.

the market says that good news is increasingly unlikely

GKP has fallen from 450p to 160p in the past couple of months - therefore the market is saying GKP is a bad stock and bad news is coming ?

Is this the way it all works cynic ? LOL


They are still 7 to 14 days from news IMO - which means there will not be spikes in the share price until quite a few days later, when results near.

Gramacho's BOR AGM notes below :


.........A lively AGM and a very good presentation from BOR on Friday.

Summary/Key Points
• If Darwin alone contains insufficient liquids on which to base a development several other prospects are within subsea tieback distance offering IMO the opportunity to aggregate further gas condensate discoveries into one development.

• Reservoir continuity on seismic and good trap definition suggests Darwin will require few appraisal wells. IMO rock properties suggest well deliverability will be extremely high and gas condensate well spacing is typically much larger than that of oil fields this will also assist commerciality.

• BOR has the MDT pressure gradient across the main Darwin sand and will have a sense as to whether Darwin is a relatively lean gas condensate with modest liquids yield or a relatively rich gas condensate with a high liquids yield. However it will not be drawn into estimating the likely range because there is significant uncertainty in any such estimate and prefers to wait until definitive numbers are obtained from the lab tests.

• Further work is required to understand the source rock and migration story. Based on the information obtained from the well to date BOR retains the belief that the source rock immediately underneath Darwin is in the oil window despite gas condensate having been found. It believes the acreage in the vicinity of Darwin may yet contain oil fields.

• The well did not encounter a gas water contact and therefore we still don’t know for sure that Darwin doesn’t contain an oil leg. Apparently there is room between the flat spot depth and the highest known water in a lower sand to house an oil column. However would there be sufficient contrast between a gas condensate and oil leg to generate the observed flat spot?

• Stebbing is being drilled as a tight hole and it was extremely difficult to get a read on what the well has found to date. I could speculate but it would be without much technical justification so I am not comfortable doing so.

• Management is extremely confident they will be able to conduct a significant appraisal and exploration program once further 3D seismic has been obtained and the existing 3D seismic has been reprocessed to incorporate the well results.

DISCUSSION
1. BORs Communication Strategy and “that” Condensate Yield
BOR’s communication strategy remains unchanged. fadilz’s note of 16:14 on Friday 29th sums it up well. Hence once again you had to be present to see the seismic and well logs and several slides have been omitted from the web version of the presentation. It was nevertheless very pleasing to see Howard and his team open up with more information about the high potential of this acreage.

Clearly BOR are guarding their interpretation of this fairway to secure a competitive advantage in any future application for open acreage nearby. The company demonstrating the best understanding of the play and how it works in the open acreage will be the front runner to obtain the licence. One would also hope that the F.I. government would recognise BOR for having opened up the play (and its shareholders for taking the investment risk) and reward it with some or all of the remaining acreage into which the play extends.

The concern for PIs is, given that Darwin is a gas condensate discovery, BOR may not have done enough by way of release of information to retain the market’s interest and thereby support the sp, particularly in these difficult times. Hence will funds be raised for additional drilling at the optimal sp? Certainly Friday’s presentation goes some way towards revealing some of the potential but until the Darwin condensate yield and Stebbing results are released we don’t know how critical selling the potential will be.

BOR pointed out that having 100% W.I gives them other options such as bringing in a partner. Harry Dobson pointed out he and his team have a long track record over many years of securing funding for businesses and certainly the track record to date with BOR is impeccable. He pointed out that the IIs have seen more information via confidentiality agreements and the IIs have backed the company to date. Perhaps the private investors just feel the pressure more as it is our own money on the table. Harry mentioned the board’s substantial holding and he believed they had as much if not more of an interest in making this work than most of the shareholders in attendance.

There was an impassioned plea by one shareholder, an ex CEO or Chairman of a public company, for BOR to indicate the likely range of condensate yields at Darwin to go along with the range GIP estimates. This received a lot of support in the room and the temperature rose a few degrees!

The GIIP estimate is 2.44 TCF +18% or -23% which is a rather tight range considering only one well has been drilled. (Definitely a function of the great trap definition afforded by the seismic and the flat spot.) The possible range in condensate yield is multiple times that of the GIIP range so it is not surprising that BOR is unwilling to quote a probable range at present.


Without any well specific information the range of condensate yields varies by a factor of 10+, i.e. 20 to 200+ bbl/MMCF (equal to 20 to 200+MMbbl/TCF, could even be as high as 300+) as has been discussed here previously.

As mentioned in the summary of key points I believe it is possible to get a sense of how rich or lean the condensate is from the MDT pressure gradient but it would not be definitive and would leave room for significant error. It wasn’t clear that BOR had asked specialists to estimate the range using the pressure gradient information. What they did say was that the possibility of a gas condensate reservoir had not been on their minds before drilling (gas or oil being the more obvious outcomes they had focused on).

fadilz commented “a chap who has consulted for both BOR and now FOGL was willing in conversation to put it at 50m to 150m barrels per TCF, but most likely around 80-100...” Whilst the 50 bbl/MM is easy to rationalise the case for 80-100 ML and 150 High is not clear. It would have been interesting to share in that conversation. Certainly other elements of FOGLs understanding of what BOR had encountered have proven incorrect so IMO we just have to wait for the lab results.

It is worth noting that BOR consider they will struggle to commercialise Darwin if the yield is 50 bbl/MM but may have a commercial project “if it is in the hundreds”. Whether this meant 100+ or 200+ was not clear. In any event BOR has not yet done the necessary work yet to show the value range for a specific CGR.

The complete work scope to analyse the condensate samples is 10 weeks but Howard did promise to release yield information prior to then if it becomes available. BOR took a comprehensive set of samples from four depths so they have good coverage and will be able to detect any variation of yield with depth.

2. Darwin Results
Slide 9 shows the reservoir properties which are very favourable (see later comments on well spacing and deliverability). It was particularly interesting to learn that the well did not encounter reservoir at the depth of the flat spot. BOR did not select a drilling location where it was present. There is a thick shale section separating the main reservoir package from an underlying water bearing sand interval. As I understand it the flat spot is located elsewhere on the structure within the depth interval encompassed by this shale section.

Hence whilst the flat spot is probably a gas condensate-water level, that is not yet proven and there is room between the highest known water in the lower sand and the flat spot depth to house an oil column down dip of the well. BOR will have MDT pressure points in the main gas sand and in the underlying sand and can determine whether the intersection of the two gradients agrees with the flat spot depth. If it does then this would suggest there is a gas condensate – water contact down dip of the discovery well. However that technique is only valid if the lower sand is in pressure communication with the main gas bearing sand and BOR did not confirm that the two sands are in pressure communication. (In fact in the post presentation chat they pointed out the limitations of the technique if they are not. Bit of a tease there lol!). We have seen examples in the Sea Lion wells of sands on different pressure profiles and this may be another example.

The continued potential for an oil leg is not an outcome that BOR pushed at the AGM although of course this was considered to be very possible prior to the drill. A gas condensate contains a broader spectrum of components found in oil than would a gas cap. Would there still be sufficient contrast to generate a flat spot at the contact between gas condensate and oil? It is still in the gas phase in the reservoir so perhaps it would.

The presence of an additional Lwr Cretaceous sand will be of interest to BOR because it may be present elsewhere in conjunction with a valid trap. It wasn’t clear whether this is a sand that is being targeted in the other prospects such as Sulivan and Stokes. The well TD’d in sand and BOR believe there are additional sands deeper in Darwin. BOR did not offer an explanation why this sand is not charged. Is there sand to sand contact across the fault at this level or is it not on the migration path? As usual at this stage lots of questions yet to be answered.

Apart from the condensate yield one of the more interesting outcomes of the lab work will be the reservoir fluid viscosity. Hopefully Howard will publish it because it would, along with the excellent permeability and apparent reservoir continuity from seismic, support the case for very high well deliverabilities. We could be looking at a well spacing of 2.5km2 and only 8-10 producers with say 4 gas recycle wells which would assist in lowering development drilling costs.

Drilling costs were a concern going into the meeting given how long Darwin took to drill. Darwin cost about $95MM. The rig equipment problems were responsible for about 1/3 of the $40MM overrun which puts the well cost at $82MM without this one off event. (The rig was on zero rate whilst the problem continued so the $13MM represents the remainder of the spread costs.) The majority of the overrun appears to be due to drilling issues including hole instability due to tectonic stress. An extra string of casing was run at one stage to stabilise the hole. BOR appear very confident this can be overcome by change of mud type. In addition a multi well campaign would see fixed costs shared over more wells so, together with the benefit of the usual learning curve, drilling costs should reduce as more wells are drilled. Apart from the equipment problems the rig has performed extremely well with only about 2 days lost due to weather.


3. The Lower Cretaceous Play Fairway
Prospects
This acreage is target rich. BOR showed us 4 further prospects (Covington, Chaffers, Burgess and Bute) plus what appeared to be an unnamed lead/prospect and 2 deeper prospects Sulivan and Stokes. BOR showed a blob map of the prospect outlines to scale. IMO you could draw a 15km radius from a central point that would encompass most of the prospective resources shown. Hence, IF this turns out to be a gas condensate play, any further successes have the potential to be aggregated into one development as they are all within subsea tieback distance.

This is important because it is not yet clear whether Darwin alone contains sufficient liquids on which to base a development. If it doesn’t a single central processing facility could handle condensate from multiple discoveries.

Slide 18 of the web presentation is striking in that all the prospects are much larger than Darwin emphasising again how BOR stuck to their principle of drilling the highest COS prospect first even though that could and indeed has lead to questions about commerciality. The key to this strategy will be how Darwin success and the ability to reprocess the 3D and calibrate the AVO response will affect the COS of the rest of the portfolio.

Covington is an amplitude supported prospect which is particularly interesting as it appears to be up dip from Darwin and could have received oil displaced from Darwin by a later gas condensate charge. It has an area almost 50% larger than Darwin so there is potential for a larger accumulation. However it is currently defined on the 2D and needs maturing with new 3D before BOR will drill it. I expect this to have a very high pre drill COS. Chaffers has some data quality issues and requires 3D reprocessing.

Source Rock Maturity
Howard said that the thermal gradient is very close to what was predicted. IMO this is good news because had temperatures been much higher than predicted this would have invalidated the source rock maturity map in the CPR. This was drawn based on the Aptian (Lwr Cretaceous) source rock top oil window being at 3000m below the seabed and the top gas window at 4150m below seabed. A higher temp gradient would have placed much more of the source rock in the gas window than predicted.

61/17-1 TD was 4876m which would be about 2838m below mudline. Hence any potential source rocks encountered in the well are expected to be immature or in the early oil window and therefore not responsible for the gas condensate. Howard said they don’t believe a source rock was encountered but final confirmation will come from geochemical analysis of the cuttings.

BOR thinks it knows where the Aptian source rock is deeper in the section below Darwin. We did not ask if BOR are planning to verify the pick by finding the source rock. It seems fairly fundamental to know the source rock depth to confirm another part of the source rock story. The question of drilling deeper came up in the context of there being more sands deeper in the Lower Cretaceous that could be hydrocarbon bearing. Howard indicated they may well drill deeper in a later well such as Covington.

The Aptian is one of the youngest age periods of the Lower Cretaceous so it is not necessary to drill through the entire LC to find the source and hence it would seem there would not be too much of a cost penalty to drill the source. The Stebbing lower target is in the Upper Cretaceous so it doesn’t offer the opportunity to confirm the pick.

There are three other areas of uncertainty regarding the source rock:
a) The type of source rock i.e. whether it is oil prone, gas prone or mixed. The source rock is believed to be oil prone based on DSDP wells but these are hundreds of miles from Darwin.
b) The thermal history i.e. in the past has the source rock been subject to higher temperatures than associated with the present day burial?
c) Is there a migration path that links Darwin with a deeper part of the basin where the source is in the gas window?

If these areas of uncertainty can be addressed then BOR will have a good handle on the source rock and the distribution of oil versus gas condensate. Drilling the source rock would answer a) and b) although I suspect b) can be answered by analysing samples from the well. c) may be something that BOR looks at in the post well review.


4. Stebbing and the Tertiary Fold Belt Play
It was so hard to get a read on Stebbing due to the tight hole status. BOR advised in the spud RNS that the drilling time estimate was subject to “geological challenges” that might cause variation from the estimate. I suspect this was a recognition that the hole problems encountered in Darwin could again be present in Stebbing. The wells are less than 50 km apart and Stebbing will encounter most of the formations encountered by Darwin. In addition Stebbing will encounter rocks that have been subject to tectonic stresses associated with folding. It is unlikely BOR would have been in a position to switch to a different mud system (e.g. an oil based mud system) if the cuttings handling equipment was not on board. Hence IMO the delays seen on Stebbing are to be expected.

Although Howard would not take questions about the status of Stebbing he did confirm the content of an OGJ article from 2009 which suggested there is a chain of five anticlines with gas hydrates located above the crests sounded correct. In other words there is a lot of upside should Stebbing be a discovery.

5. Forward Program
BOR are planning on running a new 3D survey in the FI summer at the end of the year. This should firm up Covington and provide other exploration targets. My sense is that a rig can be contracted on the basis of the results from reprocessing of the existing 3D survey provided there is sufficient encouragement from the Darwin liquids yield and Stebbing.

BOR were indicating that a firm program of five wells is one possibility and IMO the area covered by the existing 3D should support this length of program. The new survey might enable any optional slots to be filled if the results are available in time.

CONCLUSIONS AND OTHER OBSERVATIONS
• BOR has just scratched the surface in terms of revealing the potential of this acreage. There is a healthy prospect portfolio that should expand when the 3D has been reprocessed and additional 3D is run and interpreted.

• The Stebbing results will have a bearing on the importance placed on the Darwin liquids yield. If Stebbing were to find oil then the focus would be on Stebbing and less so on Darwin. If Stebbing were to find a gas condensate then the focus will be on sample results from both wells.

• The key to the share price will be demonstrating it can find enough liquids to underpin a commercial project. RKH was able to prove commerciality over the course of several wells in one drilling campaign which helped underpin the share price. BOR has only two wells in which to achieve the comfort of commerciality to underpin the share price. That is asking a lot. Should BOR not achieve that then sp performance will be influenced by how the longer term potential of the acreage is viewed versus a sub commercial discovery or one that can only be commercialised in the longer term.

• It was evident from Harry Dobson’s comments that this has been an extremely stressful campaign as a result of the rig problems. It was good to hear him pay tribute to the efforts of the team who have overcome the problems and delivered a discovery despite all the issues.



Finished at last!

Regards and GLA including the BOR management team,

Gramacho

PS: Apologies if I had to cut short one or two conversations at the AGM in order to get some time with the BOR folk in the post presentation conversations. Since BOR don’t do the PI presentation circuit we only get this opportunity once a year!........

Its the build up time now - results of Stebbing could be next week, so its build up time - watch the volume - any big volume days of 4m to 5m shares could be a sign of impending news.

The key to the share price will be demonstrating it can find enough liquids to underpin a commercial project. RKH was able to prove commerciality over the course of several wells in one drilling campaign which helped underpin the share price. BOR has only two wells in which to achieve the comfort of commerciality to underpin the share price. That is asking a lot. Should BOR not achieve that then sp performance will be influenced by how the longer term potential of the acreage is viewed versus a sub commercial discovery or one that can only be commercialised in the longer term.


They need to raise further funds to to prove commercialty of gas not oil but gas

Can they raise funds in this market

If they do how many years will it take to get a rig back to prove its commercial gas find.

Is there a market for it

RKH and DES have oil and its commercial in large sums but the SP is poor as ifs on partners and funding and thats on a huge oil find so you can see the problems BOR will have so only one way for this SP in time is .........down all the way.

Going up well today, but not a surprise - Stebbing results very soon.

Pretty much what we know, big gas kick, results next week. Was it a gap cap on top of oil...... or more condensate/gas ? Find out soon........

http://www.pandjenergy.co.uk/


............“A strategically important exploration well being drilled to the south of the Falkland Islands is expected to complete within the next 10 days or so.

Rumours are circulating stock market boards that the rig Leiv Eiriksson has encountered hydrocarbons while drilling Stebbing for Borders & Southern. They include that a large gas kick occurred, leading to a pause in drilling operations.”.........

the market clearly sets little store with that rumour

Complete and utter communications lock down at the moment. All we know is that for sure they got a gas kick - but you get them with oil and also with gas.

Since then nobody knows any more - so its all to play for.

Watch for a big volume day......... 5 millions shares or more in a day and something has leaked imo.

Things starting to hot up then.......

bullshit ...... volume today was <3m against a running daily 3 month average of just under 5m ...... you've played that tune too often of late

Oh boy, rf, you are in trouble now!!!! ;o)

Perhaps it's not for me...?......let's get a kick out of gas....and hope it's not all hot air.....another condensate strike and the sp will rise...oil and wooosssh....if commercial......

I'm convinced that there is oil and gas around these southern licences......but it might take more than this first drilling campaign to find most of it......after Stebbing : another two wells.....big, big chance of finding something commercial....who knows....if there is a big gas kick...as we speak they might have struck oil eldorado !.....possible.....

They got a gas kick on the 21st of June hence rig was shut down as i posted but did not give reason why,yes it could be said as good news but far to early to call.

Look at Desire they said they hit oil in turned in to bloody water over the weekend.

RF your going to end up like humpty dumpty.

Oil is what they need to hit not gas at present time.

cynic, simply look at a chart of volume - it only goes over 5m when there is a leak or there is news.

Wait for volume near 5 million and you will know news is coming..............

cynic - 02 Jul 2012 16:50 - 939 of 943
bullshit ...... volume today was <3m against a running daily 3 month average of just under 5m ...... you've played that tune too often of late

not that it's at all important, but you do not mention what news attached to the 5 spikes you show ...... and don't forget that bad news will also produce very heavy volume!

cynic, all I am saying is you will know when news is coming - what the news is who knows.

The first 3 spikes were the pre-news spikes, followed by the big one on the news. So it should be at least 1 if not 2 days of 5m plus volume will come before news imo.

I am mostly in FOGL......still have some BOR but what I have is a punt and depending on BOR result will either keep or move over to FOGL.....

This is exactly my plan of attack RF..........Small amount of Borders and Southern and gradually building up my stake in Falklands Oil and Gas.