Cladhan appraisal well: Encore Oil & Sterling Resources

Friday, Jul 09 2010 by
Cladhan appraisal well Encore Oil  Sterling Resources

The Kingfisher Fortnightly Bulletin suggests that the hour is almost upon us for the upcoming appraisal well at Cladhan. See the following extract from page 3 regarding Transocean's semisubmersible J W McLean rig. You know it's getting close when they tell the fishermen about the rig position...

Drilling Operations – Transocean JW McLean – Cladhan 210/29a-4 (New Entry 29-06-2010)
Drilling Rig/Ship Start Date Finish Date Installation Name/ Well No Position
Transocean JW McLean 07-07-2010 30-09-2010 Cladhan – 210/29a 61°08.987'N 000°47.116'E

Please note, this does not mean that the rig arrived on the 7th, as the Kingfisher works on a date range notification. The 7th is only flagged up as the earliest possible arrival of the rig. By way of background, Encore Oil (LON:EO.) has a 16.6% interest in the block and it is operated by Sterling Resources, which has a 39.9% interest. You can see details of the block and the discovery well here. Comments and thoughts below are welcome.

The 210-29a-4 well was drilled on the Cladhan prospect (formerly known as 'Bowstring East'), in October 2008 and was successful with the result of a light oil discovery... The partnership group took the decision not to carry out a well testing programme in late 2008 and the well was suspended with a view to re-entering and undertaking sidetracking, coring and testing operations at a future date, following integration of the well results into the seismic model. An appraisal well is due to commence drilling between late May and early July 2010 to appraise the potential extension to the original discovery and refine the range of volumes, using the J.W.MacLean semi-submersible rig.

Disclosure: The Author holds share in Encore Oil (LON:EO.)

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

Do you like this Post?
18 thumbs up
1 thumb down
Share this post with friends

  Is EnCore Oil fundamentally strong or weak? Find out More »

130 Comments on this Article show/hide all

Isaac 20th May '11 111 of 130

I would suggest you listen to the podcast from Sterling before drawing premature conclsuions about Cladhan

I am well aware of the development programme on Cladhan early next year - What I am less sure of is whether Encore will still be around to see out the drilling. Either way I don't mind as to how long it takes, I have shares so I can hold a long time.

Whether Encore is cheaper than Sterling depends on how much more oil is found in Catcher v Cladhan and the outcome in Romania

I am contemplating doubling my position on Sterling later today, have'nt decided yet though. Being underexposed to both stocks have made it easier to buy at current levels. Soco still remains my largest holding, I have'nt sold a single share.

I think there will be plenty of time to buy Sterling though, other then news from Romania  I don't see anything major happening there until 2012 when they go back into Cladhan and start producing from Breagh mid 2012 so the share price could go sideways for a while unless the next Cladhan well is very postiive and we hear good news from Romania.

| Link | Share
Fangorn 20th May '11 112 of 130

Very interesting podcast Repo.

Mucho gratias.

At C$1.79/sh or so am very interested.

| Link | Share | 1 reply
repobear 20th May '11 113 of 130

In reply to Fangorn, post #112

Hi Fangorn,

I am glad you liked it. Correct me if I have got this wrong, anyone, but he did say that phase one of Breagh was worth 220m quid. That equates to $346CAD right now and with 191m shares in issue is $1.81CAD a share. So Breagh phase two which they plan to borrow another 50m quid on top of the 100m for phase one is in for free, as is Cladhan, as is Romania, as is France and the rest of the blocks adjacent to Cladhan and Breagh and the other bits and pieces in the NS.

The investment case stacks up at double that price if you believe Kevin Shaw's revised 225mm bbl OIP at Cladhan. A figure that could easily double given what Mike Anscot said.

Isaac, progresson Romania might come at any time. If it did even in the current market the price would move. Looking at the market capitalisation and the poor investor sentiment the only thing protecting them from a cheeky offer is the 20% largest shareholder.



| Link | Share
Fangorn 20th May '11 114 of 130

No Repo, spot on. When talking about Breagh he said it was indeed worth 220m NPV'd, circa $2/sh. Had to listen to it twice. All good news.

| Link | Share
deucetoace 20th May '11 115 of 130

But that figure was based on the tax rates pre-budget as I understood it.

| Link | Share
Fangorn 20th May '11 116 of 130

He did immediately follow on with mentioning the UK tax grab so presumably that is so Deuce.

| Link | Share | 1 reply
montparnasse 20th May '11 117 of 130

In reply to Fangorn, post #116

Probably goes without saying, but when he talks about the exercise of "force majeure" stopping the clock on the licence expiration I assume he means that if and when the force majeure is lifted, the period for which it was in place is then added on to the licence term. Grateful if anyone could confirm please.

| Link | Share
Isaac 20th May '11 118 of 130

Dear All,

I called a few times, then sent an email to James Clark, Commercial Director at EnCore Oil Plc earlier today, this is the unedited email sent and unedited reply that I received:

Email Sent:
"Dear James,

I have been an investor, holder of shares in EnCore Oil Plc for some time now.

I have telephoned and left messages three times but have not received any replies.

Please can you kindly tell me:

• When will XEO Float?
• Who will be the Broker/s?
• Anticipated floatation price?
• Any discount for EnCore Oil Plc share holders?
• Will any FREE shares be issued to EnCore Oil Plc existing shareholders at a cut off date?
• What percentage of XEO will EnCore Oil Plc own of the newly floated XEO if anything?

I look forward to hearing from you.

Thank you
Kind regards
F. Hussain"

Unedited Reply:

"Dear Mr Hussain,

Thank you for your email. I was only aware of one phone call which apparently came in just prior to your sending of the email so apologies if you have called three times but I was not aware you had.

All the information you require is contained in our press release from 18 April 2011 which is available on our website -

It states that XEO is expected to float around the end of May
The brokers will be Matrix and Westhouse
Qualifying EnCore shareholders will be able to purchase shares in XEO at the institutional placing price
The anticipated placing price and the % shareholding that EnCore will own in XEO are not disclosed as it will depend on the XEO fundraising.

Best regards"

An email from a poster on the iii board :

| Link | Share
Isaac 20th May '11 119 of 130

Hi Yvonne,

Last time I contacted you it followed up a Christmas charity donation from iii private investors. The same bunch of us have been loyally holding on to our EO shares - but are finding it less easy at the moment as we watch our holdings reduce substantially.

We don't fully understanding how this amounts to what AB referred to as the way to achieve 'minimal shareholder dilution' (ie the forthcoming spin-out of XEO), relative to placings or other means of raising funds to extend the drilling campaign....(although I realise there are several factors - various uncertainties, recent drills, North Sea tax proposal etc...)

There have been some very notable successes in the last 12 months - and we have been very pleased with your progress. However right now EO shareholders are feeling let down, concerned, and to be honest lacking clarity/understanding as to why the spin-off of XEO is still seen as the best way forwards.

There has been only a little communication to the public as to how any negotiations are going on - so please can you reassure us that Cladhan/Catcher finds are not going to be sold out on the cheap, whilst at the same time, we wonder why we are about to have to purchase back what was ours originally (ie. XEO licences etc) - would have understood if the share price had 'tracked the sector' but we have just lost >40% value, and start to wonder whether holding EO together, a farm-out, placing etc would have been no worse than this, selling out the Catcher asset and keeping the funds in EO.

Are you able to give any information or reassurance that your discoveries will get the value (significant between Catcher / Cladhan / Varadero / Burgman) they deserve?

Trust these are fair questions to ask, and I thank you for your time and attention.

Big Chef.


Another email from iii - Don't really understand why private investors would want to put the XEO float of. It does'nt make sense for Encore to keep the licences & dilute shareholders at these low prices to raise cash for the drilling programme. The simple fact is Encore does'nt have enough cash to develop Cladhan/Catcher let alone explore on new blocks.

I'd much rather they float the company, raise cash in the new company, Encore retains 20-30% of the new company and Cladhan/Catcher is sold. Apparently some folk on iii are thinking about litigating the board!

Some of th things i've read on the iii board are ridiculous, such as accusations of management taking them for a ride? I mean wtf? This is the nature of the Exploration business - bad results happen & management are shareholders, infact Booth and Whymes own 2% each of the company,& they have just lost £4million each in the past few weeks. I think they are hurting more then these so called shareholders that hold a few grands worth of shares!

Then there is another nutter who asks "Why are we buying back what already own..." referring to the exploration licences being spun off. Surely it is a case of Encore own these licences and they plan to float 70% (my guess) of the licences via XEO and thus Encore retaining a 30% interest in XEO.

There is also questions about Encore selling out on the cheap - Don't really understand why that would be the case. The bbls are worth x amount in the market and a serous buyer will pay the market price for the assets. There is absolutely no way Booth will sell out on the cheap, he is a shareholder with a significant stake. So it is in his interests to get the best possible price. In any case if Booth wanted to take the assets to development there are many routes to do this, one being reserved based lending. Something which Sterling are doing with Breagh.

I can't believe there are individuals posting such dross over on iii - I don't think they should be allowed to Invest, then again we need these morons to make money .... it makes me wonder are we close to the commodity top? I still think not based on my research.

Have'nt really followed the iii board before but it seems worst then ADVFN. Infact there are actually quite a few boards on ADVFN that are pretty good.

| Link | Share | 1 reply
Isaac 20th May '11 120 of 130

I had a reply from the Co regarding my earlier "Stop XEO" post that i copied to them.
--The reply is slightly too long to post on here so i will give you a summary of it.
-Most of the reply was a repeat of the press releases from April and outlined the various routes available to the company for arranging on-going finance for Cat/Clad and the exploration of the untested leases.
- --From the options available to them
1 Invest all the EO cash in Cat/Clad and have none for future exploration
2 Riase funds from EO shareholders
3 Farm out the other exploration leases
4 Go for the XEO route
They chose to go for the XEO route because--- they did not want to loose control of the other leases by farm outs, --they did not want to loose the other leases by putting all their cash into Cat/Clad and leave the other leases undrilled and therefore they would lapse.
--And they did not want to "dilute all shareholders equity, not only in the exploration assets but also in Cacther and Cladhan" by raising funds within EO.
--The board insist that they had
--"a portfolio of exploration assets, whose current , undrilled value on Encores books is very small" and that--
---"they are only worth what someone would pay for them, and undrilled that would likely be very small"
--So if the amount that can be raised by their sale is likely to be "very small", you have to ask, is it enough to fund future exploration, or as i said in my earlier post would further fund raising be needed by XEO, and so we are back at further dilution of assets for both companies.
---If however, the sale raises a larger amount than the "very small" amount the company are expecting, then the board would appear to have seriously underestimated the value of this portfolio and it's impact on the price of EO shares.
--Although I did not raise this issue in my post, the reply made a point of saying that they are--- "not providing employment for themselves"--- so it would seem that this criticism has been levelled at them by somebody.
---The reply also states that---"it does not require shareholders approval as the package of exploration assets, as defined by AIMS rules, is not material to Encore's value"
--I can only dissagree with that point because, it will certainly be of "material value" to XEO, otherwise that co would not exsist, so it must be of value to EO----you can't have it both ways.
---Finally the reply said that if i thought the plan was "ill thought out "-- "then it would suggest you do not trust the Board and should therefore consider your reasons for your shareholding"
--So there you have it, they are taking our portfolio of exploration licences and using them to raise funds for another company. They don't need your permission to do it, and if you don't like it you can sell up.

An email in response to XEO float from redeyemines

Interesting - I liked this bit "not providing employment for themselves", it sounds like the board are adamant to go ahead & float the exploration licences. Jolly Good - so a sale of Encore is not far off? :-)


| Link | Share
Isaac 20th May '11 121 of 130

A more intelligent Currylover on IV

I'd rather buy Encore - oops
Alan Booth is unlikely to want Encore to develop any of their finds. It just isn't his style.

They have only taken one find to production.That was the Ceres gas field where they held 10%? It was too small to sell on it's own so they did a deal with Egdon.

One thing Encore are good at is playing the UK tax system to their best advantage.Basically if you keep selling different field the proceeds are taxed as income but if you sell the whole company it becomes a capital gain and different tax rules apply. Think bigger allowances/concessions.That's the reason for seperating the XEO assets. Those assets aren't in the share price anyway so it has to be a good move to force the market to value them.

These guys are very sharp,they have been around and they know the business inside out. If they can show they have no urgent need to sell they can drive a harder bargain.

Ignore the posturing ,they will sell when it advantageous to do so BEFORE they have to fund development.

For the record I don't hold Sterling because I held 250k shares in Encore at one time and was too exposed to drilling risk at Cladhan.I've reduced that by selling 25% at £1.12 and 35% at £1.33.I still hold 100k.

I lurk on this board because the quality of posts is so high and much info is relevant to Encore.At these prices Sterling is a buy for me and I will load up once I finalise a house buy which is currently ongoing.


Public heel then asked


If my scenario is correct, they CAN'T sell EO until XEO is spun off. Would you agree?

To which Curry lover replied


Yes, That is my reading of the situation. If someone made a knock out offer they might let the whole lot go but outside of the Koreans/Chinese I can't see that happening.

Personally I expect they will try to appraise Cladhan/Catcher until they know what they are selling and can negotiate a fair deal. They will sell before they need to fund development  to avoid dilution.
This is my take on the situation having followed the company since early 2006. They could do something different but it would be out of character.

| Link | Share
chriswalden 21st May '11 122 of 130

In reply to Isaac, post #119


Why don't you register with iii and IV and set the respective boards straight rather than clog this thread with a running commentary on "individuals posting such dross..."

In the meantime, the AiM Schedule 1 Notice for XEO has already been published here:

Further details will be published, in timely manner, via a Schedule 1 Update.

| Link | Share
Isaac 21st May '11 123 of 130

This is a good summation of my views, it is what imho the board is thinking :



Anyhow, as per my post yesterday IMO i think that the bigger picture is being missed here. If the two recent side tracks had been good, and the SP was say 130p would many of us be even discussing XEO or worried about it? The main fact is EO. have had two negative drill results and in the current market are being hammered, simple as that. Investor confidence is spooked and the usual sell off begins. The prime example is XEL, one misunderstood report and they now have an SP way off what it should be. The true value of a company will come through!

Looking at the situation with XEO again, in my mind its clearer that EO. are primed to be taken over and the formation of XEO is actaually of value to us. So here's my take on it.
Lets suppose that X-oil want to T/O EO. What do they get. Egdon, Clad/Catch and the undrilled prospects (i'll put them under the banner of Tudor Rose for ease). So EO. want 140p a share for Egdon, Clad/Catch and they want something for Tudor Rose.
X-oil don't want Tudor Rose, they don't want to have to pay for it in the process of getting Egdon and Clad/Catch and they certainly do not want to drill it.
What do EO. do? Do they sell at 140p and basically give away Tudor rose. Ok they could, they would be happy with 140p a share, but then Tudor rose may go undrilled and there might be money to be made there, it would be a shame to let this go. Do they hold onto Egdon and Clad/Catch, they could, but then a placing would be needed to generate funds to drill Tudor rose and that would dilute shareholder value. Do they sell Edgon and Clad/Catch, again they could, but the money generated would be needed to fund Tudor Rose, might risk share holder value. Do they go into production? This would be a few years off, the main foucs of the BoD is exploration and fund raising would still be needed to raise money for Tudor rose.
So none of those solutions gives maximal value. But what about this:
EO. seperate Edgon and Clad/Catch from Tudor rose (again for anyone still reading Tudor rose and all the other prospects), they form a new company called XEO and EO. have a stake in this and are therefore exposed to any postive results. EO. then go back to X-oil and here's the deal. X-oil can buy EO. which means they get Egdon and Clad/Catch and they also get the percentage of XEO. Now the deal is very attractive, they get what they want, plus on top of that any sucessful outcomes from Tudor rose any the best thing is they don't have to pay to drill Tudor Rose.
This means, EO. gets sold and the share holders get their prize, and then they also get the chance, if they want to, to reinvest in Tudor Rose.
Keep in mind that while yes as shareholders you've maybe invested in EO. because you were excited at the prospect of Tudor Rose and you feel that you are going to have to buy into this again, remember that any potentail buyer of EO. is probably not interested in these undrilled sites, so as above EO. is unlikely to get anything for them in a take over which means you'll lose them anyway (if EO. were taken over as things stand).
Personally I think the XEO idea is good business. It make EO. attractive to T/O and enables further shareholder value by keeping Tudor Rose etc out there.
So just one last thought, if EO. were offered 150p a share on monday would you care about Tudor Rose and the other drills? I doubt. It would be a shame to see Tudor rose go to waste, but hey the EO. shares are sold.
Wouldn't it be good though if in three months time EO. were offered 150p a share, and there was a sister company about to drill Tudor Rose that you could invest in.

I'm sure many of you will disagree, but the more I think about it the more I think that XEO is a good idea and EO. are basically up for sale.

I don't disagree trotskymac, I think your on the money imho dyor.

| Link | Share
Isaac 21st May '11 124 of 130

The difference between Encore & Soco is Encore has drilled a number of wells on their main prospects Catcher & Cladhan and after the next well on Cladhan they will have a good idea of the recoverable oil reserves net to Encore. Where as with Soco they drilled TGD, found lots of Oil but are still trying to work out how to get it out of the ground. An acquiror would'nt pay a lot of money for the current state of TGD.

Whereas Encore is more likely to get a sensible price in it's current state for Cladhan / Catcher because an aquiror can sensibly have a good stab at working out the reserves

Let's not forget the wells drilled in the last 18 months - This gives them a good idea of reserves for Catcher / Cladhan :

-Catcher 28/9
-Catcher - Catcher East side-track 28/9
-Catcher - Catcher SW side-track 28/9
-Cladhan - Appraisal side-track updip 210/29a
-Cladhan - Appraisal side-track downdip 210/29a
-Catcher Block - Varadero 28/9
-Catcher Block - Catcher North 28/9
-Catcher Block - Burgman 28/9
-Catcher Block - Carnaby 28/9
-Cladhan - Appraisal well 210/30a
-Cladhan - Appraisal side-track 210/30a
-Cladhan - Appraisal side-track.

Also the original discovery well from November 2008.

From their AGM presentation they state :

Create value principally through exploration and appraisal activity

Monetise or exchange assets at the right stage in their lifecycle to maximise return on risk capital

No desire to bid for production assets

Always have an eye on the exit strategy

Let's get a CPR done on Cladhan, I think we will then be in a position to sell Encore this year. 

imho dyor

| Link | Share
Isaac 21st May '11 125 of 130

For those that are interested in getting a background on Catcher drilling it is worth reading the Nautical website where they summarise the drilling very well :



Also worth considering these key stats from Nautical who like Encore own 15% of the Catcher licence :

Catcher Main, Catcher East and Catcher North best estimate contingent resources of 79.5 mmbo, 11.9 mmbo(net)

Varadero preliminary estimate contingent resources 30-50mmbo, 4.5-7.5mmbo (net)
Burgman preliminary STOOIP (oil in place) estimate 80-120mmbo, 12.0 -18.0 mmbo (net)

So if we take the numbers for Catcher 11.9 + 4.5 +12 = 28.4 mmbo net to Encore/Nautical ( I have taken the lowside numbers for Varadero and Burgman)

Kevin Shaw's latest estimate of Cladhan is 225 mm bbl OIP using a 40% recovery factor & Encores intrest of 16.6% I get 14.94 mmboe net to Encore.

28.4 mmboe + 14.94 mmboe net to Encore = 43.34 mmbo net to Encore.

Using a conservative $12 you get $520m = £320m using an FX rate of 1 USD = 0.616257 GBP

Current Encore market cap of £194m

Cash was £31m at year end & some of this has been spent on the recent drilling leaving them approximately £20m & Encore own 30% of Edgdon which at yesterdays closing was valued at £23.56m therefore it is worth about £7m to Encore.

So £320m for Cladhan/Catcher + £20m cash + £7m Edgdon = £347m / 292.7m shares = £1.18/share

This valuation excludes any further upside from Cladhan / Catcher, excludes the exploration licences, undeveloped gas discoveries in Ireland, Esmond Gas Storage & potential gas development at Cobra.

I would say the downside is well protected.


imho dyor

| Link | Share | 1 reply
Isaac 21st May '11 126 of 130

Interesting post : ValleyFloydRoad

I sort of accept this - there are only a very few compnaies who would be interested in buying Cladhan and Catcher, and the EnCore SP is at a discount to the NAV of at least 50%. The majors would regard the fields and EO's stake in them as too small and most likely it will be Sterling buying EnCore's stake in Cladhan or Premier who have a stake in Catcher.

So it has to be a company focusing on the North Sea where they will have infrastructure and personnel in place and where they know what they are doing.

Regarding the XEO float, the rationale is simple and still not understood. While these prospects might be valued at nil or as good as, they are anything but. A buyer will have three unpalatable choices - either trade/sell them on, and that's not easy as they are very undeveloped beyond basic surveying (although Tudor Rose is a bit further along in the process), or to appraise and survey them, which is very expensive work, or finally do nothing and let the licences lapse.....


| Link | Share
marben100 22nd May '11 127 of 130

In reply to Isaac, post #125


One small thing: I don't think you've applied a recovery factor to the STOIIP for Burgman.



| Link | Share
Isaac 22nd May '11 128 of 130

Thanks Mark - If I use a 40% recovery factor for Burgman I get 4.8 mmbo (net).

4.8 + 11.9 + 4.5 = 21.2 mmbo + 14.94 mmbo = 36.14 mmbo * $12 = 433.68 $mn £267m using an FX rate of 1 USD = 0.616257 GBP

£267m + £20m cash + £7m Edgdon = £294m

23,048,042 options + the issued capital of 292,695,488 ordinary shares = 315,743,530 fully diluted shares

£294 / 315.7 = 93 pence/share

From the current share price a 42% upside using a very conservative valuation. This valuation excludes any further upside from Cladhan / Catcher, excludes the exploration licences, undeveloped gas discoveries in Ireland, Esmond Gas Storage & potential gas development at Cobra.

I personally think there is more upside from Cladhan & expect the next well to work. Also think there is more upside if Carnaby & Rapide is drilled.

This may offer some good news First Minister Alex Salmond will argue for an alternative to the recent North Sea oil tax hike when he meets senior members of the UK government this week.

But i've already discounted the North Sea tax using my $12/bbl number.

The price is a steal at this level, I'd rather buy a cheap e+p & wait for value to out rather then throw a lot of money at speculative punts. Clearly the speculative punts can be more rewarding if they work due to the extra risk, but I like the plays where the downside is protected with decent upside & all I have to do it just be patient.

I think the upside is attractive as I expect Encore to be taken over soon after the CPR on Cladhan is done, even if I have to wait 6 months it is still an acceptable return. Encore is clearly in play imho.


| Link | Share
marben100 5th Jun '11 129 of 130

With thanks to posters elsewhere for highlighting a new file posted by Encore, which contains the following super picture of Encore's interpretation of results to date (click to enlarge):


I currently have a conservative estimate of 35.6mmbbls of gross recoverables for the fully appraised northern channel accumulation, based on Sterling's assessment following phase I. That is likely to have grown following the first well of the second phase programme, extending the oil column to 1,200' from 425'.

I look forward to Sterling's CPR, due in the next few weeks.



| Link | Share

What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter

 Are EnCore Oil's fundamentals sound as an investment? Find out More »

About oilretire


I'm not retired, 'oilretire' has to be read with a slight Irish accent (not that I'm Irish!). Oi'll retire one day on the back of oil. Hopefully early as the result of my investments which are 90% in E&P related companies or failling that I'll have to settle for a "normal" retirement date with a company pension from the E&P major I work for.......... P.S. that's not me or my flare :-) more »

Stock Picking Tutorial Centre

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis