do others here do?

House broker comment on Encore.

http://www.proactiveinvestors.co.uk/companies/news/24324/broker-roundup-desires-petroleum-rockhopper-argos-resources-encore-oil-premier-oil-nautical-petroleum-president-petroleum-24324.html

Westhouse analyst Hart also commented on the discovery, in a note on EnCore.
“Fresh from a year of outstanding drilling success in the North Sea, EnCore has picked up in 2011 where it left off in 2010,” Hart said.

He added: “Following today’s announcement, we are not materially changing our estimate of resources in place within Block 28/9.
“However, we are reducing the risk associated with the Tay injectite prospects in general and that of Varadero, specifically.“Significant upside remains, in our view, as additional drilling may lead to further de-risking and potential resource upgrades.”

The analyst maintained his ‘Buy’ rating whilst upping his target from 163 to 175 pence.

Nautical have now updated the map in the header to show the Jurassic prospect that Burgman will be targetting:

This isn't new news - it was shown that size on slide 24 of the AGM presentation I linked to in the previous post, but it does make it stand out nicely!!!!

db

So, onto Burgman.

See slide 23 of Nautical's AGM presentation in November: http://www.nauticalpetroleum.com/AGM-Nov10v2.pdf for the sizes of the thee targets at Burgman.

db

Bizarre dont you think that Oriel say this:

114p/sh to Premier, 64p/sh to Nautical and 21p/sh to EnCore

And Evolution this:

Nautical Petroleum target price to 500p, from 450p,.....Premier by 50p

http://www.iii.co.uk/articles/13754/uk-firms-enjoy-north-sea-fillip

Steve Jenkins, chief executive officer of Nautical which owns a 15% interest in the well, also hailed the discovery as an "excellent result", with the reservoir both thicker and better quality than previously anticipated.

"The success further underlines the great potential of Block 28/9. So far, the seismic data has highlighted the presence of high quality hydrocarbon bearing Tay sands - this augurs well for the numerous mapped anomalies on the block."

Analysts at Evolution Securities commented: "The Varadero discovery has proven both thicker and better quality sands than pre-drill estimates. We increase our Nautical Petroleum target price to 500p, from 450p, to reflect the derisking of Varadero and the Burgman prospect to be drilled next.

"Adjusting our model to reflect today's news increases our core plus risked upside for Premier by 50p and hence, we increase our target price to 2,050p."

Ft alphaville comment -( from Oriel note ).

The Catcher Area partner group (Premier*, Nautical and operator EnCore) have announced that the Varadero exploration well has made a new oil discovery
The discovery is located to the west of the Catcher field and was targeting the Tay injectite play which was successful in the Catcher East sidetrack. The well intersected 84ft of net oil pay over a gross interval of 185ft in-line with pre-drill expectations with no oil-water contact encountered. A further 22ft of net pay was also encountered in thinner sands above the main Tay reservoirs
Oil quality is good at 27deg API (a key pre-drill risk, given concerns that oil quality could degrade further westwards from the original discovery) as is reservoir quality with an average porosity of 33% in the main Tay sands

Pre-drill resource estimates were c40mmb which appear to be largely underpinned by this result. Unrisked this would be worth c101p/sh net to Premier, c56p/sh to Nautical and c18p/sh for EnCore over and above our carrying values for the main Catcher discovery
In addition, this result has significantly derisked the follow-on potential of the Catcher plays on Block 28/9. The rig will now move to drill the Burgman prospect to the south-west which has multiple objectives within the proven Tay injectite and Cromarty sand plays in addition to a deeper untested Fulmar target. The Tay and Cromarty targets have pre-drill resource estimates of c45mmb worth unrisked 114p/sh to Premier, 64p/sh to Nautical and 21p/sh to EnCore
Our NAV's (excluding exploration upside) stand at 1811p/sh for Premier and 490p/sh for Nautical before the addition of this latest discovery
We re-iterate our BUY recommendations on Premier and Nautical whilst we have yet to formally initiate on EnCore

Wow - I'd convinced myself the Varadero well wouldn't come in, and then the following news is released by Encore Oil (LON:EO.), Nautical Petroleum (LON:NPE) & Premier Oil (LON:PMO):

http://www.investegate.co.uk/Article.aspx?id=201101041100048603Y

Varadero Oil Discovery

 EnCore Oil plc (LSE: EO.) is pleased to announce that the Varadero exploration well 28/9-2 located in UK Central North Sea block 28/9 was drilled to a Total Depth of 5,205 feet Measured Depth (M.D.) having successfully encountered excellent quality hydrocarbon bearing reservoir sandstones at 4,020 feet M.D. within the target Tay Sandstone level.

 Initial analysis indicates the discovery of a 400 feet hydrocarbon bearing interval with a calculated net pay of 106 feet.  Extensive wireline sampling and pressure testing of the hydrocarbon bearing zones have been undertaken and suggest the oil has an API of approximately 26 degrees. Analysis of the logs suggests excellent quality sands with average porosities of approximately 33 per cent.

 The well will now be plugged and abandoned as planned and the Galaxy II rig will be moved to the Burgman prospect. Subject to any weather or operational delays, the rig should arrive at the Burgman location next week and a further announcement will be made upon the spud of the Burgman well.    

 

A very Happy New Year to all !!

FH,

You won't hear anything next week. The end of the following week maybe.

Buffy

I note Varadero spudded on the 18th Dec. This is a shallow well,so we can perhaps expect some news next week.They should be in the reservoir section by then.Given the LSE is closed Mon/Tues,Wednesday could be fun.
FH

I'll accept that tax considerations may come into it if you've used this year's CGT allowance, or allowable losses, and you think you might get away with holding to the next tax year, but other than that how does allowing a 40% margin help?

OK that should be 28% really in the new tax regime instead of 40% but the argument makes sense. If you've already used up your CGT tax-free allowance for this year any further gains realised from EnCore before 6th April 2011 are worth (sell price -buy price) x 28% less in the pocket. As the difference between the sell price and the buy price gets larger the cost of selling this tax year tends to the 28% value. After 6th April the whole gain (if less than £10.1k) ends up in the pocket (and potentially more if the sale has an equity option or loan note.)

So in these circumstances (assuming a mid teens buy price ) you'd have to believe that the takeover price for EnCore will be less than about £1 to make sense to sell now.

"the price you can buy them today, is nearly 15% higher than say last week, they must be less attractive from a risk reward point-of-view. And this because the rig has moved out of its berth."

Investor A bought £1000 of shares yesterday. Investor B bought £870 of shares last week, which are now worth £1000. Are you really suggesting that their decisions about whether to sell now, or whether the shares are attractively valued, are in any way different, leaving aside CGT? Of course the shares are less attractive now than last week, but they are both in exactly the same position.

I believe the shares are pricing in a good deal of sucess...a failure I estimated at around 30% could result in a loss for an investor buying now.

But surely they'd also be resulting in a 30% loss for someone who had bought at lower levels, but who had failed to realise a gain when EO. had reached a higher price.

Having seen paper profits get wiped out on several occasions, I have more respect for them now.

I'm in a middle of a few deals (not Encore) to tidy up what I'll be reporting for calendar 2010 capital gains, so I cannot dispute that tax considerations may influence selling decisions!

Agreed SirL, but tax may influence selling decisions.

I agree, they say that the tax tail shouldn't wag the investment dog however under the current UK tax regime when a share has risen a lot from your buy price you have to be pretty sure its become 40%+ overvalued to make selling the right option.

Although it's obvious from the fact that a delay of a few weeks caused the EnCore price to drop that there is some short term interest in the stock, I still think on balance of probabilities it will be sold for more than the current price and not in this tax year and that's all that it takes to make it a 'hold' for me whatever wild gyrations happen in the meantime.

I know there are ways around this such as spread-betting or moving to Belgium but these are not entirely without cost or risk!

BM,

"Some reasonable odds for those in from a lower point IMO, less so for new buyers"

Any investor's buying price makes no difference at all to whether the valuation of the shares is currently attractive.

The recent fall-back in SP may have been a buying opportunity, but for those who didn't buy-in top up, inlcuding myself, I think the current price run up in price relfecting the movement of the rig, probably leaves EO. more than fully valued on the basis of current knowns.

Of course there could be major upside from here.

There are several wells, some contigent decisions and several targets so very difficult to analyze.

The first well has approx a 40 - 50% CoS and I believe the others a little less.

The chance of none of them (V,B, C) being successful then is around .6 x .7 x .7 = 30%

Some reasonable odds for those in from a lower point IMO, less so for new buyers.

Bugs

Encore Oil has announced that the Transocean Galaxy II heavy duty jack-up rig left the standby location in the UK North Sea on Sunday 12 December and is en route to the Varadero location on Block 28/9. Subject to weather and any operational delays, the rig is expected to arrive at Varadero later today.

http://www.energy-pedia.com/article.aspx?articleid=143382&editionid=100560

http://www.offshore247.com/news/art.aspx?Id=16729

“Block 28/9 contains numerous stratigraphic prospects and leads at the Paleocene, Eocene and the Jurassic levels,” said Nautical chief executive Steve Jenkins. He said recent interpretation of reprocessed 3D seismic has helped to traps and revealed several seismic anomalies. “The well is targeting the strongest and most convincing of those prospects

AIUI Catcher is a stratigraphic prospect.

AIUI the likes of Varadero, Burgman etc are the same play as Catcher, which AIUI means they are exactly the same sand layer, which presumably means the sand would be almost the same vertical thickness. I understand that Catcher is a stratigraphic trap, which complicates things. Even so, given that the horizontal blob size on the maps of Varadero, Burgman etc is almost the same size as Catcher (excluding yet to be drilled Catcher North), there seems to me a surprising difference between the estimated size of Catcher (300mbbls OIP) and the estimated sizes of V, B etc. Presumably the V, B sizes are recoverable, but even so it strikes me that the officially estimated sizes of V, B, etc may be a bit low.

Repo

Having sold one third at around 60p and one third at the top (lucky timing), EO have already provided a very warm feeling for me, so I'm very happy indeed to hold the remainder, probably to the bitter/sweet end, whenever, whatever that is. I very much agree your reasoning and that the upside could be considerable, very considerable :-)

I think Sir L is right .
The Buffalo prospect looks like a serious runner post West Rochelle -very much "nailed on" in fact - I'm much less convinced about Tudor rose.

The Encore AGM slides 30/31 say it all - Rochelle described as a "Buffalo lookalike."

http://www.slideshare.net/plsderrick/encore-2010-agm-presentation

Thanks to Repo for picking this up .

repo,

I agree that Tudor Rose may well not be drilled unless a farm down for it can be found. However, your post 18 above states that IYO an attractive farm down and free carry for Encore at Tudor Rose is nailed on, and I cannot see how West Rochelle success makes that true or more likely.

OTOH, Buffalo looks very tempting, with light oil/gas discoveries in the same Kopervik level to both the East (West Rochelle) and West (Goldeneye). I'm not sure a farmout of the 40% interest there is required, or even necessarily to be attempted.  Note that whilst an invitation to farm into Tudor Rose is openly available on Encore's web site (this site won't let me paste a link here) , there is nothing similar visible for Buffalo.  IMO West Rochelle success changes the situation here from the time of the AGM, making Buffalo success more likely and so a farmout perhaps less desirable, depending of course on the cash situation.

Buffalo and Tudor Rose seem to me to be quite different in their nature and attractiveness.

repo,

It's unclear what the connection between Tudor Rose, Buffalo and W Rochelle, and Catcher, the subject of this thread is.  They're in different parts of the N Sea

I haven't read anything about Encore trying to farm down Buffalo, and I can't see how this W Rochelle news is in any way relevant to the chances of a farm down of Tudor Rose, which is a different play. Could you give details of why the Tudor Rose farm down is"nailed on" please?

Enthusiasm is all very well, but let's try to keep it factual please.

The AGM presentation is up, for those who weren't able to attend:

http://www.encoreoil.co.uk/assets_cm/files/PDF/encore_oil_2010_agm_pres_14_oct_2010.pdf

A plea from the uninitiated - can anyone with more expertise give a quick couple of sentences on what the pretty seismic and other pictures (slides 18-26) mean?

And, for those who may have attended and are willing to share - I get the sense from reading ADVFN that conserving cash, avoiding dilution, and maximising exit is the board's imperative - which aligns nicely with the rest of the shareholders! Two other questions:

- What's the board/mgt % shareholding (slides say 'largest');
- Did they say anything about potentially bidding for any of the blocks surrounding the catcher / cladhan discoveries?

Cheers
K

It is a Jack up(legs up in air  in tow & top heavy):
"In fact, even though moving jack-ups over long distances may not be as glamorous as towing semi-submersibles it would certainly appear to be more dangerous. While World Offshore Accident Database, commonly known as WOAD, only records one semi as having sunk when under tow, it shows that many jack-ups have been lost while afloat. In at least one case one has sunk when the distance to be travelled was less than 40 miles. During some tows even if the rig has not been lost they have shed bits, particularly legs.

Jack-ups are not really marine structures. They are most secure when they are standing on the seabed with the hull fifty feet or so above the waves, looking a bit like a triangular coffee tables. Making the change from being a secure structure, impervious to the effects of wind and waves to being a marine object – now an upside down coffee-table with the legs sticking up hundreds of feet into the air – is difficult. Particularly difficult is the actual moment of transition and the Operations Manuals of these objects always specify the environmental criteria under which it can take place. Wave heights of more than one meter are normally unacceptable. In addition the warranty surveyors will normally only give towing approval if the weather conditions for the whole tow will be acceptable due to the area of the world where it is to take place, the routing of the tow takes advantage of weather routing or jacking down positions are identified not mere than 24 hours apart, if the tow in close to land.

In addition to the problems of ocean towing created by the configuration and the low freeboard of jack-ups, which is really a whole subject on its own, there are numerous operationally difficulties which those moving jack-ups must routinely face."

Obviously I don't know much about North Sea weather in detail, but given that "The Transocean Galaxy II heavy duty jack-up rig is expected to return to the Catcher area later this week" on Monday 27 Sept, and it's still in Dundee today on 14 Oct, it is suggested that the weather has been too bad for some 14 days. Given the price of an oil rig, which doesn't seem to be being currently charged out to a client, is this credible?

RNS:
Says that the Transocean Galaxy II rig not arrived at the Varadero location- bad weather at Varadero . The rig has been able to leave its previous location, and is en-route to Dundee to wait until a suitable weather window is available to take it to Varadero. The Galaxy II rig has not yet been assigned to EnCore. (Does this mean Encore aren't paying yet?)

Hardly justifies this morning's price moves, but perhaps (post SOCO) some people are a bit jumpy?




(Also given that Encore was assuming a fair bit of good news ito come at 130- ish, at least according to my steam driven spreadsheet) http://www.stockopedia.com/shares/encore-oil-LON:EO./news/rns/101014eo.001883.htm/

w

A very minor issue, but p17 of the Premier presentation linked by db suggests Carnaby is actually 65mmbo. Of course at this stage these estimates are very vague.

The BB Troll and Highland Endurance both contracted to tow the Galaxy II into heading to Dundee

This was the port where the rig had repairs carried out before heading out to drill Stella for IAE earlier this year

The rig at that time had trouble with an engine and had parts flown in from Huston

Odd goings on this morning - nearly touched a pound first thing. Vague rumours that the Catcher rig has gone back to port, all looks a bit shady to me

http://citywire.co.uk/new-model-adviser/shrewdie-nautical-petroleum-set-to-fly-north-sea-tax-breaks/a436027

Despite recent success, Nautical Petroleum continues to offer plenty of potential upside and limited downside to investors. It is drilling further wells in the high quality Catcher field and the Kraken field also has high potential for an upgrade in reserves. With Statoil taking a stake in the Mariner field at a healthy profit for Nautical, its existing assets alone are being valued at more than 500p –and that is if no further oil is discovered.

The fact that Statoil has paid a big price to take the stake in Mariner makes further production in that field likely too. Updates on a raft of exploratory drilling are expected in the next few weeks. Keep an eye out for more positive news flow in the fourth quarter which could move the share price towards £6.

Share price is zooming up at the moment. This is magic after all the disappointment of the gas storage events. Having bought first at that time at around 40p, then suffered the fall to 8p, I am really glad I stayed with it and ignored at that "stop loss" stuff. Maybe on average such disciplines pay off, but on this occasion I am grateful for my good luck and for all the really informative stuff from the ace posters here and on TMF. Thanks a lot, guys and gals.

how long till we get the RNS?

Oilschmoil

repo,

I can't see where they get the extra 500mmbbl OIP from those figures but WTF do i know.

In Premier's ops update on the 15th July they gave reserve estimates as follows:

So although the numbers have obviously been refined a little over the last few months the high case of 265mmbbl would correspond to c500mmbls OIP. Obviously this mid case would be more like 300mmbls OIP.

EnCore seem the most bullish partner with regard to reserves estimates for Catcher & Catcher East, but then Premier may have an incentive to play things as cool as possible whereas Encore have an incentive to highlight the potential of their find.

Danger

Thanks db,

I can't see where they get the extra 500mmbbl OIP from those figures but WTF do i know.

Some nice comment from CNF on ADVFN

http://www.advfn.com/cmn/fbb/thread.php3?id=11488916&from=32302

''The timing says it all. The speed of the paperwork through the DECC for more wells, the speed of getting more wells drilled here by the jvp shows their determination to get more wells drilled and more oil. Imo EO's management will be extremely bullish about their prospects on this block. Its still Oilexco matured turf here, their exploration record was second to none in terms of strike rate (it was the credit crunch and the banking siutation that finished them off though not their ability to find oil). EO and PMO are now drilling the same block that OIL matured to drill ready. They used a company called Rock Source to define these targets. You can see from the NPE presentation the seismic response and amplitude brightening over Catcher, Catcher North, Varadero and Burgman. Now while AVO and seismic anamolies are not necessarily a guide to positive oil its a suggestion. You then use your closest well results to further define your oil migration and seismic models of the area. Of which the Catcher wells to date have proven to be very positive. The jvp wouldn't be talking about potential of 300mmbbls STOOIP for Catcher and 800mmbbls STOOIP for the greater Catcher area if they didn't think that some of these other prospects would also contain oil. Their bullishness to get these targets drilled imo is a direct sign of their confidence. If they continue to progress on both Cladhan and Catcher this one is going one way. Next stop Cladhan, with catcher close on the heels now too. No rewards without risks, this campaign contains exploration wells.

Captain Nelson Forties''

Anyone looking for further evidence of the confidence of the jvp here should listen to the PMO latest presentation. As everybody got the original estimates for the quantity and quality of the oil, completely wrong before Catcher was drilled, I hope their confidence this time is well founded.