Encore Oil - 2010 Final results and exciting times ahead!

Tuesday, Aug 10 2010 by
34
Encore Oil  2010 Final results and exciting times ahead

Encore Oil PLC's Final results for the year ending 30 June 2010 were released this morning. Lots of good, solid stuff: sale of Breagh gas find (gain of £23m), strengthening the board, share buyback program below cash value, hiving off onshore portfolio to Egdon etc. But for me the key points were "Significant oil discovery at Catcher, up to 300mmbbls Oil in Place to date with substantial potential upside in the rest of the block... Cash of £41.9 million as at 30 June 2010... Debt free".  Together, this leaves Encore Oil (LON:EO.) excellently placed for the current Cladhan appraisal drilling and to return to appraise Catcher.

On Catcher, Alan Booth's CEO statement said:

The results of drilling at Catcher have opened up a new play fairway in this area of the North Sea.  We are especially excited at the number of additional prospects on the licence that appear to demonstrate similar seismic characteristics to our Catcher discovery. We intend to return to the Catcher block this autumn or early next spring, dependent upon rig availability, to drill between two and four additional exploration and appraisal wells.


It is possible that the Galaxy II (right), which drilled the original Catcher wells, may be available for this from mid September, see Jimarilo on ADVFN

Booth's Statement continues:

Further success on the block would suggest a cluster of oil accumulations with potentially many hundreds of millions of barrels of oil in place. The low cost of drilling, the ability to use either semi-submersible or jack-up rigs, together with outstanding reservoir and oil quality would be likely to make this a highly valuable discovery, with potentially significant strategic importance.

All music to shareholders ears :)  Semi-sub rates would be a lot more than jack-up rigs, so the suggestion that Encore could consider using one emphasises their desire to get on an appraise this fast, if jack-up availability is restrictive. Booth then goes on to emphasise that Encore may be a small E&P but it has a great deal of experince in taking North Sea discoveries through to production, with the implication that if Premier Oil (LON:PMO) want to take over the operatorship, they will have to pay for it:

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97 Comments on this Article show/hide all

repobear 8th Feb '11 78 of 97
5

In reply to post #53606

Encore has gone net nowhere over the last 4 months. And since the TGD result 4 months ago the same applies to SIA. Virtually indistinguishable. Why keep pretending otherwise? Last year Encore had great results at Catcher and Cladhan......and SOCO had a major disappointment at TGD and no conspicuous successes. The share prices tell the story of the drillbit.....but one would have been very hard-pressed to guess all of them correctly in advance!

I don't think comparing a price peak,  after a long run up on the share price and the price getting a bit ahead of itself, with the price four months later, after a short term selloff, is being entirely straight really. A lot of traders and spreadbetters got squeezed out today, on what was only a somewhat disappointing result.

Over that time Encore have had two successful results with the drillbit and a highly successful result in the 26th licensing round, which may turn out to be hugely significant. Catcher is still looking very good to me, and to people with a better understanding of these things. See my post above. With another 1/2 wells on Catcher and 3/4 on Cladhan, coming up in rapid succession, some news on other prospects and maybe a surprise or two, I'm content to see where the price runs up to once that lot is out of the way;-)

In the meantime Soco has had some success on TGT which they don't want to tell much about, a hugely disappointing result on TGD and the continuation of the bad run in Africa. But what have they got coming up?

The answer, I'm afraid is precious little, unless you believe that VN will get sold off without getting much closer or into production. As it happens I don't. The share price has given the cool headed and knowledgeable a chance to make some easy money by trading though. Just like Encore's;-)

I note that marben bought some of those shares he sold back. I suspect that deep down he's pretty convinced that there'll be more success on both the main blocks and that there's every chance of at least another nugget in the portfolio. The tide will turn at some stage, but for those who have looked at this long and hard enough, they'll take the result that the company delivers when it's all done and dusted. Today's shakeout has shaken out the frothmakers, more than the froth, imv, but to reach that concusion a deeper understanding of what the future drilling and dealing may hold is needed.

repo

 

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extrader 8th Feb '11 79 of 97
13

Hi ee/repo,

I suspect that I'm like many on stockopedia/TMF in that I hold both Soco and EO. (and, thanks to repo, SLG; and - for the sake of balance - thanks to ee, GBP) - and watch the present ding-dongs with faint bemusement.

FWIW, I think there's money to be made on ALL of the above, in varying degrees and in varying timeframes. And how we position ourselves, if at all, will be as much a function of risk appetite as anything else.

A 'good' result is more important to me than the 'best', so you're both (already) winners, AFAIAA !

My thanks to you both for your contributions over the years.



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dangersimpson 8th Feb '11 80 of 97
6

Mark,

I think a risked NAV for each prospect gives a better understanding than just a base/upside figure.

In light of the dissapointing CN result (as a guess) I've reduced its OIP in my calculation from 60 to 15mmbbls. However  it doesn't actually have that big an impact - Risked NAV is reduced to £1.47 (using Nautical's OIP estimates & COS from their AGM presentaion for 28/9and $12/bbl.) If I used your $10/15/bbl it would be £1.50.

I'm not surprised by today's reaction to the CN result because it only really removed the speculative build up in the SP over the CN drilling.

Due to the relatively small impact of CN on the 28/9 valuation I'm surprised that you were willing to sell at £1.29 today but not at £1.50 yesterday and then being prepared to re-buy @£1.22after just a further 6% drop. Are you sure you aren't trading a bit of sentiment rather than reacting objectively to valuation? (Which has actually been a pretty good strategy with Encore it just isn't a valuation based one!)

Danger

Book: Excellent Investing: How to Build a Winning Portfolio
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emptyend 8th Feb '11 81 of 97
6

In reply to post #53608

I suspect that I'm like many on stockopedia/TMF in that I hold both Soco and EO. (and, thanks to repo, SLG; and - for the sake of balance - thanks to ee, GBP) - and watch the present ding-dongs with faint bemusement.

FWIW, I think there's money to be made on ALL of the above, in varying degrees and in varying timeframes.

Yes - "bemusement" is just about spot on!

I turned up here today just to comment on the idea that PMO was "wrong" to quote figures and was deliberately lowballing, and I offered some thoughts on how Premier's numbers can be reconciled with Encore's  - and for my pains I've suffered yet another lot of personal abuse and pointed jibes. Very tiresome.

I agree there certainly HAS been money to be made on both SIA and EO....and that may well also be the case in the future. Repo seems to have a very different idea of the timelines involved than I have though.

ee

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repobear 8th Feb '11 82 of 97

In reply to post #53611

ee,

Why are you bemused? Your 30% recovery factor was far too low imv, and in CNF's too, see ADVN today, and I'd trust his judgement more than yours on the NS.

You accused me of being ultra bullish on Encore. Well as it happens I'm pretty bullish, though not without good reason I 'd judge. However as I pointed out with the link I've long held the view that the free ride on Encore via Cladhan could turn out to be special, just as some of the cheap tickets on their future rides could be.

Your reading of the PMO and Encore situation is I would say is ill informed at best.

But you're right there is money to be made in both SIA and EO. I feel. If I'm right on the timings of both I might be back in to the former bigtime. If I miss it because I got it wrong on both the potential in Encore, and the timing of any deals for Soco, I'll take it on the chin and congratulate you on reading it correctly.

In the meantime I reserve the right to bemuse you as best I can;-)

repo

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emptyend 8th Feb '11 83 of 97
5

In reply to post #53612

Why are you bemused?

I'm not - but I can understand why others are.

You accused me of being ultra bullish on Encore.

No. You were way out of line over SLG (even though they have since done well) and I merely refused to join your "group of enthusiasts"....since when I've simply had torrents of abuse.

I wish Encore holders nothing but the best - the company has done very well for you all.

ee

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thebuffoon 8th Feb '11 84 of 97
7

but it seems you are utterly determined to "look on the bright side" and then assume that everyone is being too cautious on top....... so I'll leave you to it.....
ee


Please... stop....I can't breathe.

EDIT  I posted this as soon as I saw ee's comment.  Having read more of the thread, it seems two of us are gasping for air.  :^}


Buffy

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repobear 8th Feb '11 85 of 97
1

In reply to post #53613

I was more than a bit enthousiastic about SLG and wanted to share that with everyone.

Was that so bad?

If you want to have a go I would say pick another share:-)

repo

PS

there's something going on there very big volume etc etc DYOR

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repobear 9th Feb '11 86 of 97
6

In reply to post #53606

ee,

Given what you said about the Encore share price over the last four months, perhaps you could try to explain the change in the PMO price over the period since the first Catcher result on June 3. Since then the maket cap has gone up by about a billion quid and the only discoveries have been at West Rochelle(gas and condestae) and Varadero, with dry wells at Oates and failure at Gnatcher. I recall you saying you thought Premier was pretty fully valued when it was about 11 quid. They have 35% of the Catcher block.

Their somewhat confused estimates of oil in the block or Catcher/Catcher East and Catcher North area has gone from 25-50, 25-50,50-80,60-100,40-80 on each successive result. In fact Catcher North which came in at the bottom end of expectations managed to suck oil out of Catcher and Catcher East and lower the estimate for the block. Amazing as I thought the source kitchen was at Bittern in the other direction;-)

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

'Simon Lockett, Chief Executive Officer, commented:

"We are delighted with the results of the latest Catcher well; this well was deliberately sited to target potential oil bearing sands within the Catcher structure but outside the area of strong amplitude support on the 3D seismic data. As a result, Premier has up graded the Catcher/ Catcher East reserves estimate to a range of 60 mmbls to 100 mmbbls. We will move forward rapidly with plans to assess the remaining exploration potential in the 28/9 licence and to determine the future development options for the Catcher discovery. The latest appraisal well confirms Catcher as an important addition to our growing portfolio in the Central North Sea"'

http://www.investegate.co.uk/Article.aspx?id=201102080700048329A

'The Catcher North well was purposely located to penetrate the Cromarty reservoir in an area with less seismic amplitude response than that observed over the equivalent section at Catcher. As a result of the lower than expected oil pay encountered at Catcher North, Premier now estimates the overall oil reserves range for the combined Catcher, Catcher North and Catcher East discoveries at between 40 mmbbls and 80 mmbbls'

The predrill estimates were 10-20-30 and thus

Simon Lockett, Chief Executive Officer, commented:

"Whilst the Tay result was in line with Premier's pre-drill expectations, the Cromarty result was a disappointment.

The market was obviously as concerned and confuse as I was and dropped PMO's market cap by best part of £200m. Seems lot of money for 35% of 20mm bbl only partially delivering:-)

Then again he said earlier

http://www.investegate.co.uk/Article.aspx?id=201008260700226598R

'"During the first half of this year, Premier has continued to make good progress towards our 2012 production target of 75,000 boepd.  We were delighted to be part of the Catcher discoveries, which have been added to our growing portfolio of future developments.  These developments have the potential to take production levels to 100,000 boepd in the medium-term. '

and made a great song and dance about Catcher in the subsequent presentation.

Economical with the truth, or just comical with the truth? It doesn't matter too much AB will have for breakfast, I'm sure.

repo

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davjo 9th Feb '11 87 of 97
2

In reply to post #53632

As a result of the lower than expected oil pay encountered at Catcher North, Premier now estimates the overall oil reserves range for the combined Catcher, Catcher North and Catcher East discoveries at between 40 mmbbls and 80 mmbbls'

I'm not sure why you should dismiss that comment out of hand. The Catcher North result could feasibly downgrade the company's view of Catcher and Catcher East could it not? Whether Encore agrees is another matter but until we know, it wouldn't be sensible to assume they don't, imo....fwiw.

 

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emptyend 9th Feb '11 88 of 97

In reply to post #53632

Given what you said about the Encore share price over the last four months

such as???

I recall you saying you thought Premier was pretty fully valued when it was about 11 quid

Nope - though I did suggest (IIRC) that some of the hopes of a bid at £22+ were over-optimistic

Do have a lovely day.

ee

ps...as to PMO the move from £11 had a great deal to do with institutions looking for the next bid target after DNX. The move from £12 odd didn't start until the Dana bid became public. The wells with Encore merely gave some fairly minor support to the move.

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repobear 9th Feb '11 89 of 97
1

In reply to post #53635

davjo,

I think you should read the two emboldened parts together.

It might make more sense then.

What I would say is that the result has increased my hopes for the rest of the Catcher block, but I suspect that the thin sands at Catcher North very much lowers the possibilities for the two new Catcher blocks. There's probably a bit in the southern most block and not much in the other one. My reading is that the oil has migrated beyond those new blocks for the most part.

However if you read the NPE RNSs, in particular

http://www.investegate.co.uk/Article.aspx?id=201005171015040266M

'Nautical holds a 15% equity share in the block. Our costs of the well are being partly carried by our joint venture partner Premier Oil.

Commenting on this announcement Steve Jenkins, Chief Executive Officer of Nautical said:

"We are pleased to announce the commencement of the drilling of the Catcher prospect, which represents our first significant exploration activity of the summer. Block 28/9 contains numerous stratigraphic prospects and leads at the Paleocene, Eocene and the Jurassic levels. A recent interpretation of reprocessed 3D seismic has defined traps and revealed several seismic anomalies. The well is targeting the strongest and most convincing of those prospects, where a seismic amplitude anomaly indicates a thick sand sequence likely to be oil bearing."'

http://www.investegate.co.uk/Article.aspx?id=201007050700097858O

'Steve Jenkins, Nautical's Chief Executive Officer, commented:


"This is another fantastic result. We have now successfully appraised the south western part of the Catcher structure. The reservoirs were on prognosis confirming the seismic interpretation and providing greater confidence in the oil in place estimates. We believe there is considerable upside in the multiple analogous prospects on the block. We look forward to the timely drilling of these prospects to reveal the block's full potential'

and look at all the bright seismic,the white,red and yellow parts, of Encore's AGM presentation I think the upside west looks very encouraging.

I note that PMO paid for NPE's first well on the block,-) and that 15% of not very much light oil, according to PMO, allowed them to raise money at a much higher share price, then sell some assets at very decent price and completely transform the company's fortunes in the process. It's amazing what an increase of 15% of 15mmbbl, added since June 3 2010, according to Simon Lockett has done for this company.

repo


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davjo 9th Feb '11 90 of 97
3

In reply to post #53638

I think you should read the two emboldened parts together.

I did. You miss the point that the latest well result could feasibly alter the understanding of previous drills. Why do you think that's nonsense?

 

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repobear 9th Feb '11 91 of 97
5

In reply to post #53639

davjo,

The estimate has gone from 60-100mmbbl for Catcher and Catcher East to 40-80mm for Catcher , Catcher East and Catcher North. So adding in a block which delivered at the bottom end of expectations has lowered the oil at the other two blocks.

Que?

Where do Premier say the blocks are linked? Given that the oil has migrated from Bittern through Catcher North and looking at the location of the wells and the small part of the Cromarty between the well locations
I fail to see how this will lead to a material (25-33%) for the oil discovered before. Perhaps you could explain?


repo.

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tournesol 9th Feb '11 92 of 97
5

Repo

sometimes less is more

remember the little boy who was always crying wolf, after a while nobody took any notice of him

T

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davjo 9th Feb '11 93 of 97
6

In reply to post #53640

So adding in a block which delivered at the bottom end of expectations has lowered the oil at the other two blocks.

Que?
Where do Premier say the blocks are linked?

http://www.investegate.co.uk/article.aspx?id=201102080700088343A&fe=1
Pressure data suggests that Catcher North is part of the Catcher and Catcher East accumulation.


Perhaps if it wasn't, their pre-existing view would have prevailed? Just saying!

 

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peterg 9th Feb '11 94 of 97
6

In reply to post #53640

Hi Repo

I fail to see how this will lead to a material (25-33%) for the oil discovered before. Perhaps you could explain?

Presumably PMO have concerns that the lower than expected pay at Catcher North might also impact on their model for the rest of Catcher, i.e. the average pay may be less. Remember that all they have is a model of what's there based on a small number of sampling points, and they are making assumptions about what's in between those - this new sample point may could impact on that. Simples!

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ohisay 12th Feb '11 95 of 97
1

Encore was unusually weak yesterday - possibly reflecting CMC's position on AIM stocks ?

http://www.americanchronicle.com/articles/yb/155608207

CMC Markets, one of the world's leading online contract for difference (CFD) providers and financial spread betting firms, sent shockwaves through the Alternative Investment Market (AIM) recently when it said it would be no longer trade in AIM shares. With around 50pc of AIM market positions, at any one time, possibly held via CFDs and around 20pc with CMC, dealers feared that the decision could have a major impact on the physical AIM market.

CMC Markets stopped trading in AIM stocks on January 21. Clients were no longer able to open new positions and any bets that remained open would have to be closed out today. CMC said it wanted to focus on core liquid markets and all of the major markets after last year stopping trading in stocks below a certain market capitalisation.

Ahead of D-Day today, and amid speculation that many of CMC's clients were busy closing out their positions to sign up with rival spreadbetting giant IG Group (5.9p off at 463.9p), some old speculative AIM favourites came under selling pressure.

North Sea explorer Encore Oil cheapened 4.5p to 122.5p, after 118p, and Gulf Keystone Petroleum 7.5p to 173.25p, while Regen Therapeutics eased 0.25p to 1p and Infoserve 0.125p to 0.625p.

Launched in 1995, AIM has been an overwhelming success, raising almost UKpound24bn for more than 2,200 companies. CMC's desertion is a low blow but it will not be on the canvas for long.


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nigelpm 12th Feb '11 96 of 97
3

I think the effect was minimal - most of the trades were made prior to d-day from my understanding.

Next week could be interesting though.

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oilretire 9th Apr '11 97 of 97
3

http://www.dailymail.co.uk/money/article-1375025/MARKET-REPO...

Encore Oil gushed to 122.50p before closing 6p better at 119p on revived rumours of a £527m or 180p a share cash bid from Premier Oil, 11p dearer at 2060.50p. Broker Westhouse Securities increased its target price to 166p after Encore's recent announcement of an oil and gas discovery in the UK Central North Sea.

Pinch of salt required IMO -

If true, won't be acceptable as latest Cladhan result(s) unknown
If true, won't be acceptable as NewEncore not formed yet
I think other companies will be sniffing around so maybe it's PMO trying a cheeky early bid

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About doverbeach

Doverbeach

I used to work in derivatives, now retired I am a private investor and CAB advisor. I blog about personal finance and food at www.doshandnosh.com. I post as manzanilla on TMF. (avatar from http://xkcd.com/695/ ) more »

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