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I have that same recollection from previous quarterly reports. I recall reading it with interest as I was the one who posted the info on this board detailing how a company that was defrauded by them could become part of the legal action against Stanford and his cronies. There was a bit of interest among long time followers and I remember it made me think that someone from mgmt or other interested parties who have the ability to influence them may actually read this board from time to time. Unfortunately, such settlements typically only yield only pennies on the dollar (while the trial lawyers of the represented class make out great) but every little bit counts and while their recovery was only a minimal amount compared to what was lost - it was something. As I recall it a few hundred thousand bucks, but when a tiny company is cash poor it really DOES help.
I had been thinking about the same thing. Wondering how we can have so many shares being purchased by SO many investors. I say it in this way because without seeing filings with the SEC to indicate holdings above the percentage threshold established for filing - one can only surmise that all these shares are being bought up by many multiples of investors and without large concentrations accumulating within the holdings of any small number of parties. Say for example CEPSA were to gobble up enough of a stake to facilitate a stealth take over behind the scenes, there would have to be the appropriate filings made.
What are you thinking Middy? Have you seen any such filings?
Tamtam - its even more shrouded in mystery than most of here would care to think about.
"Abu" means "father of" in Arabic. This is commonly used as an element in a kunya, which is a type of Arabic nickname. The element is combined with the name of one of the bearer's children (usually the eldest son). In some cases the kunya is figurative, not referring to an actual child, as in the case of the Muslim caliph Abu Bakr.
http://www.behindthename.com/name/abu
So when he uses the phrase "Abu ______" which typically refers to the son, he is really able to call that person out without directly referring to him by name. Thus it adds an element of mystery to the discussion because those of us who are not fluent in Arabic would have no clue as to what he is talking about.
:)
I think everyone agrees that this outcome is certainly unacceptable and very unfavorable for shareholders. It doesn't help for us to keep rehashing the fact that the situation sucks(that's pretty much a given), but it might be helpful to collectively get our heads around possible corrective actions so we as shareholders can estimate the odds of potential variable outcomes - both positive and negative. The issue of accountability is what I was interested in reviewing with you and what you have seen in your professional experience in terms of dealing with D&O or E&O insurance claims.
If this is something characterized as "gross negligence" as you suggest then it may ultimately fall to shareholders to initiate some sort of action to prompt a claim under one or both policies. And although they are famous for not disclosing much of anything I cannot believe they would fly naked and not carry such insurance. Companies large and small carry it, heck even one of the small employee self directed groups where I serve in a director capacity carries this insurance liability - in case someone makes a mistake (i.e., does something stupid) (fortunately it has not been necessary for us to use it - but that might not be the case with the situation faced by our ERHC management team...).
Take a look at this:
"What is the difference between Directors and Officers (D&O) and Errors and Omissions (E&O) coverage?
D&O provides protection for the directors and officers of an organization in the event there are allegations of wrongful acts in their capacities as directors and officers. D&O typically covers allegations of mismanagement, misrepresentation or breach of fiduciary duty against the individual directors and officers. Often, the organization itself is not protected in the event of these types of claims. Shareholders of the company typically bring the claim. On the other hand, E&O protects the organization, its management, and employees in the event of an allegation of an error or failure in the provision of the company's professional services. Clients of the company typically bring the claim."
http://www.eperils.com/pdf/eo_qa.pdfinsert-text-here
Here is a short overview that reviews the difference between D&O, E&O and EPLI Insurance.
http://law.freeadvice.com/insurance_law/insurance_law/do-eo-epli-insurance-differences.htm
Here is a white paper reviewing and discussing these issues from the ABA:
http://www.americanbar.org/content/dam/aba/administrative/litigation/materials/2012_inscle_materials/12_1_towers.authcheckdam.pdf
The size of that penalty for such an oversight seems more than a bit egregious to me. And all because they failed to file a form?
This is obviously something that can cause tremendous harm to the company and it occurs to me that an example such as this is not really such a good idea in this particular (new) political environment. Its just the sort of IRS overreach that makes the papers when looking for examples of why President Elect Trump wants to roll back so many regulations. In fact it might be worth while to raise the issue to highlight it in hopes of seeing the company get this reversed and resolved so the company won't go BK. I saw on another post where ERHC has influence with the Kenya government but what about the US government? Perhaps they should think of approaching their Kenya contacts and ask them to intervene diplomatically so the Kenya people are not shorted if everything goes south because of the lien.
Middy - as a practicing accountant you have undoubtedly seen many such circumstances in your career and I suspect they don't all turn out to be total busts. Are you aware of instances where such decisions are reassessed and overturned? What sort of strategy is involved and what would it cost to successfully pursue that?
Next question? If this whole mess is truly due to failure to make a timely filing, that responsibility belongs to someone. And under such circumstances (particularly when the consequences are so critical) someone will be held accountable. Ultimately, I suspect that the standard line of thinking is that the buck stops at the CEO/CFO, but that is not quite the perspective I am interested in exploring with you here. We noted they just replaced their Certified Public Accountants to go with another firm - it seems to me that besides all the many issues we have heard tossed about on this message board, something I have not heard yet is the angle involving professional errors and omissions. Most professionals will carry such insurance coverage to protect them from personal liability and it would seem to me that if ERHC has not started pursuit of some sort of monetary damages to address the error, then it would make sense to start that. At the very least it would be a possible source of funds to pay off the lien. And getting this one thing resolved as quickly as possible would put them in a much better position for everything else - don't you think?
I'd be interested in your thoughts on this. Thanks.
I think so. Here are a couple more links to the announcements that made the major news wires on the Wolfcamp shale:
http://www.worldoil.com/news/2016/11/15/permian-oil-riches-rise-as-us-sees-reserves-worth-900-billion
http://www.dw.com/en/largest-us-oil-and-gas-discovery-made-usgs/a-36418422
Art Berman explains these ideas much better than I can in a few sentences on a message board:
http://www.artberman.com/permian-giant-oil-field-would-lose-500-billion-at-todays-prices/
I have to agree and would take it one step further as that would seem to be what needs to be added so others understand what you are driving at. When you talk about "commercial" quantities, it may be necessary to spell out the fact that prices are just one of many determining factor that go into what decides whether a discovery is "commercial" or not. MTO has raised the point on more than one occasion calling attention to the manner in which the results of the drilling were presented and contrasted typical language we'd expect to see regarding net pay vs oil shows. That fact alone was pretty telling for many here on this board. The point that I raised before and linked back to the Schlumberger definition was that there are numerous factors that go into determining whether a discovery can be deemed "commercial" or not. If there is no practical way economically extract the oil and bring it to market for sale, it is possible for a field to be too cost prohibitive to develop. Of course that analysis can change if the price of the oil is high enough - so rising commodity prices ARE of interest. And I think this point gets to be a stumbling block for many outside the oil industry to fully understand but only because there they are not fully conversant with the way the industry works. The thing that many of us on this board are frustrated by is the lack of transparency of this management team and the total lack of information that would allow shareholders to make such informed decisions on their own.
Does anyone recall the announcement of that huge discovery in the Permian Basin of Texas this past year? The industry journals and news media trumpeted the Wolfcamp shale discovery as being bigger than the Ghawar field in Eastern Saudi Arabia. And the reporters that tried to characterize the value of the field simply took the barrels estimated in place and multiplied it by the current oil price. The number was a pretty huge number, but the point that they missed was that headline was very misleading and their analysis incomplete. Sure it (their story) went a long way to highlight the notion that the US can be energy independent and snub the Middle East producers but that was more politics and posturing than real economic analysis. The truth in that whole scenario was that they failed to consider what it would cost to produce the resources in Wolfcamp. And if they were to factor that into the equation properly they'd be announcing it would be produced at a loss given current oil prices. The point being, this sort of finanacial analysis gets done on all sorts of oil resources all over the world at any given point in time. When prices went up over a hundred bucks a barrel there were a lot of marginal wells that all of a sudden looked very atractive and producers were willing to spend the money necessary to develop (or recomplete) them but only because they could expect to recoup their development costs and still show a profit.
Sure would be nice to know that wouldn't it? That was the point I was making that you responded to earlier with respect to the notices that should be filed by a lot of the new holders. I say that given the fact that officially we are still at a point where we the average passive investor can only see that there are some 40 million indicated shares in the capital structure because that is the information that is publically available to most individual investors. Now common sense would suggest there are a lot more out there because of the CDs, and lets not forget that those with an obligation to report to the SEC should have about the same information as all the rest of us. And it is management's job to disclose material events so that passive shareholders can make informed decisions in their investments. Absent any new information on the number of shares outstanding I would venture to say that there are likely a whole lot of new investors that are technically in violation of SEC reporting rules just as you mentioned of Chrome and PN and SO.
I am sure that possibility has occurred to many of the long term shareholders. But all we can do is wait and see if they file the necessary forms in a few days to indicate their activities as the law requires.
Many of us here have lamented over our collective concerns for having a gagged transfer agent and with the "official" number of shares outstanding pegged at a number way lower than the total number being traded these days, outwardly it would appear that the entire capital structure (and then some) is now being traded everyday. But while most know better and that this is likely due to the CD conversion of the toxic debt, something like this that would of course be a material event and thus reportable remains concerning as it simply goes unreported. Not a peep from the management team. And it seems to me that this situation might at least suggest that as long as this remains to be the case - technically every one of those short term flippers could have some obligation to report their ownership as it crosses the 4% ownership threshold based on the most recent post RS capital structure. And I don't know about anyone else on this board but I have not seen any such filings with the SEC.
Anyone else wondering if the publically reported change in certified public accountanting firms has any bearing on these circumstances as well as presumable concerns for how they would be paid on a continuing basis. MTO - any thoughts on this?
Very true. And for every buyer there is a seller!
Completely with you on these points! Sort of makes you scratch your head and wonder why though doesn't it?
Thanks King. While it is indeed encouraging to hear of the oil shows they mention, I am still not sure it provides enough data (to satisfy me at least). Although the PR is definitely a welcome bit of information, it really does not convey all it should to equip the shareholders with the level of detail necessary to make the same sort of informed decisions that the geology and geophysics professionals on the exploration team can make. As for just writing it off as a "dry hole" per industry terminology, keep in mind all the things that go into making that sort of call. Based on what they say here my read of it is this - maybe it is and then again maybe it isn't - and of course they emphasize the fact it was intended primarily as an exploration hole to help quantify the region. My question at this juncture is still the same as I raised in July - are there economically producible quantities of hydrocarbons present and is what they found sufficient to entice CEPSA to continue their exploration per the terms of the agreement?
Wondering if you got a chance to see what I wrote on the other site last July? I thought it might be useful to recap. There is a lot that goes into slapping the label "dry hole" on a prospect and as you can appreciate, to a certain extent this involves a detailed economic assessment - something predicated upon current and anticipated market pricing for the commodity, as well as cost to produce, ability to get it out of the ground and to market cost effectively, etc. Heck, if there is oil in the ground, just changing one factor such as the price of a barrel of oil can fetch on the market can alter that assessment (and remember we have hit a high, then tumbled to a low and are slowly moving higher in spite of a less than robust economic recovery[will that change under Trump?]).
Here is the excerpt I mentioned from July where there was a lot of back and forth speculation among board members as to what constituted a dry hole and whether we had enough information to make that call:
"I am not saying that your interpretation is incorrect, but in any event I would suggest that absent any real confirmation of a lot of critical information, it is difficult to make good determinations and in turn rational decisions.
Consider if you will, the definition of the term "dry hole" from the Schlumberger oilfield glossary (www.glossary.oilfield.slb.com/Terms/d/dry_hole.aspx)
dry hole
English | Español
1. n. [Drilling]
A wellbore that has not encountered hydrocarbons in economically producible quantities. Most wells contain salt water in some zones. In addition, the wellbore usually encounters small amounts of crude oil and natural gas. Whether the well is a "duster" depends on many factors of the economic equation, including proximity to transport and processing infrastructures, local market conditions, expected completion costs, tax and investment recovery conditions of the jurisdiction and projected oil and gas prices during the productive life of the well.
See: crude oil, duster, hydrocarbon, natural gas
We are still just working with innuendo and rumor, we have not been briefed on the outcome of the drilling at all. The fact is that we really don't know enough information to make a thorough assessment of all these factors (and this is key with respect to what is noted in the definition above) and based on what information we currently have - none of us seem to be in a position to accurately assess the outcome as to whether there were hydrocarbons encountered in economically producible quantities, nor whether logging information while drilling yields sufficient information to entice CEPSA to continue their exploration per the agreement. I think everyone agrees that our management team owes us a PR with some useful information so the shareholders are enlightened on information that is obviously material."
Same address and physical office location, same personnel, etc., and given the fact that most publicly traded companies have a very strict conflict of interest policy and standard accounting practices clearly require proper accounting for such activities and under the rule of law officers of a publicly company have clearly established fiduciary obligations to their shareholders, perhaps all of this might just suggest that Newstar is actually just a wholy owned subsidiary of ERHE? Perhaps this is another one of this unimportant (yet material) events that they forgot to disclose to shareholders?
Typo - it should read reason #14 not #11.
Apologies for the typo. The other rationale he provided was interesting too, but it was his conclusion that I thought would be of the most interest to the board.
Interesting excerpt from a newsletter put out by Christian DeHaemer on the coming rise of oil prices and how to position one's self accordingly.
Reason #11 ... "Fickle CBOE traders. The WTI contract is the world's most heavily traded energy contract. To give you an example, on February 10, 2016, 1,609,771 contracts were traded. Each contract represented 1,000 barrels each. That day 13 million barrels of actual wet oil were bought and sold. This means that 123 paper oil barrels were traded for every one actual barrel produced. That's ridiculous. And we know from past experience that when the trading herd reverses, it does so en masse and with great vigor. The short squeeze will be huge as stops are hit and margin calls blown up.
The upshot is that there has been less investment in upstream over the last two years. There have been no new big oil discoveries. China and India are increasing demand. Saudi Arabia and Russia have no more room to expand. The chart has bottomed. Market sentiment will change on the next “unexpected” global event with an epic short squeeze that will send oil prices much higher.
The best way to play this is by investing in small global oil companies with strong balance sheets and a mother lode of hydrocarbons..."
Sure would be nice...... to have some decent proven reserves at right about this point in the business cycle.
From World Oil.com
Majors must count on M&A to replenish reserves, WoodMac says
By ANGELINA RASCOUET, JAVIER BLAS on 9/20/2016
EDINBURGH, Scotland (Bloomberg) -- Major oil producers will rely on acquisitions for about half their reserve replacement in the future after cutting exploration budgets to weather the crude-price collapse, according to Wood Mackenzie.
Big oil companies are no longer trying to replace all their production through conventional exploration, the energy consulting company said in a report published Tuesday.
"Now their reserves replacement will also require inorganic, brownfield or shale investments," Andrew Latham, V.P. of exploration research at Edinburgh-based WoodMac, said in an interview. "Exploration has become incremental."
Investors often use the reserve-replacement ratio—the proportion of oil and gas production offset by new resources—to value companies since it forms the basis for future output. Among seven oil majors, only three added more oil than they pumped last year. Exploration spending dropped by half from a year earlier to $7 billion, according to WoodMac, which sees the industry slashing $1 trillion from exploration and development until the end of the decade.
Acquisitions Push
“The need for M&A in exploration is likely to be here for a considerable time," Latham said. The focus “will be on assets rather than on taking over companies.”
Woodside Petroleum is among those snapping up exploration assets. The Australian company agreed to buy ConocoPhillips’ interests off Senegal for $350 million in July. The purchase included the deepwater SNE discovery, which operator Cairn Energy estimates has 473 MMbbl in resources.
Exxon Mobil was also said to be in talks with Anadarko Petroleum for a stake in a natural-gas discovery off Mozambique, and in advanced discussions with Eni SpA over a stake in another prospect in the same area.
Lower oil prices have taken a toll on majors’ reserves, with some of them—such as Royal Dutch Shell—forced to write down as much as 200 MMbbl. Shell had the worst reserve-replacement ratio last year at minus 20%, the lowest in 12 years, it said in February.
The companies are also disposing of costly assets as oil prices below $50/bbl curb revenue. The Hague-based Shell aims to raise $30 billion from asset sales in three years following its $54-billion acquisition of BG Group in 2015. Among the assets it may sell are aging North Sea fields.
RELATED NEWS ///
Exxon’s accounting said to prompt SEC review after oil slump (9/20)
Great points. And I am most intrigued by the third one on your list! It is very succinct but implies so much. Allow me to explain.
Looking beyond the prospects of developmental projects with German brewers, I have been shifting my attention to the plight of the International Oil Companies (IOCs) and the prospect of their “Stranded Assets” as highlighted by a recent white paper. Under numerous carbon emission legislation scenarios, it becomes apparent that positioning to be able to tap (pardon the pun) this single area of the market would present tremendous opportunities for a company with the right solutions to step up and partner with some of the strongest businesses on the planet blessed with superb balance sheets.
Here are some interesting excerpt from a white paper by Chathamhouse discussing some of the issues they currently face. Providing breakthrough technological solutions to this area of the market would be a game changer for sure.
https://www.chathamhouse.org/sites/files/chathamhouse/publications/research/2016-05-05-international-oil-companies-stevens.pdf
Maximizing bookable reserves
A key strategy of the IOCs’ business model was to maximize bookable proved reserves. This could be done either by exploration drilling and assessment to ‘prove’, with varying probability, that stated volumes of oil in a reservoir are recoverable with known technology and at current prices, or through the purchase of other companies with proved reserves on their books.13 In theory, more bookable reserves meant two things. First, it created expectations of future revenue. Second, it allowed companies to add the capital costs (including capitalized exploration expenditure) to their financial balance sheet. The value of oil or gas in the reserves is declared as supplementary information under US Securities and Exchange Commission rules under a notional formula, but does not appear as an asset in the company’s balance sheet.
Recent difficulties
‘Unburnable carbon’ Climate-change policies have evolved since the establishment of the Intergovernmental Panel on Climate Change in 1988 and the UN Framework Convention on Climate Change in 1992. The Paris agreement of 2015 (see Box 4) consolidated the Framework Convention as a hybrid mechanism with a ‘bottom-up’ concerted effort to reduce greenhouse gas emissions through nationally determined plans (the Intended Nationally Determined Contributions – INDCs) rather than a set of quotas or obligations or a global carbon price determined at the UN level. This is then combined with a ‘topdown’ legal framework that requires countries to review and set ever more ambitious plans every five years. Although the majority of INDC policies focus on demand, some countries may use emission trading permits to establish a carbon price, and others may introduce carbon taxes. The World Bank estimates that carbon-pricing mechanisms currently cover 12 per cent of global emissions, and this number may rise significantly in 2017 when China launches a national emissions-trading scheme. All of this suggests that demand-driven ‘peak oil’ is a serious possibility.
The prospect of a peak in demand for oil and gas undermines the main strategy of the current and historical business models for oil and gas companies to maximize value for shareholders by preparing to meet increased demand. One consequence of the foreseeable decline in demand for oil, gas and coal means that the issue of ‘unburnable carbon’ has been moving rapidly up the agenda. The concept is a very simple idea. There exists a level of hydrocarbon resources in the world, made up of coal, oil and gas. If these reserves were burnt, they would produce 2,795 gigatons of carbon, with 65 per cent coming from coal, 22 per cent from oil and 13 per cent from gas. The scientific consensus reflected at the Intergovernmental Panel on Climate Change suggests that to achieve a 50 per cent probability of limiting global warming to 2°C, emissions should be limited to 3,000 gigatons of CO2. Before 2014, 1,970 gigatons had been emitted. The scientific consensus reflected at the Intergovernmental Panel on Climate Change suggests that to achieve a 50 per cent probability of limiting global warming to 2°C, emissions should be limited to 3,000 gigatons of CO2. Before 2014, 1,970 gigatons had been emitted. Taking account of changes in land use, deforestation and non-energy use, this leaves a ‘budget’ of 980 gigatons (in the range of 882 to 1,180) for post-2014 emissions. This means that only 565 gigatons of carbon can be added by 2050 (IEA, 2015). Unfortunately, estimates suggest that at current rates this figure will in fact be reached by 2028. It is in this sense and in this context that the balance of hydrocarbon resources becomes ‘unburnable’. The global excess of proved reserves over the ‘budget’ is so large that the uncertainties on both sides of the calculation do not undermine the possibility that companies hold reserves and resources that will not be developed. This has always been the case: reserves have increased steadily and, despite production, still stand globally for oil at around 60 years of current production. In relation to Figure 9, one study estimates that 340 billion barrels of oil resources will be produced and added to reserves that are not burnt by 2050 because of their higher cost.
The relevance of unburnable carbon for the IOCs’ prospects is obvious. A key pillar of their old business model is to maximize bookable reserves on the grounds that this will increase the value of the company in terms of book value and of expected future cash flows. This increased value is then expected to translate into higher share prices. However, the ‘unburnable carbon’ argument implies the value of these reserves could be overstated. This has given rise to much discussion about a ‘carbon bubble’ and the dangers of stranded assets, which carries important implications for the financial markets. It has been estimated that the top 100 coal and top 100 oil and gas companies had a combined value of $7.42 trillion as of February 2011 (IFAC, 2013). In March 2014, the chair of the Environmental Audit Committee of the UK House of Commons, Joan Walley, said that ‘Financial stability could be threatened if shares in fossil fuel companies turn out to be over-valued’ (Walley, 2014). In a similar vein, the governor of the Bank of England, Mark Carney, warned in September 2015 about the dangers to financial stability from climate change if it implies an over-valuation of assets. While the stranded-asset argument has appealing simplicity, it is potentially flawed in the context of providing a threat to the IOCs’ business model and should therefore be analysed carefully. In particular the interaction between reserves held by the NOCs and those held by the IOCs will be critical. A stranded asset can be defined as an asset that has lost value because circumstances have changed, or a potential asset that cannot be monetized because of circumstances beyond the owner’s control. The carbon-bubble argument suggests the IOCs’ assets will be stranded because policies designed to prevent climate change will prevent the reserves from being burnt.49 However, the time frame over which this is assessed is vital. Mark Carney has noted ‘the tragedy of the horizon’, whereby impacts beyond 10–15 years into the future are not considered by investors and central bank regulators. On average, the IOCs have a reserves-to production ratio of 13 years whereas that ratio is higher for NOCs.
There are questions over the demand response to lower prices in a post-Paris Agreement world, in which the contracting parties are committed to policies aimed at reducing emissions of greenhouse gases and therefore reducing fossil fuel consumption. This is reinforced by the fact that many governments realize that imposing sales taxes on oil products is a good way to raise revenue. Such sales taxes have large tax bases; inelasticity of demand means high rates can be imposed without reducing consumption; and they are relatively cheap to collect. Subsequently, many governments are absorbing some of the fall in crude-oil prices by increasing sales taxes. In a similar vein, many governments are removing or reducing subsidies on oil products. All of this implies the current lower crude prices may not produce lower product prices and hence the sort of demand response seen in the past. The oil price cycle described above may no longer be relevant.
Given some of these factors noted above, it occurs to me that some of the IOCs would be a logical place to start looking to establish partnering agreements and actually work to provide them with the solutions that help avoid the stranded assets scenario. This would ultimately work to the advantage of both parties and make both organizations stronger; the IOC by maximizing the value of producible reserves and the technology company that helps provide the solutions implied by your third bullet!
Fully agree. Even if the world somehow changed the demand now created by the need to fuel transport vehicles there would always be so many other things that would drive demand - but it would not be at the same rates of consumption we see now. I personally don't see that magic disruptive technology changing the transport side of the equation overnight and neither does the industry itself. If you watch what the giants of the oil and gas industry are actively doing it is to diversify into the downstream segments of the business in order to squeeze every cent they can from that part of the value chain.
You are right and to some it would just seem we are swapping out the tailpipe on the current gasoline powered vehicle for the stack on a coal fired power plant. But nuclear and solar are gaining ground.
In any case, those with the dough to lay out for one of those Teslas can obviously have a ball smoking those go fast crotch rocket motor cycles! I bet there are a lot of us wishing we invested in some of those toys rather than the investing in the stock of ERHC - for the moment at least. Let's hope that changes soon.
Yes, it is sort of conspicuous by its very absence isn't it?
I think that the long term demand picture discussion would be lengthy and take us in many directions. Regarding your observation of the "one billion thirsty vehicles on the planet", here is something I found of interest this weekend - perhaps disruptive technologies are about to change all that?:
http://www.liveleak.com/view?i=eba_1466154716
jcanada summed it up very well with this " the more casing strings, the bigger the top one needs to be..."
I don't think we really need to read too much into the conductor casing size beyond what he mentions as this next source tells us it will often vary in size from 18"-30".
From Wikipedia on Casing
In the planning stages of a well, a drilling engineer, usually with input from geologists and others, will pick strategic depths at which the hole will need to be cased in order for drilling to reach the desired total depth. This decision is often based on subsurface data such as formation pressures, strengths, and makeup, and is balanced against the cost objectives and desired drilling strategy.
With the casing set depths determined, hole sizes and casing sizes must follow. The hole drilled for each casing string must be large enough to easily fit the casing inside it, allowing room for cement between the outside of the casing and the hole. Also, the inside diameter of the first casing string must be large enough to fit the second bit that will continue drilling. Thus, each casing string will have a subsequently smaller diameter.
The inside diameter of the final casing string (or penultimate one in some instances of a liner completion) must accommodate the production tubing and associated hardware such as packers, gas lift mandrels and subsurface safety valves.
Casing design for each size is done by calculating the worst conditions that may be faced during drilling and production. Mechanical properties of designed pipes such as collapse resistance, burst pressure, and axial tensile strength must be sufficient for the worst conditions.
Casing strings are supported by casing hangers that are set in the wellhead, which later will be topped with the Christmas tree. The wellhead usually is installed on top of the first casing string after it has been cemented in place.
Intervals
Typically, a well contains multiple intervals of casing successively placed within the previous casing run. The following casing intervals are typically used in an oil or gas well:
Conductor casing
Surface casing
Intermediate casing (optional)
Production casing
Production liner
The conductor casing serves as a support during drilling operations, to flowback returns during drilling and cementing of the surface casing, and to prevent collapse of the loose soil near the surface. It can normally vary from sizes such as 18" to 30".
The purpose of surface casing is to isolate freshwater zones so that they are not contaminated during drilling and completion. Surface casing is the most strictly regulated due to these environmental concerns, which can include regulation of casing depth and cement quality. A typical size of surface casing is 13? inches.
Intermediate casing may be necessary on longer drilling intervals where necessary drilling mud weight to prevent blowouts may cause a hydrostatic pressure that can fracture shallower or deeper formations. Casing placement is selected so that the hydrostatic pressure of the drilling fluid remains at a pressure level that is between formation pore pressures and fracture pressures.[1]
In order to reduce cost, a liner may be used which extends just above the shoe (bottom) of the previous casing interval and hung off downhole rather than at the surface. It may typically be 7", although many liners match the diameter of the production tubing.
Few wells actually produce through casing, since producing fluids can corrode steel or form deposits such as asphaltenes or paraffin waxes and the larger diameter can make flow unstable. Production tubing is therefore installed inside the last casing string and the tubing annulus is usually sealed at the bottom of the tubing by a packer. Tubing is easier to remove for maintenance, replacement, or for various types of workover operations. It is significantly lighter than casing and does not require a drilling rig to run in and out of hole; smaller "service rigs" are used for this purpose.
https://en.wikipedia.org/wiki/Casing_(borehole)
Maybe I can add something here -
A working knowledge of casing-design problems will influence pipe-size selection. When it comes to planning for problems, hole geometries are often selected to allow the option for additional casing string if required.
"Tubing is the conduit through which oil and gas are brought from the producing formations to the field surface facilities for processing. Tubing must be adequately strong to resist loads and deformations associated with production and workovers. Further, tubing must be sized to support the expected rates of production of oil and gas. Clearly, tubing that is too small restricts production and subsequent economic performance of the well. Tubing that is too large, however, may have an economic impact beyond the cost of the tubing string itself, because the tubing size will influence the overall casing design of the well."
"Casing- and bit-size selection
A casing- and bit-size program must consider the problems described in the previous section in addition to the actual casing- and bit-size characteristics. These include casing inner and outer diameter, drift and coupling diameter, and bit size. A working knowledge of these variables is important for selection of a viable geometry program.
Pipe selection
Casing availability is a priority consideration in hole geometry selection. High-strength casing, often required for deep wells, may have a small (drift) diameter that will influence subsequent casing- and bit-size selection. Unfortunately, supply-and-demand cycles in the pipe industry may control the pipe design rather than engineering considerations."
http://petrowiki.org/Hole_geometry
http://petrowiki.org/Casing_and_tubing
I am not saying that your interpretation is incorrect, but in any event I would suggest that absent any real confirmation of a lot of critical information, it is difficult to make good determinations and in turn rational decisions.
Consider if you will, the definition of the term "dry hole" from the Schlumberger oilfield glossary (http://www.glossary.oilfield.slb.com/Terms/d/dry_hole.aspx)
dry hole
English | Español
1. n. [Drilling]
A wellbore that has not encountered hydrocarbons in economically producible quantities. Most wells contain salt water in some zones. In addition, the wellbore usually encounters small amounts of crude oil and natural gas. Whether the well is a "duster" depends on many factors of the economic equation, including proximity to transport and processing infrastructures, local market conditions, expected completion costs, tax and investment recovery conditions of the jurisdiction and projected oil and gas prices during the productive life of the well.
See: crude oil, duster, hydrocarbon, natural gas
We are still just working with innuendo and rumor, we have not been briefed on the outcome of the drilling at all. The fact is that we really don't know enough information to make a thorough assessment of all these factors (and this is key with respect to what is noted in the definition above) and based on what information we currently have - none of us seem to be in a position to accurately assess the outcome as to whether there were hydrocarbons encountered in economically producible quantities, nor whether logging information while drilling yields sufficient information to entice CEPSA to continue their exploration per the agreement. I think everyone agrees that our management team owes us a PR with some useful information so the shareholders are enlightened on information that is obviously material.
I think you're right on target regarding the importance of waiting on cement to "mature" - that is something really important in well control.
And I think the points kownski makes about the placement of plugs as he describes is important as it helps to prevent communication between zones and this is something designed to help maintain well control (i.e. avoid subsurface blow out).
Most on this board may recall the BP Horizon incident that occurred in the US Gulf of Mexico back in 2010. Even though that was offshore and we are talking about an onshore well here, keep in mind the principles of well control are basically the same. There are some good videos developed as part of the BP Horizon investigation to recap some of the issues they encountered. And for those who are new to drilling, I think they provide some useful visual animations to help graphically illustrate all the moving parts and how they work together. If you have a few minutes to invest watching it, here is a link to a BP video put out by BP on that incident
Just as a lot of the discussion has been focused on here for a while it means that at the time the "article" was written there had been no official news release on this and it's essentially hearsay. That is why the writer qualified it as he did.
A lot of this is water under the bridge at this point, but in spite of that fact my instincts tell me to give this story a wide berth and consider it for what it is. Something that sort of jumped out at me that I did not notice anyone mention yet is this: conspicuous by its absence in this "article" is the use of the word "abandon" in association with the word "plugged." Those two words are common in the industry and when used together they have a specific meaning. Now there have been a few theories offered up that perhaps the well is being plugged until a later date, if so the word "abandoned" would not really be something one might expect to see in such a story. And in spite of really preferring to wait for official information in a PR, I might be tempted to entertain the notion that the lack of the word "abandon" has some significance if the writer really does know something useful.
I agree that there are a lot of things about it that don't sit well with a lot of us, especially the part about "if true" but a lot of what is said and how it is said still does not sit well with me. Like I said before, until there is some official press release there will continue to be a lot of guessing.
And in that thought you will find the dilemma - if they stampede for the exits in order to attempt to sell their shares to break even at this point in the game, it's indeed possible that they could find a buyer willing to take the chance that if/when official results are PR'd hoping they might just make a little coin. But here's the thing, if they sell it without releasing the drilling results so there is a level playing field in terms of what is known, they would be doing so while in possession of material non-public information and in trying to sell their stock to the uninformed public like that, they'd quickly find themselves in a a set of silver handcuffs doing the perp walk and then confined to a very small cell with Bubba very shortly thereafter for violating insider trading rules.
Good point MTO - but having worked in the industry myself for the better part of my career with the large publically traded oil Companies, I can think back to several instances where dry holes were not reported in the manner you suggest, and I can also recall at least one instance where a blowout resulting in loss of an offshore production platform was not reported either (but it was reported to the appropriate government authorities in SE Asia per established regulatory reporting requirements established by the host government [that was a gas well that burped up quantities of natural gas for a while until the formation bridged and sealed itself off later, but fortunately this did not result in any injuries or adverse environmental impacts - simply a property loss resulting in loss of capital that was deemed non-material per US SEC rules). But in each case I am referring to the point was that such instances were deemed to be non-material events for the organization; it doesn't mean they failed to learn anything from them, nor was there any attempt to sidestep proper corrective actions. They were not intended to deceive anyone - the events simply were not material enough to report and thus not worth mentioning. Of course it's important to put this all in the proper context. The large publically traded oil companies have massive capital budgets to invest in their exploration programs and they often spread the risk by sharing it with other companies (such as through farm ins) and it is expected that not every well drilled will result in a discovery (you've alluded to this many times when describing the odds of finding oil) - in the exploration game it's risk capital pure and simple. They put shareholders capital at risk every time they drill a well and are typically very selective on where and how they drill as they make every attempt to pick the best prospects in order to assure success. Now having said all this, I don't think that way you expressed your point is entirely incorrect, while your challenge was to name an instance where an oil company did not report such an event, I get the sense that the real point you were trying to drive home was that in this particular case regardless of the outcome - dry hole or commercial oil find - either end result WOULD be material to this Company and thus reportable. It's all a matter of looking at things in the proper context. Let's face it, while this IS a publically traded oil company it is certainly NOT one of the majors with the capital budgets in the multiple billions of dollars, so at the end of the day their is no escaping the need to report either outcome as either one would be significant.
"Discoveries are generally announced with much fanfare, not hidden." Like perhaps at a conference in London where a certain CEO is said to be making an appearance next week?
Until there is definitive news - it's just more waiting and guessing...
I like your optimism! Yet, keep in mind there can also be factors that just simply delay progress and also stretch out the time it typically takes to drill and complete a well. I've seen many instances in the past of getting stuck in the well bore, losing equipment downhole and other inconvenient circumstances that can delay progress and result in longer completion times. Not to suggest we have any such indication here - simply because we have no information to work with.
Best for shareholders to avoid any and all drilling problems though as it just adds to the overall drilling costs as that rig's day rate keeps ringing the register.
I hope the drilling supervisor sidesteps any such problems and successfully maintains well control. I think everyone is keeping their fingers crossed and hoping for the best at this point.
GLTA
MTO - do you think it is possible for ERHC to ask Kosmos to assign the payment you are asking about directly to CEPSA so they can avoid receiving it directly and thus making it attachable by the IRS? It's almost like bartering in a sense as it would allow them to avoid taking possession of the cash and seeing the IRS latch onto it. I seem to recall your background as an accountant and background in tax might help us dissect this issue. I'm just trying to figure out if someone is getting clever here so they still have some means to pay the drilling costs when they come due, and it seems to me that based on your observations that might be a bit difficult if they are in the midst of dealing with that lien. Your thoughts on such an arrangement. Thanks in advance.
I was thinking of you and this on going line of discussion the other day when I saw a clip on CNBC where they reported that one of the big public companies had a new board installed upon the insistence of one single shareholder that had less than 1% of the company's shares. There are quite obviously several individual posters on this board that could effectively do the same thing with this Company's board if they chose to. That would seem like a logical first step wouldn't it?
Can't answer for the "cone of silence" coming out of HQ in Houston. But you are right, it sure would be great to know something. Given the state of things I would have to agree the status of drilling right now ranks pretty high on the scale of importance and materiality.
The silence is deafening...
Let's hope we spud soon and get that drill bit turning - and it would be more than nice to have it promptly confirmed by a PR.
Can't help but agree, but the point I was driving at was the fact that things often seem darkest before the dawn so to speak (or in this case the initiation of drilling) and I think everyone understands the share price is in the cellar now. When we talk of theoretical valuations further into the future much of this is nothing more than thinking out loud with various "what if" scenarios. The banter back and forth seemed to be aimed at tempering expectations if/when things begin to turn. I do agree that it is important to have a realistic view of this company, it's prospects and present valuation as well as potential future valuations should commercial oil be announced. As many others have said, markets can be temperamental as they are often driven by emotion, yet there are factors such as comparable valuations of other firms with like assets and cash flows that must be considered. It takes all kinds to make a market, some might sell a stock because they feel it is not worth keeping whereas someone else might see value and willing pay up with the expectation that there is something about the company that will unlock value and make it rise and worth the risk. The only thing I would say is that those who set the expectations bar too high will likely be disappointed, but given that the bar is set so low today it's really hard to say who is going to be right and who is going to be wrong when the well is completed. In any event, let's all hope the drill bit starts turning soon and GTLA!
MTO - these are all just shades of gray that we are splitting hairs over here. Whether we use a very optimistic number or the somewhat more realistic number you mention by correlating values based on market prices of other oil companies operating in the region - in all cases it (the impact of finding commercial oil on share price) represents a heck of a lot more than the current share price represents for ERHE shareholders! One day at a time here folks. GLTA!
Rather than simply focus on extending accountability for the mistake, what are the available solutions to rectify it? Paying it off is obvlously one, but where does the funding come from? Is this something that can be obtained through payment by their errors and omissions insurance carrier? Most officers and directors in publicly traded companies carry it. Do they even carry it?
Sort of makes one wonder whether these guys have stayed current on the premiums of their errors and omissions insurance; personal/professional liability insurance often sought by directors and officers of many different size organizations...
http://www.americanbar.org/content/dam/aba/administrative/litigation/materials/2012_inscle_materials/12_1_towers.pdf
You very well may be right considering current market conditions. Who knows what sort of a wild card might be played that changes that dynamic. It occurs to me that the $10.25/barrel tax being proposed on each barrel of oil by the current White House administration, could very well be such a factor as it would immediately give a boost to production and consumption outside the country. It would effectively make every barrel produced outside the US that much more economically attractive(competitive) than each barrel produced and consumed in the States. That is just one change in circumstances that could provide the incentive needed to prompt the funding needed by stakeholders to make it happen.
This is by no means a boring market, there are a lot of things changing all the time.
Let's hope one more change includes a commercial find and the means to bring it to market profitably.
I'm not so sure it is just a matter of adjusting the number on everything to reflect the split ratio on the broker's side. In theory, yes I agree that it seems logical and would make the most sense, but as we continue to learn here the reality is often something different. For example, I had a few small open orders at different price levels (pre-split) with my broker (Fidelity) that were GTC and these were all placed with no restrictions on them (i.e., AON), yet when the split went into effect, rather than adjusting the price and share amount of the orders, the broker simply cancelled them all. I know this because I have it set up where they will deliver trade/order alerts to me on my phone and to my e-mail and I thought it odd that they would not just adjust them and maintain my place in line for a fill. If other brokers did the same with their customers, it might be that others were not alerted (or otherwise not aware) of their orders being cancelled like mine were.
The market makers are obligated to maintain an orderly market, but it could simply be that with out the same typical depth in their order book of open buy and sell orders (resulting from cancelled orders like mine and likely others), the market maker simply filled what was shown as valid open orders on their screens.
Before we overlook the obvious, remember it's easy to be a billionaire these days, so someone can make that claim and be correct if it is denominated in something other than what we all have in mind (i.e., US dollars). Think of all those holding the lots and lots of those Zimbabwe dollars before they hyper inflated to worthlessness. I don't recall any of the articles specifying what currency he would be considered a billionaire in...
"If ERHE/CEPSA strikes commercial oil, all this negativity will provide quite the return for the big risk takers. "
You could be profoundly correct - I hope so!
Happy New Year all!