Dana Petroleum AGM 2010 - notes and thoughts

Monday, Jun 14 2010 by

I attended the AGM this morning in company with Marben, Emptyend, King McKong, Jonnylite and several other Gentlemen, Stockopedes and Fools whose noms de plume I have temporarily forgotten. (I will add in any names that come back to me or which are posted below.)

The official business was the usual shtick with lots of official motions being driven through very briskly on the back of a gazilion proxy votes and the unanimous support of the assembly.

The real substance was the presentation given by Tom Cross the CEO and Stuart Paton the Technical Director. This was extremely detailed - so much so that the speakers did not have time to present every slide but rattled through their material at a great pace skipping over anything that did not demand attention. There were questions from the floor. Management made themselves available for informal discussion both before and after the formal proceedings.

I took many pages of copious notes, as did others. I intend to write an account of the AGM but will need to spend a little time transcribing my almost indecipherable notes and cross-referencing them to the minutely detailed presentation handouts - that will take some time I'm afraid and since I won't get home before midnight, it is unlikely to get done today or tomorrow. But I will try to get on with it before the end of the week. If the others present want to make this a team effort, perhaps we can do a round robin kind of thing and post something collectively......

Material covered included the full range of current and planned operations and a lot of detail on the Dutch acquisition. There is a huge amount of detail and a lot to digest.

Given that I'm writing this on a pay as you go internet terminal at ABZ airport and I have no more £1 coins, that's all I can say for now.

Except that I thought it all sounded very positive. I have already started rebuilding my stake which I sold a few weeks ago at a price a fair bit north of today's level.

More soon


The author may hold shares in this company. All opinions are his own. You should check any statements that appear factual and seek independent professional advice before making any investment decision.

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35 Posts on this Thread show/hide all

tournesol 16th Jun '10 16 of 35

Finally got home at 1am last night. Lost most of today to fatigue so have now lost almost 2 days this week. AGM report not top of my to-do list now, so please be patient.

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emptyend 18th Jun '10 17 of 35

One matter that is related to a number of discussions at the AGM is the topic of Faroe Petroleum. Faroe held their AGM yesterday and there was some interesting voting: one can easily deduce from the votes and the Chairman's comments that Dana voted against the resolutions on compensation and on financing outwith pre-emptive rights - and they withheld their vote on all the Directors reappointments too......

.....I bet the atmosphere on Carden Place is a bit tasty - it is only a few yards from number 17 to number 24!!

FWIW the key takeaway from the AGM for me was the continued downplaying of the potential upside at Anne Marie (which is far more substantial than most expect, though it would rely on several of the targetted zones flowing). Taken together with the voting at the AGM, and I'd think it highly likely that there will be some sort of deal done re FPM - though whether that will involve buying or selling is more difficult to tell!!!

The other point to note is that whilst they are expecting Cormoran to be gas, there is a possibility that it could include significant oil - which is important given the size of the prospect!



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emptyend 18th Jun '10 18 of 35

Just to add a few further comments:

- I confirm Mark's recollection that the acquisition is 60-65% oil; $12 boe cost with production at 11-12,000boepd currently (so potentially total 2011 production could be over 50k boepd!)

- Also: £7 per boe OPEX; 67mn boe of potential upside (with average CoS of 30%) - explo well now drilling

On other matters:

- Guinea should get drilled in 2011; 3D seismic prog in July/Aug using PSGS

-Babbage fraccing has started (3 wells to be fracced and linked in sequentially by 1/9; first gas by mid July with 2-3 more infill wells likely to follow next year)

- Western Isles may get farmed down from 65%, but there is more upside potential. Sanction likely by year-end; 8-10 development wells likely.

- Barbara/Phyllis to be renamed as Arran. FEED has started.

-Offshore Morocco has many prospects derisked by Anchois; gas prices on par with Europe

- Bamboo was 70m above TD on Monday

- Investor relations effort gearing up - new full-time female just been hired, primarily to address the valuation gap between market prices and actual value (DNX very vulnerable at present IMO, especially with drilling close)

- the LTIP set-up is being reviewed

I asked a number of questions, especially in relation to the LTIP set-up (where I have very strong views on the breadth of the comparator group) and in relation to management salary/incentive balance (the comp table on p50 of the AR re salaries makes clear that the exec salaries are broadly in line with the peer group - despite that peer group including BP, Eon, Chevron, BASF, GdF, Shell, Total, RWE etc etc!).

I also asked a question about the convertible put - and specifically whether they had researched the current pattern of holders!

In sum I think the company is very undervalued, especially given the potential for significant explo results in the near future. From post-meeting discussion Tom Cross is plainly expecting to see a step-change in the market valuation of the company at some point soonish, whether from explo, M&A or other deals!


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marben100 23rd Jun '10 19 of 35

Judging by the price action since the announcement, it appears that the Petrocanada deal and associated refinancing have gone down rather well with the City.

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BobGe 23rd Jun '10 20 of 35

In reply to marben100, post #19

Rumour of OMV interest going around (Alphaville)

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marben100 23rd Jun '10 21 of 35

In reply to BobGe, post #20

...I should have guessed - lol.

However, that seems to be Alphaville's default explanation for any rise in Dana's price. Equally , my explanataion could be right. TC did say that the City were a bit down on Dana because they weren't conviced that Dana woud be sufficiently well financed to complete its development programme without significant dilution. The refinancing should have removed that fear.



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djpreston 23rd Jun '10 22 of 35

And of course Bamboo should/could have hit TD and something interesting?

Iirc it was only 70m over td at start of week.

Fund Management: European Wealth
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marben100 23rd Jun '10 23 of 35

In reply to djpreston, post #22

True djp... Bamboo pre-drill estimate 100-200mmboe (=0.6 - 1.2tcf) with 50% W.I. (from the presentation) so could be rather material if successful.

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emptyend 24th Jun '10 24 of 35

In reply to marben100, post #23

In fact the main factor may well be Lorcan - which got a mention last week but which certainly wasn't positioned as being anything particularly special! RNS today indicates that expectations were exceeeded:

Dana Petroleum is pleased to announce two new oil discoveries in Egypt and give an update on its 2010 drilling programme.


Firstly, a successful exploration well in the North Zeit Bay production sharing contract area, onshore Gulf of Suez in Egypt, where Dana holds a 100% interest. The Dana operated Lorcan-1x well was drilled to a total depth ("TD") of 7,500 feet, encountering good quality oil bearing sands in the Kareem formation in line with Dana's prognosis prior to drilling.


During the drill stem test, the well flowed strongly with high downhole pressures delivering flow rates of up to 4,714 barrels of oil per day. The well's flow rate was restricted by the tubing configuration and the requirements to transport the produced oil from the location by road tanker to avoid flaring. Dana is already in discussion with the Egyptian General Petroleum Corporation ("EGPC") in order to achieve early production from the Lorcan oil field. The rig is being retained by Dana and has been moved to drill the Fin-1x exploration well, which has now spudded. The Fin-1x well is expected to take approximately 45 days to drill with the key aim being to prove up further oil reserves on trend with the Lorcan oil discovery......

Commenting on the news, Tom Cross, Dana's Chief Executive said:


"The Lorcan oil discovery is an excellent result which has exceeded Dana's expectations. The very strong flow rates, combined with its onshore location and proximity to Dana's East Zeit oil production base, make Lorcan an extremely attractive development opportunity. Dana will seek to bring this oil onstream at the earliest opportunity.

Following the "usual practice" though, the disappointment from Bamboo....and Monkwell..... is once again buried well below the headline:

Elsewhere in Egypt, drilling operations have now been completed on the Bamboo well, offshore Nile Delta (Dana 50%) having reached the planned TD of approximately 12,533 feet. Significant good quality sands were encountered in the primary target, however petrophysical interpretation of the logs acquired across the reservoir interval indicates that these sands are water bearing. A 16 feet interval of sands with gas shows has been encountered in the Kafer el Sheikh formation which requires a more detailed sub surface interpretation. The Bamboo well has been a challenging high pressure operation. Dana and GdF Suez (Operator) have successfully and safely completed the drilling of this well and are now putting in place a temporary abandonment thus leaving the potential option to re-enter the well in the future.


Drilling operations have also been completed on the Monkwell well, 42/29a-10, in the UK Southern North Sea, having reached planned TD of 9,473 feet. The target Lower Leman Sandstone reservoir was encountered some 200 feet deep to prognosis. Therefore the sand came in below the area's gas-water contact. This result indicates that the Monkwell gas discovery is too small to be economic.
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emptyend 24th Jun '10 25 of 35

In reply to emptyend, post #24

ps....link to the Stockopedia news on this is here:


.......and I might also note that it will be very very interesting to see how trading goes today on the back of this mixed news - because, if OMV or others really ARE interested at this juncture, there could be a bit of a buying opportunity ahead of the spudding of Anne Marie (which I continue to regard as the pivotal well for Dana in 2010).

OTOH of course the price may stay firm on the basis that Lorcan could be monetised far quicker than any find that they might have made at Bamboo.


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doverbeach 24th Jun '10 26 of 35

Getting some ideas about numbers to add up 2 discoveries vs Bamboo disappointment:

From page 43 of First Energy's excellent document on Egypt in general and initiating coverage on Dana, issued about a week ago: http://www.stockopedia.com/content/dana-petroleum-agm-2010-notes-and-thoughts/43046?comment=24#24

EGYPT - Bamboo

EGYPT - Lorcan-1X (half N Zeit Bay x 2)

EGYPT - FAyoum-2x (1/4 of EBS x 4)
NORTH SEA - Monkwell

So on a VERY crude measure of adding up the unrisked amounts for the successful wells and deducting the risked amounts for the failures gives:

-64 +25 +5 -10 = net reduction of 34 $mmEMV

Translating into p per share gives about 32p per share down

Obviously that is all very crude - the unexpectedly good Lorcan well will hopefully de-risk the other well there and may mean that the prospect is larger. And the Bamboo well is not actually being P&Ad so something may emerge there. And First Energy's core (ie non explo)  NAV per share is  £12.55, so you could reasonably argue that there was nothing in yesterday's price for explo anyway.


(thanks to marben for pointing out the errors in my original post! )


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marben100 24th Jun '10 27 of 35

In reply to doverbeach, post #26

Hi DB,

Thanks for that - but it appears that there are a couple of problems with your analysis. Firstly, it appears that you have the risked/unrisked columns reversed. Secondly, the figures you quote are $mm of EV, not p/share.

Bamboo's risked value was 41p/share. Lorcan, unrisked, should be around 14p (risking on EV looks to have been 25%). It may be more given that it came in better than prognosis. Monkwell was 7p (risked) & Fayoum about 2p (unrisked), so I make it -32p overall.



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emptyend 24th Jun '10 28 of 35

In reply to marben100, post #27

Lorcan, unrisked, should be around 14p (risking on EV looks to have been 25%). It may be more given that it came in better than prognosis.

That doesn't make much sense to me. The pre-drill on Lorcan was in the 10-20mn bbls range - and it came in ahead of expectations. DNX have 100% of it and it should lead to a 2P reserves add this year. Furthermore, it looks capable of raising production by 5-8% in the near future.  I would have thought that ex-post unrisked it may be worth closer to £1 a share, given the way the market likes to prefer producing oil resources?

Perhaps we'll get a better idea later?

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marben100 24th Jun '10 29 of 35

In reply to emptyend, post #28

Hi ee,

Don't forget the Egyptian fiscal terms. According to First Capital they are 40% cost recovery, 40% tax and 30% profit share. That may explain First Capital's unrisked valuation for the North Zeit Bay concession of only US$50mm (risked @ 25%). As you say, though, it should now be larger given that pre-drill expectations have been exceeded.



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madmix 24th Jun '10 30 of 35

From page 43 of First Energy's excellent document on Egypt in general and initiating coverage on Dana, issued about a week ago: http://www.stockopedia.com/content/dana-petroleum-agm-2010-notes-and-thoughts/43046?comment=24#24

Hi db,

That link just redirects to this thread.  Do you have a link to the First Energy document?



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emptyend 24th Jun '10 31 of 35

In reply to marben100, post #29

I suspect you'll find that the valuation of North Zeit gets a big uplift soon. These two wells are on a play type which was previously unproven on the block...... and if they unrisk the block then (even on the figs in your post) that is $150mn of upside - which is pretty material in the context of 92mn shares out


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doverbeach 24th Jun '10 32 of 35

In reply to madmix, post #30

sorry, that link should have been http://www.firstenergy.com/research/documents/Focus-C-Egypt-2010-06-17.pdf

(note to self - do not post before having TWO cups of coffee in the morning)


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nigelpm 1st Jul '10 34 of 35

I don't have a lot of time for FTAlphaville but looks reasonable :


Korean-based sources said KNOC was willing to pay a “significant premium” for Dana shares, which would typically be around 40 per cent – or £16.45 based on Dana’s closing price on Thursday.

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