LON:FOGL^J17 | Falkland Oil And Gas - 2012 - Its Over For Now | Proselenes

-->

1st Jan '12 by Proselenes

212 comments 103254 reads

Falkland Oil and Gas Limited

EPIC : FOGL

Shares in Issue : 320 million

Web Site : http://www.fogl.com/fogl/en/home

Unlock with Email

Unlock with Google

Already have an account?
Login here

About the Author

Proselenes

Premium Member

212 comments

flyinghorse

4th Jan '12

Proselenes,
Thanks for the additional information. Until its drilled its just an analogue. Is it the right analogue-I dont know.

If its an analogue that you are after they certainly chose the right one to get the juices flowing.

Not quite sure what to make of it all. Will need some drill bit facts to make sense of it. Untill then its relying on the quality of the subsurface team and the Seismic CSEM.

Cenrtainly feels like one may be missing out if you did not hold a few.

Note Colin More is exploration director-ex Cairn. Would Cairn not move swiftly on this one if they thought the exp team & the prospects credible?
Also sitting on $150.8mm funds,and contracted rig
"Funding

As at 7 September 2011 FOGL's available funds, including the BHP Billiton settlement, were $150.8 million. The Company is debt free. "

FH

Proselenes

5th Jan '12

rpcroft, whilst Argentina can up the rhetoric they have no effective way either causing significant problems or military invasion. South America (like Chavez) know that if they got involved it would open the door for the USA to get involved with them directly - he is not stupid, there is no way any South American country would get involved in any military way.

France, as you note, has more to lose by Britain having trouble with the Falklands, as they have many similar islands all over the place, and its why France has agreed to lend Britain her aircraft carriers if the need is there until Britains replacements come on line. Although the media love to play this all up, everything is well planned for. The US would find it impossible to refuse the UK's calls for assistance, which is why the UK has played a lead role supporting the US in Iraq and Afghanistan.

A lot of Kirchner's talk is purely for domestic consumption, its makes her popular and there is nothing like a good old nationalistic rallying cause to take peoples minds off of their own problems at home.

Proselenes

5th Jan '12

flyinghorse, yes Cairn would be an ideal partner at this stage to farm in. The share price is presently low as there are concerns on how their drill plan will proceed.

They are funded for 2 shallow or 1 deep, but everyone knows they want to drill two deep.

So they will farm out or they have to do a splash and dash fund raising to top themselves up to be able to do two deep.

Its the fear of a quick placing that is keeping the price depressed at the moment. If news of a farm out were to come out, or indeed a placing - then the share price should respond with moving upwards fast.

BOR are presently 3 times the market cap of FOGL, and FOGL is nowhere near as high as DES was say before their drilling. So there is a lot of upside of FOGL prior to drilling, they need to get this farm out done or raise funds and then everyone will relax and look forward to two deep drills.

emptyend

13th Jan '12

They are funded for 2 shallow or 1 deep, but everyone knows they want to drill two deep.

So they will farm out or they have to do a splash and dash fund raising to top themselves up to be able to do two deep.

Its the fear of a quick placing that is keeping the price depressed at the moment. If news of a farm out were to come out, or indeed a placing - then the share price should respond with moving upwards fast.

That is a theory that is about to be tested, with the news of a discounted placing at 43p this morning. It is surprising to me how modest Directors' own stakes are and how little of the placing they took themselves. They are all in the £50-95k area at the current share price of 46p.

....this isn't going to be a company where any of the directors walk away with multi-million profits on the scale earned by the likes of Tom Cross, Finian O'Sullivan or (prospectively) Todd Kozel, even if they have a staggeringly successful .run of wells.

Proselenes

13th Jan '12

I thought it pretty certain they wanted to drill Scotia given the excellent sands found in the Toroa near shore well, it meant that a big risk for deepwater wells targeted the same sands was greatly reduced, hence the need to drill Scotia second after Loligo.

Todays placing is no surprise and it means they now drill Loligo and Scotia with 100% ownership and no farm in.

Given the dilution from todays placing the risked and unrisked with the new shares in issue figure is as follows :

Loligo risked per share is now £13.13
Loligo unrisked per share is now £89

FOGL main prospects risked is now £44.71 per share
FOGL main prospects unrisked is now £303 per share.

First up, Loligo now represents £89 a share unrisked upside based on a low in the ground valuation of the potential 4.7 billion recoverable barrels of oil on P50 figures.

loglorry

13th Jan '12

ee - if FOGL main prospect comes in at £303/shr (assuming no dilution) this is a 600 bagger so even a £50K investment will be worth £30m. There will be plenty of dilution and most probably failed drills though. I suspect the directors quite rightly see this as very high risk very high return stuff and also that placings will require more funding along the way. For this reason I suspect they are keeping some powder dry.

If all goes well they'll be just as rich as TC but I doubt that will happen.

What is perhaps a negative for me is that FOGL could not tempt a partner into Loligo to share the costs. I'm always a bit sceptical of O&G companies that decide to walk the walk alone or have weak partners.

Still amazing upside though and I'm tempted to take a small punt (rather like the directors).

Log

Proselenes

13th Jan '12

loglorry, I think FOGL have done the right thing.

This is raise enough money to drill both deep wells and have some left over - this now puts them into the driving position of any farm in.

If BOR strike then people will scramble to farm in pre-Loligo, but there is no need to.

FOGL can now sit back an drill Loligo and farm in after the results, and if they strike oil then on very very good terms.

This has put them in pole position for farm in deals - much better than farming out now on very poor terms.

http://ftalphaville.ft.com/blog/2012/01/13/832461/markets-live/

Falkland Oil And Gas Ltd (FOGL:LSE): Last: 46.75, down 3.75 (-7.43%), High: 52.00, Low: 43.00, Volume: 14.89m

BE Sector watcher’s had a look at this one.

BE

48.5m equity issue at 43p/share, a 15% discount to yesterday’s closing price. It’s a big raise, with the new shares representing 54% of the existing shareholder base. Although FOGL already had around £70m at interim results in mid-year, the additional cash will make a material difference to its impending drilling campaign in the southern Falklands. Previously the group only had sufficient cash to drill two shallow wells, whereas now it can drill much deeper prospects. We estimate that the wells will cost around $60-70m each. The first well, Loligo, is targeting 4.7 billion barrels of hydrocarbons, over half of which is in the deeper targets (which admittedly look more gas-prone than oil-prone).

On an assumed NPV of $10-12/barrel, an oil discovery therefore has the potential to be worth $50-60bn, i.e. a quite staggering amount in the context of FOGL’s market cap of around $250m. The group will drill its two wells immediately following two from Borders & Southern, which is due to take delivery of the Liev Eiriksson deepwater rig later this month. Hence over the next six months or so, there will be a total of four wells being drilled in the basin, targeting around 7-8 billion barrels of hydrocarbons. Whilst clearly high risk, I’d be tempted to take small positions in both FOGL and BOR.

PM (Banks underwriting unicredit rights expect 90-95% take up — bank consortium source — rts)

PM Tight discount that for Falklands

BE Yeah – that’s what I thought.

Proselenes

14th Jan '12

Post this placing this is where we stand imo :

BOR

Number of shares: 428.58m
Share Price: 70.75p
Cash: $197 million / £128.88m
Market Cap:£306.43m

FOGL

Number of shares: 320m
Share Price: 45p
Cash: $223 million / £145.89m
Market cap: £144m

Loligo risked per share is now £13.13
Loligo unrisked per share is now £89 (based on P50 4.7 billion recoverable bls)

Scotia risked per share is now £2.79
Scotia unrisked per share is now £18.93 (based on P50 1 billion recoverable bls)

FOGL main prospects risked is now £44.71 per share
FOGL main prospects unrisked is now £303 per share

And for fun :

FOGL top 100 prospects is risked £224.98 per share
FOGL top 100 prospects unrisked is now £1524.76 per share

Proselenes

14th Jan '12

If Loligo were gas all the way, by my calcs it would be :

Recoverable 33.61 TCF of gas and 1.25 billion barrels of condensate (P50 basis)

If Loligo top were oil of some 2.153 Billion recoverable barrels then the bottom could be gas with 18.2TCF of recoverable gas and some 677 million barrels of recoverable condensate (P50 basis).

Top Loligo is T1+T1 deep - bottom is Trig/Trig Deep and Three Bears.

So :

Top oil and bottom gas/condensate is commercial.

Top oil and bottom oil is commercial.

Top gas/condensate and bottom gas/condensate is commercial.

Top DRY and bottom oil is commercial

Top DRY and bottom gas/condensate is commercial

Top gas/condensate and bottom DRY is commercial

Oil is commercial / Gas is commercial if over 10TCF in size (recoverable)

So pretty much all combinations apart from DRY/DRY is commercial, and you can see why they wanted to drill the deep well, obvious really.

sirlurkalot

19th Jan '12

Pro,

In your Loligo calculations, are you allowing for BHP Billiton to back into 40% of Loligo (if well successful)?
http://www.investegate.co.uk/Article.aspx?id=201103310730149855D

Could you put up your detailed calculations of value here please?

peterg

19th Jan '12

Hi Sir L

It appears the farm back no longer exists:

http://www.investegate.co.uk/Article.aspx?id=201111210700134113S

Separately, and further to the heads of Agreement signed with BHP Billiton ("BHPB") in March 2011, FOGL reports that an assignment agreement for the Northern licence area has been signed by FOGL and BHPB. This agreement has also received the approval of the Falkland Islands Governor. Whilst finalising this agreement it was agreed that BHPB would not to have the option to farm back into the Loligo development area.

I assume they mean "not have", rather than "to have". I don't know if anyone has ever checked or if it's been clarified, or they found an IR person who had GCSE English

sirlurkalot

19th Jan '12

Ah, well spotted Peter, I'd missed that, sorry. That RNS does read as you suggest so the option no longer exists, but a clearer statement that the option is toast wouldn't do any harm. I'm kind of surprised that BHP B should surrender that option seemingly without payback, since the option to back in after results known strikes me as a very valuable piece of paper.

peterg

19th Jan '12

I'd agree. I'm a bit mystified by BHP's behaviour here, since they also seem to have put up a good chunk of cash for the drilling.

Proselenes

20th Jan '12

Someone close to the company (so its only rumour) has said BHP had to pull out due to political pressure on their South American interests.

They did not want to pull out fully hence they wanted to keep back in rights, however the Falklands Government would not allow those and so it ended up they had to give up all their interests there.

There may be some kind of informal agreement they will be allowed back in on preferential terms on any oil strikes subject to them of course biting the bullet and relinquishing any interests in South America, who knows.

So officially as we stand BHP have no interest and no back in rights, all of FOGL's licenses are 100% owned and operated by FOGL.

I have used the GMP calculations as the template, GMP were calculating only on the shallow T1 target which has just 1.5 billion recoverable barrels P50 and then extrapolated for full deep Loligo which has 4.7 billion P50 recoverable barrels potential. GMP at the time of their document expected FOGL only to drill to T1 and shallow, however we now know from the placing they are to drill deep Loligo, to its T1, T1 deep, Trigg, Trigg deep and Three Bears that are being targeted.

http://cgxenergy.ca/documents/GMP-Dec15-11-2012ExplorationThemes.pdf

.

emptyend

20th Jan '12

Someone close to the company (so its only rumour) has said BHP had to pull out due to political pressure on their South American interests.
They did not want to pull out fully hence they wanted to keep back in rights, however the Falklands Government would not allow those and so it ended up they had to give up all their interests there.

That sounds quite plausible to me. Very large companies operating in multiple countries within a region are not immune to regional political preferences and prejudices, and will sometimes have to take a pragmatic decision that looks odd in the context of the project but which is clearly sensible if one looks at the wider picture.

Of course none of that has any impact on the geology (or even on the actual expectations of those with first-hand knowledge of the geology).

Proselenes

20th Jan '12

Falklands Oil is getting its airtime now...... all helps.

http://www.bloomberg.com/video/84587166/

.

emptyend

20th Jan '12

Falklands Oil is getting its airtime now...... all helps.

Not sure about that.

The Argentinian claims on the Falklands were being discussed on Breakfast TV today.....

Proselenes

21st Jan '12

EE, the Argentinians have no legitimate claim to the Falklands. This is recognised by the UN.

The UN in these circumstances dictates that the people of the Island have the right to self-determination. The people have chosen to be part of the UK. This is the end of the matter.

The Argentinians are trying to coax the UK to discuss the matter, as in the eyes of the UN and the eyes of the World this would mean the UK accepts the Argentinians claims and gives them credence. It is a ploy often used in the game of Diplomacy, which is they the UK is saying that there will not be any discussion for they know what the Argies are trying to do.

Case closed.

The UK foreign office learned the hard way with Hong Kong, had they never opened talks with China then Hong Kong would have remained British and would have been allowed the right to to self determination under the UN, however, as the British FO were are the time stupid enough to bring up the subject with China and enter in discussions the Chinese then stated this was an admission of guilt and therefore they had no claim. This kind of silly mistake will not happen again, which is why Cameron has said explicitly, no talks, no discussion, they have the right to choose and they choose to be British, which complies with all UN necessities and means the Argies have nowhere to go, apart from invasion, which of cause will not happen again as we have the Islands well defended now and they know it

peterg

21st Jan '12

The UK foreign office learned the hard way with Hong Kong, had they never opened talks with China

A very different situation from the Falklands, the lease on the New Territories expired in 1997, the FO had no choice but to open negotiations.

Proselenes

21st Jan '12

peterg, they did not have to open talks.

The Chinese were not expecting the UK to open talks and were expecting them to keep Hong Kong based on the UN rules of self determination and had given up on getting it back, however the moment the idiots from the FO wandered in and said "hey, what do you want to do about HK" the Chinese knew they could take it back.

No discussion, no talks and it leaves the other party with no chance.

The moment you agree to talks you are admitting you are at fault and your claims are not on solid ground.

Unlock the metrics for all these stocks and more...

Take a free trial

Facebook Twitter Youtube Instagram RSS

This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.

Unlock the metrics for all these stocks and more...

Take a free trial

Falkland Oil and Gas - 2012 - its over for now

Unlock the rest of this article with a 14 day trial

About the Author

Proselenes

212 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...