Touchstone Exploration Share Discussion Threads

[mount teide] 08/7/2018 18:01

Ross - nothing is certain but, the current oil and industrial market fundamentals and their history, suggests they would likely perform far better than many of the major constituents of the FTSE/DOW/Nasdaq in a market downturn, as a result of valuations being at very elevated levels compared to most oilers and miners, which are still in the early stages of recovery from a brutal half decade long recession.

[fardels bear] 08/7/2018 17:56

Don't you just love journo speak? Markets now plunge, but cratering is even better an unhyperbole ( I have to say I don't know what the opposite of hyperbole is).I just feel I doubt the agenda of somebody who uses cratering and either leaves his scythe at home, or shoves it up his jumper with just the tip poking out.

[mount teide] 08/7/2018 17:04

Ross - the chart started turning upward in early 2017 - it is currently circa 2.25, when i last calculated it a few months ago.

[mount teide] 08/7/2018 16:36

Following chart shows there is 50 years of historical data to support the view

The chart compares the Goldman Sachs Commodity Index (20 major commodities with largest weightings for oil and industrial metals) v S&P500 over 50 years.

The hugely cyclical nature of the GSCI Commodity chart closely mirrors the Baltic Dry Index Shipping Chart over a similar period.

[mount teide] 08/7/2018 15:37

My copper and oil sector research covering a period of over 50 years found that major equity market peaks and troughs and recessions regularly have periods of diametrically opposite impact to the peaks and troughs of the oil and copper market.

The previous global equity market peak in Dec 1999 saw the FTSE hit circa 7,000 while copper was at a 15 year low of $0.78 and oil was at $25.

A recession then hit and the FTSE tanked eventually bottoming in H1/2003 nearly 50% down, and by mid 2006 was still in correction territory some 20% down.

The Copper price during this entire period never dropped at all and by mid 2006 had risen by 375% to $3.70(some 493% better than a comparable investment in a FTSE tracker during that period). While the oil price climbed to $75 by summer 2006, some 200% up. Oil continued to climb including during the first 9 months post the start of the financial crash recession in Oct 2007, finally peaking at $147 in mid 2008.

From their 2008-2010 peaks to their joint bottoms in Q1/2016 copper and oil dropped 58% and 78% respectively while the FTSE after a sharp initial fall ended up largely sideways to finish at exactly the same level as 6 years before. Since then the FTSE is up 30%, while Copper is up 55% and oil 140%.

With the copper market forecast to go into material deficit for most of the next 5 years and still 75% below its previous inflation adjusted 2010 high, and the oil market flirting with a future deficit situation and still 118% below its previous inflation adjusted peak, and the FTSE close to an all time high valuation - to this observer the likely trend in comparative valuations over the medium term, recession or not, looks fairly predictable if the copper and oil market fundamentals and long term stock market history is a reliable guide.


AIMHO/DYOR

[mount teide] 07/7/2018 23:23

Oil sector investment group Bernstein raises the prospect of an oil supply shortfall ahead as a result of the chronic lack of investment in the sector since 2014. They say currently the " reinvestment ratio in the industry is the lowest in a generation".

The exact same scenario is unfolding in the industrial metals sector with the majors preferring to reward long suffering shareholders with higher dividend payments rather than invest more cash into risky high cost exploration.


Bernstein Analysts: Oil May Jump Past $150 On Chronic Underinvestment - OiPrice.com

'A supply shortfall is lurking should major oil companies continue to underinvest in exploring for new oil reserves, and this “chronic underinvestment̶1; is setting the stage for the next super-cycle that could see oil prices soar to $150 a barrel or more, analysts at Sanford C. Bernstein & Co said on Friday.

Investors clamoring for cash returns on their investments in lieu of increased capital expenditures may soon backfire, as new oil reserves may be unable to keep up with demand, according to Bernstein analysts.

“Investors who had egged on management teams to reign in capex and return cash will lament the underinvestment in the industry,” the analysts said in a note, as carried by Bloomberg.

“Any shortfall in supply will result in a super-spike in prices, potentially much larger than the $150 a barrel spike witnessed in 2008.”

“If oil demand continues to grow to 2030 and beyond, the strategy of returning cash to shareholders and underinvesting in reserves will only turn out to sow the seeds of the next super-cycle,” said Bernstein.

“Companies which have barrels in the ground to produce, or the services to extract them, will be the ones to own and those who do not will be left behind.”

After the oil price crash of 2014, oil companies slashed exploration capital expenditure. Now that oil prices have recovered, those companies are looking to reward shareholders with dividends and share buybacks to show that they have successfully come out of the price slump.

The lowered capex in exploration, however, is depleting the oil industry’s reserves and reserves replacement ratios. According to Bernstein, the reinvestment ratio in the industry is the lowest in a generation, which is setting the stage for a super-spike in oil prices; prices may even beat the record of $147 a barrel from 2008.'

[mount teide] 07/7/2018 14:29

Some further board brush analysis of the economics of TXP's production well drilling and recompletion programme.

TXP demonstrated in previous Company Presentations how the economics of the well recompletion programme are compelling at US$50 Brent - the current Brent price will be delivering a huge step change further improvement.

From the Q3 2017 Presentation(link below), the Recompletion Program Results during the period November 2016 through October 2017 produced an average increase in production per well over 12 months of circa 10 bopd for the 22 recompletions.



Suggesting that at an average of the current Brent price each well recompletion will generate a gross revenue of US$281k/£211k over the following 12 months - up from US$160k/£120k from last June when Brent was $44.

The 4 production development wells and 20 well recompletion programme carried out in 2017 cost CAN$6.9m/US$5.2. (Source:2017 year end results)

Brent has averaged US$63.5 in the year since June 2017 - at US$63.5 Brent the 2017 capital investment programme's production performance results would generate the following gross annual revenue:

US$9.3m - 4 wells @ an average of 100bopd per well
US$4.6m - 20 recompilations @ 10 bopd per well
US$13.9m - Total Gross Revenue

At the current oil price the production results of the 2017 US$5.2m capital investment programme would generate gross annual revenue of circa US$16.9m in year 1.


AIMHO/DYOR

[brasso3] 07/7/2018 08:06

I have topped up again this week with my average price creeping up to around 13p.

Will be here until the 2019 exploration wells kick off at least. Will probably top slice around that point to lock in some profits.

Cannot help but be impressed every time I watch a Paul Baay interview.

[mr. t] 06/7/2018 17:30

Its unsophisticated analysis full of holes:50 boepd x (ca$84 per barrel revenue - ca$24 royalty per barrel royalty - negligible incremental operating costs) x 365 days = ca$1.1m = £630k+ net revenue

[compound growth king] 06/7/2018 17:23

Is the herd staring to arrive?

Transaction Volumes:
1.32m - Today
0.88m - daily average this week
0.49m - daily average over previous 3 months
0.47m - daily average over last 12 months

[sleveen] 06/7/2018 17:16

Mr T would you share your assumptions and arithmetic with us to back up your statement please.

TIA.

[mr. t] 06/7/2018 17:13

MT, your numbers simply and clearly make the strong case for TXP. Even if you take a pessimistic case of 50 bopd per well and take out royalties, operating costs, etc you'd get each well paid back within a year.

[mount teide] 06/7/2018 16:43

The broad brush rationale behind accelerating the production development programme from 10 to 20 wells in 2019 is presumably based on the following economics:

Each 100 bopd well is generating gross revenue of £2.8m at the present oil price.

A 5,000ft well drilled under the 2018 10 well drilling contract price(CAN$186/ft) would cost circa £0.54m.

Would expect TXP to have negotiated some additional option wells when negotiating the 2018 contract.

[spangle93] 06/7/2018 14:41

CFC - not really - it's sort of costs swings and roundabouts, because what you save in the surface facilities you would lose on drilling longer, more expensive wells. There are also life-cycle cost considerations: rod pumps prefer vertical wells unless so you could either the completion design to downhole pumps (higher capex) or factor in workovers to replace eroded tubing.

Pad costs and rig moves are usually not included in drill cost/ft calculations, so it wouldn't affect those efficiency parameters.

But ultimately you're probably correct, because longer, deviated wells will have a lower ratio of flat-spot time when no progress forward is made (casing running and cementing, logging etc), drill cost/ft tends to be lower for deviated than vertical wells to the same TVD