.

Good day yesterday, buyers starting to move back into the market.

All we need now is a good flow test, if its market pleasing then this should be back over 350p in no time.

Lets look at what is not being said, which may explain share price strength (they have had 3 successful drills so far and the share price has risen strongly after two of them, the other one the share price fell but this is simply due to an overhang that was ongoing at the time).


First up, Main Fan Net Pay.

In the last CPR it was based on Maximum thickness would be 65M of net pay in the Main Fan. Well, here we are with 79M of net pay. Well in excess of the Max figure used in the CPR. P50 average figure for the main fan was 34.5M in the CPR. P10 average thickness of the main fan was 51.3M of net pay. This suggests the Main Fan is going to be rather bigger than was previously thought. This pushes up estimates IMO to the realms of 250MMBO recoverable from the Main Fan)


Second up, Lower Fan Net Pay.

It was expected that no lower fan net pay would be present at this location, but we have over 14M of lower fan net pay here. This suggests the lower fan may be in the realms of its P10 size (or circa 150MMBO recoverable on its own from the Lower Fan).


Now its Main Fan Flow Test - expectation is circa 4000bopd or more - figures well in excess of that will certainly light things up and we could see the use of "commercial" by even the most bearish of anti-Falklands brokers as they gulp down their humble pie.


IMV, all being well, at the end of the flow test Sea Lion can be firmed up with 250MMBO recoverable and then the next well appraises both Main and Lower, Lower being the optimal target. All being well there this will allow, after a lower flow test at the next well, for the addition of perhaps another 100MMBO recoverable of the lower fans possible 150 on to the 250MMBO recoverable of the Main Fan, leading to a large jump in recoverable barrels figures.


So three key events ahead.


Flow test results of Main Fan in 3 to 4 weeks.

Release of fast tracked 3D seismic results and updates on Sea Lion and new leads in 6 to 8 weeks.

Next drill results in 8 to 10 weeks along with, all being well, Lower Fan flow test.


If, and its always a big if, those three go well there is certainly no reason to not expect the share price back to the circa 450p or more levels, even in the summer lulls of the market.


I remain solidly invested in RKH as I have been since 38p and look forward to more success, if nothing else there is going to be lots of news with ARG/RKH (and DES but the less said the better with them) all due to release 3D seismic results in later July and RKH with another 3 wells to drill back to back.

You've told us ad nauseam about your investment strategy re RKH. Are you trying to convince us or yourself?

I'm not sure about the lower fan but the main fan is a big discovery and at a guess 90% certainly commercial.....sp starting to rise and plenty of room for it to go up....

very strange - L2 shows 2 blocks totalling 50 million(!!!) on offer at 263.5

now removed!

Just a little example of where we are :

Using 8.5US$ per barrel for oil in the ground.

Excluding - cash in the bank.
Excluding - other prospects.
Excluding - yet more Sea Lion upside.
Excluding - new prospects coming in July.
Excluding - %'ge ownership of other license areas


The present 155MMBO recoverable of just Sea Lion as is is worth 3.19 per share

The expected 225MMBO of where we are now of just Sea Lion is 4.63 per share

The potential 350MMBO proven by Autumn from just Sea Lion is 7.20 per share.


Flow test of 14-10/5 good, 14-10/6 good results and we could easily be circa 500p in Autumn time.

Goldman Sachs recent Oil Sector Note which highlights just how much upside on RKH, one of the very best !!

http://www.mediafire.com/?2kdabr40ck5qkl6

.

Fridays close of play stock on loan chart is now updated. 300K less shorts on now, so it looks like shorters are starting to close off positions ahead of flow test news.

Should keep adding to the underlying buying.

I find it difficult to believe anybody in the right mind would be shorting this now !....nuts....

Decent day so far.

To think, this was 367p at the start of the year and not in as good a position as now.

Really could zoom past 400p levels now with a very good flow test.


Enjoy the ride.

Provisional updates for Monday close show shorts had a go yesterday and ended up pushing the stock on loan figure back up to basically where it was at open on Friday.

They failed, and nice to say they have running losses now - when they close the price will rise again :) !



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http://www.ft.com/cms/s/0/5ed0da58-911b-11e0-9668-00144feab49a.html#ixzz1OcKQhC1J


.............................. for rival Falklands explorer Rockhopper Exploration, which rose 2.9 per cent to 276p following a positive meeting at Canaccord Genuity on Tuesday afternoon.

The Falkland stocks have taken a beating in recent months, partially because of the endless stream of dry holes that Desire Petroleum drilled, and partially because of the largely negative sentiment against the E&P sector. The way I see it, Rockhopper now has a very clear road map to commercialising the Sea Lion discovery, and I can easily see scope for a doubling in the share price before year-end, said Canaccord................

From FT Alphaville, a snippet :

http://ftalphaville.ft.com/blog/2011/06/08/588292/markets-live/


NH talking of the Falklands
NH the sector watcher saw yesterday
NH and boy was he impressed

BE Go on.

NH .....................We had a very upbeat sales-desk lunch yesterday with Sam Moody (CEO) and Peter Dixon-Clarke (FD) of RKH, convincing me even more that this is a core holding in any E&P portfolio. Recent appraisal well results on the Sea Lion oilfield in the North Falklands basin have been extremely encouraging, with the group now assuming a P90 reserves case of 155m barrels recoverable. As recently as last week the group announced that the 14/10-5 well, admittedly a very low-risk 600 metre stepout, had encountered 79m of net pay in the main upper fan and 14m of pay in the lower.

The upper result was around 10% better than the group had prognosed, i.e. a very encouraging result. This well is now being prepared for a testing programme, with results expected by the end of the month. The group is using Electrical Submersible Pumps (ESP) to aid the flow rate, and Id bet that Sams target of 4,000 b/d will easily be met as a result. Anything less than this would be disappointing. Following the 14/10-5 well, around mid-July the group will drill a 4 km stepout to the west called 14/10-6 which will address the mid-case reserves, although the company would not be drawn on what this means my guess would be back up towards the 242m barrels they originally carried for the field. Thereafter the group plans to drill two wells to the south, both targeting the low-case reserves the location of these should be helped by the fast-tracking of a 3D seismic survey just completed

Following these wells, which should take until Q4, it is likely the group will undertake a second CPR for release in Q1 next year. The group is well-financed for at least the next 12 months with $300m of cash. Our current NAV of 593p/share is based on P50 reserves of 170m barrels. Clearly this could end up on the light side if any of the 14/10-6 or the two wells to the south are successful. At 242m barrels our NAV is c800p/share vs a current price of 277p/share. The Falkland stocks have taken a beating in recent months, partially because of the endless stream of dry holes that Desire Petroleum drilled, and partially because of the largely negative sentiment against the E&P sector. The way I see it, RKH now has a very clear roadmap to commercialisng the Sea Lion discovery, and I can easily see scope for a doubling in the share price before year-end......................

The fact there is no present commitment past the 2 southern appraisal wells
(but they have lots of cash) suggests to me that RKH are saving the cash and will attempt to farm into DES new leads Shona and Beverly should the new 3D, once fast tracked by DES and RKH, appear to suggest they are good prospects.

A farm in where RKH takes a big slice of ownership of say the Shona prospect in return for paying a big slice of costs of the drill/s is a real win win win win win win for RKH and DES.

For DES they have to raise perhaps no money in the short term and can pay a small amount of the drill costs whilst relinquishing a big slice of ownership of Shona to RKH.

Any strike would mean DES would then be raising on the back of an oil find and at much higher prices.

RKH meanwhile get to explore without paying full costs, and any strike will not only bring a second FI discovery, but will also bring a second company into payment of development - hence cutting the funds required for RKH to get hold of in the development plan.

So a RKH farm in to the Shona lead might be a win-win for DES and RKH.


It is also possible that if ARG struggle to raise a big lump of cash for their drilling that they too could farm out their Lead 1 and Lead to RKH, again allowing ARG to raise less money with less dilution - whilst allowing RKH to get some low cost exploration done and bring more players to the party.


Late July and August will be very interesting, with ARG and DES and RKH all getting their fast tracked 3D back then - lots of decisions to be made.

Next well 14-10/6 is west.

14-10/7 well I would imagine will be on the edge of the India shape to the south, and 14-10/8 well will be well inside the India shape with the help of the new 3D.

Prove the low case P90 at 250MMBO recoverable - get a CPR done to say that - debt and equity funding - development under way.

With still loads of upside to play for from just Sea Lion on its own.

Fingers crossed the bugger flows at circa 4000 bopd next week.

That would be a fantastic result - so keep those fingers crossed for something near to 4000 bopd.

A lot of people talk about points on the chart but that does not matter in my opinion. Oil stocks are news and sentiment driven. And this time some potentially very big news is coming.

This time a proper flow test will occur, which if it works out well at around 3000 to 4000 bopd then the "C" word might be issued. Yes, they may state "commercial".

Commerciality only requires 60 MMBO recoverable at 60 US$ oil price in the Falklands.

As of yet there has been no proper stable flow test performed (just a quickie flow or no flow last time), this is being alleviated at the moment.

So given 14-10/2 and 14-10/4 and 14-10/5 are all in communication and now we are getting a proper stable flow test done it should mean the "C" word is possibly used this time.

Future drills 14-10/6 and flow test of lower fan, along with 14-10/7 and 14-10/8 should prove up a commercial P90 size of 225MMBO to 250MMBO to go into the new CPR in Q1 2012.

Of course upside on those figures is large but a lot in the market will want only to see the P90 case.

4000 bopd would be a fantastic result for a pure vertical well, and from the data they collect they can extrapolate that and calculate theoretical flow rates if they used horizontal completions on production wells.

Quite simply the higher the flow the less wells you need to drill the lower the capex is and the quicker the ROI is.

So 4000 bopd from a vertical would be fantastic.

The very best possible would be perhaps 20% over management expectations, so if Sam Moody is targeting 4000 bopd then at very best you can expect just under 5000 bopd - but 5000 bopd would be a result far in excess of management expectation.

I will be jumping up and down with excitement if anything over 4000 bopd and personally I expect a figure in the 3000 to 4000 bopd range.

Talking of flow tests, as some people have been raising XEL and comparing.

You cannot compare as XEL did a flow test with a horizontal completion, this for RKH will only be on a vertical, but production wells would have a horizontal completion.

To show what a difference this can make lets look at XEL.


Vertical flow test in 2009 = 150 bopd

http://www.investegate.co.uk/Article.aspx?id=200804301400094386T


----------------------------------------

Horizontal completion in 2010 = 2900 bopd


http://www.investegate.co.uk/Article.aspx?id=201012210700083389Y




So this is why production plans will likely be based on a multiple of the coming flow test. If RKH can get 4000 bopd from a vertical it should mean with a horizontal completion that well over 10,000 bopd can be planned as production rates for field development (likely between 10,000 and 15,000 with a horizontal).

So all we need for now, from this vertical completion, is around 3000 to 4000 bopd at a stablised rate. That would be great. If we get 4000 bopd its a fantastic result.

and if we get 2000.......