Europa and the Bull
When I was at school education was still in the dark ages. Actually it was even more archaic than that - we were still learning about the classical world of Rome and Greece. At primary school we read stories from classical mythology and later at grammar school we learned Latin which often involved myths and stories in the original language. One story that made an impact was "Europa and the Bull". Europa was a beautiful young princess of Tyre. Zeus saw her and fell madly in love. She was well guarded and he thought it would be impossible to get close to her. So he transformed himself into a magnificent white bull and mingled in with her father's cattle. Wandering around the estate she spotted the bull and went over to inspect him, She found him remarkably tame and soon decided to go for a ride on his back. Once she was on board he charged off, slipped past the guards and into the sea. And off he swam, princess and all.
He carried her off to Crete where he revealed his godliness and she reciprocated his affections. They both lived happily* ever after. She eventually gave her name to Europe. And of course to Europa Oil & Gas.
The questions in my mind today are
1) Was Europa Oil & Gas (LON:EOG) carried off by an enthusiastic bull market in its shares recently? Or was the rise justified?
2) Should recent RNS announcements be taken at face value? Are they what they seem, or are they just bull?
My personal assessment is positive. It seems to me that EOG has a wealth of potential which is massively significant for a company of this minuscule size. Progress is being made at Firsby. The results from Barchiz are encouraging. I have today bought more shares. In effect I've bought enough shares to boost the value of my holding back to where it was yesterday. It's not a gigantic holding - about 2.5% of my total. But it's enough to make a difference if EOG achieve their potential.
T
* - of course there was all that unpleasant business with the Minotaur who might well have been a member of the extended family - but let's not go into all that today......
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16 comments
Every little helps.
http://www.investegate.co.uk/article.aspx?id=20110506130014P9967&fe=1
"The WF7 well has now been on production from Zone 1 for over a week and is now contributing approximately 100bopd to a total figure of 250bopd from the Company's producing assets."
"WF9 remains on beam pump production while fabrication of pipework
continues for the jet pump system and an update will be provided in due course."
fuiseog
Hi T
Yes I'm kicking myself I didn't sell a few at 40p. I still hold and I'm giving them a bit more time to get things going. The resignation was rubbish but he still holds 17m shares and is staying on for 12 months. Maybe he thinks that will be long enough to see enough value added to his 17m shares to retire?
Anyway it doesn't seem to be the right time to sell with the price back almost to the last placing price and still a few good shots left at some company makers.
Log
For the record I sold my holding yesterday as soon as I heard about the resignation of the founder/CEO. I can't imagine a good* reason for someone to leave a company they themselves founded when there is so much action planned in the short, medium and long term.
* By good I mean benign - it is all too easy to imagine "good" reasons which are problematic.
It is entirley possible that the resignation is being driven by some unrelated personal matter rather than some looming corporate problem, but I am not prepared to take that risk without a much fuller disclosure.
Bought at 13p. Missed selling at 40p. Exited yesterday at around 18p, so nothing to complain about.
T
Oh well tournesol at least you don't need to find a new picture. Europa the "Skinny cow" is probably more apt.
Not much to say about today's update other than disappointing. Sole risking Barchiz isn't great news either as where do they get the cash from for that now WF9 is dribbling oil rather than gushing it?
If they can't get the jet pump to work - given their explo ambitions unless they can get another farm-in partner I think they'll be another placing. Ummmmm.
Log
A bit disappointing to say the least:. Quite some way off the 500 bopd target-
http://www.investegate.co.uk/Article.aspx?id=20110330090000P4A75
Once WF-7 is back onstream, it is expected that Group production
should be approximately 300bopd with further upside expected following
installation of the jet pump on WF-9 and well stimulation work at Crosby
Warren.
No idea what the current production levels are without WF-7 on stream. I was hoping the current production levels would leave the explo chucked in for free. A bit naive on my part. Still lots to play for but these operational updates are starting to sound a bit Regal Petroleumesque to me.
Roll on Barchiz.....
I keep resolving to find a better picture to illustrate this thread - the animal chosen by S'Pedia's graphic artist is entirely the wrong kind of bull. It looks like a beast from the Indian sub-continent or possibly east Africa - with the characteristic large dewlap and the rather scrawny frame. It looks altogether too docile. What we need is a muscular, pugilistic heavy-weight of the kind immortalised in sculptures from the ancient world - or alternatively a lean, mean gladiator like the wild bulls of the Camargue or the Corrida.
Anyway, even with the wrong kind of bull, EOG seems to be gaining some recognition amongst PI's - still much too small to be of great interest to institutional investors - anybody who invested a worthwhile amount would end up with a very large slice of the company - and hence be exposed to liquidity problems.
That brings us to one of the most critical factors - the small size of the company. Market Cap is what? £40 million. Not an awful lot. And not much required in the way of assets to justify such a nugatory valuation.
If the current on-shore development turns out as expected, then I'd expect the SP to continue its strong run. As and when the multi-facetted exploration programme unrolls throughout the rest of this year, I'd expect a very significant rise taking the SP up to an order of magnitude increase over the 12p or whatever it was when we started this thread - in other words with a modicum of luck we should, IMHO, see 120p at some point before year end. Of course it remains true that pre-drilling-results excitement can easily get ahead of itself, so there would be nothing wrong in exiting into such strength. However, if exploration comes good in any of the several projects, then 120p will likely prove to be just the starting point for a very substantial re-rating.
I already have enough of these shares to make a difference ~5% of my portfolio. And I'm very well ahead to-date. I do however, find myself mulling over a further top-up.......
T
Steady as she goes on the drilling front.
As for the sp, lots of buying this morning, almost as if someone knew about the impending RNS, with a sell off on the news.
http://www.investegate.co.uk/Article.aspx?id=20110207141124PC903
My very simplistic view is that here we have a micro-cap with multiple opportunities all of which are to be explored/progressed within the next year or so.
It's not a one-trick pony. It's not a single point of failure. Even if the first 2 or 3 opportunities all fail there will still be more left to come. To me that means that even a number of consecutive unfortunate events will still leave investors bloodied but not unbowed and with an escape route still open by selling out.
That's what I like in my investments - multiple shots at multiple goals, rather than one shot at one goal.
And of course the minute market cap means that any success is likely to see significant SP progress. Of course it also implies that fund raising might well dilute early investors significantly, but what's new?
T
Hi T,
Thanks for flagging this one up.
Post the placing RNS I started to research EOG and came to the same conclusion as your good self. I missed the lows over the Xmas period but managed to get a small stake at around 19p.
It goes without saying I am pleasantly surprised at the recent action (just wish I had bought more, there seemed to be a good supply when I purchased). However, I am a bit worried at the number of posts in the other place as the herd have jumped on board, but with some luck with the drill bit this could just be the start of a longer upward trend in attributing value. I will be adding if the story goes as planned.
I see finnCap put out a note last week as reported on ProactiveInvestors.
If anyone has access to the note I would appreciate a copy - I only have an SP note from Apr last year.
kyu66
Rowie62, spot on.
However we know this drill was targeting a deeper potential reservoir. What we don't know was that reservoir reached? If so what did it find, if not why not.
I don't buy the casing theory as it quite possible to perforate and test / produce through three layers of casing never mind two though I'll admit it is sub optimal.
We also have no indication as to what size trap EOG think they have in this secondary reservoir section. Are we looking at 5m? 10m?, 30m or more barrels recoverable.
It looks to me that EOG got the seismic modelling completely wrong but got lucky with a strike in a zone they didn't think existed at this location.
The Great Geraldo - my apologies. Since the share price fall has been ably assisted by somewhat negative rumours, I assumed, clearly falsely, that this was another one.
Your definition of residual oil is broadly correct. In a reservoir that has been charged with oil there is never 100% oil or 100% water in the rock. In the oil leg, the volume occupied by oil is (1-Swi)*100% where Swi is the initial or irreducible water saturation. After waterflooding, or after natural displacement of oil by water over geological time, there is still some oil left in the pore space, though most of it is now water. This oil leftover is the residual oil saturation, Sro. The proportion of oil displaced is therefore (1-Swi-Sro)*100% [it gets a bit dodgier when gas is involved as well, so let's just run with liquids].
Sro is fixed for any set of conditions, but not permanently, for instance EOR techniques are often based on chemical injection to reduce Sro by reducing surface tension for instance. But I guess you're coming from the standpoint that residual oil is that which is left clinging in pore spaces after oil is displaced by water as it migrates from a source to a reservoir somewhere else or reaches the surface, i.e. any well encountering residual oil is usually to all economic intents and purposes it's a dry hole?
Conversely the transition zone occurs in all reservoirs with an oil water contact. Many people have an image of an oil water contact that's like a table top, with a well defined break from 100% of one liquid to 100% of the other, probably from looking at what happens to salad dressing when allowed to settle! :-) First, as we've seen above, it's not 0-100%, it's say 80% to 20% from (1-Swi) to Sro. But in porous rock, another force, namely capillary action, smears this oil water contact even more. Water rises up from the free water level by capillary forces to a height above the FWL that's determined by the rock properties (pore throat diameter). It's easier to give you a reference to a figure
http://www.digitalformation.com/Documents/CPRP.pdf
look at the fig on page 5 of 25 of this document for instance. The OWC is actually above the real FWL, but above the OWC there's a zone where water content diminishes with increasing height, until at a certain height about the OWC, the water content is the Swi.
So when they talk about having drilled through the transition zone, they mean they've intersected the reservoir at a level that's above the OWC (hence the ability to recover oil that flows) but one at which there is a higher percentage of water in the pores than in the "regular" reservoir.
Hope that's of some help
This well is a side show one of several to be played out in 2011.
Prove up 1.5TCF GIP in France during 2011 and it's off to the races, probably making RKH's rise look dismal.
Seems to me they have multiple bytes at multibag opportunities in the future.
JonnyT
I'm not sure where a previous poster read the words "residual oil" in any RNS or presentation. I guess using the words "seems to" is sufficient to spread doubt but avoid repercussions?
That was me. I made the leap from oil being discovered in a "transition zone" to conclude that the oil had passed through the reservoir encountered & that what was left was "residual". You appear to not agree with my logic? Maybe you'd care to xplain why not?
Barchiz is in the Carpathian thrust belt, an area of geological complexity which throws up multiple potential targets.
AAUI from a conversation that another investor on a different stock site had with Mr Barrett, the well was sited at an optimum location to attempt to access a target believed to be at about 1400-1500m. During drilling of the upper hole section, there were oil shows. Casing was set and the operator drilled on towards the primary target. However, 1500m or so was reached without having yet encountered the target, and because of the hole conditions, there would have been the need to set casing in order to drill on. If casing has been set, they couldn't have tested the promising upper formation, as it would then have been behind 2 steel cylinder. So partners took the decision to leave the initial target and focus on the higher formation, which they have indicated is the equivalent of the producing Geamana field, on trend in the adjacent block.
Because of the objectives of the well, it is thought to be located in a suboptimal place for this higher discovery (see slide 6 of AGM presentation)
http://www.europaoil.com/news/2010-agm-presentation.aspx
The more important conclusion is that live oil has been encountered in their block, which according to the company de-risks several other analogue prospects in the block, there is potential to go up dip away from the transition zone, and the primary target remains a target.
I'm not sure where a previous poster read the words "residual oil" in any RNS or presentation. I guess using the words "seems to" is sufficient to spread doubt but avoid repercussions?
Yes, Hykeham is an enigma. The company has written it off their books, but I don't consider that we've heard the last of it.
However, I'm not sure how previous posters can imply that Barchiz is a natural extension of EOG's other performance. At Barchiz, EOG has 20% equity, and a private Czech company MND is the operator with the other 80%. MND is responsible for the drilling operations at Barchiz, and as operator will have a strong say in what EOG can release to the market, and when.
Ultimately the prize isn't Barchiz, or Firsby, though both of those have the capacity to greatly influence the value of a company which is valued by the market at less than £20MM. It's Berenx, a HPHT gas discovery in the south of France.
Also - what oil there is was found at 520-580m and no mention has been made of the primary target (TD was 1450m). Isn't this a little suspicious?
It may also be worth noting that EOG have had problems with other wells - IIRC Hykeham was considered to have suffered from a failure of the perforating guns, but when it was reperforated it produced diddly squat... 'To date, the well has produced only small volumes of liquid and some gas. This result is completely incompatible with both the wireline log and geological data from the well....'
They may just have been unlucky and the assets may be great - but I am put off a bit by the track record and RNS's that look a little as though they are grabbing at straws. I could of course be entirely wrong.
AA
hmmmm....last week we had " mobile hydrocarbons in the reservoir.". A week later & the weather's worsened significantly, the oil they recovered seems to be residual & they're going to sidetrack updip next year. I guess it's a tricky balancing act between keeping the market updated in a timely fashion & updating the market with a considered appraisal of results of their efforts.