HOG - Hawkley Oil and Gas

[mr. jeff]

Hi RNI

I once had a lot of hope for HOG and still have a holding. As I said on paper it seems very undervalued - in particular considering the current Soroch 2 drill.

So in light of all this why is the SP so soft? There seems to be complete disconnect between supposed valuations and what people are prepared to pay for shares and their willingness to actually stay in the sharemarket. The other troubling factor is that we actually havn't had a real crash in the market. But HOG and a hundred other similar spec shares are just falling away day by day and refuse to rise on almost any news.

I understand your frustration. It is meandering along with no clear direction. I have left it alone and am watching for some re-invigoration possibly in the way of a takeover by a company looking for that Ukraine area exposure which is valuable, but difficult to work with. Too much work, not enough headlines!

Greener pastures at the moment.

 

[basilio]

So how long does it take to measure gas and oil flows? And what are the flows in the B19 horizon?

Its been over three weeks since Soros 202 hit paydirt and we havn't had a peep. Perhaps of more concern is the SP has steadily fallen despite the promise of a significant jump in production and reserves.

I remeber when the first well hit paydirt there were quite quick oil and gas flows reported which certainly encouraged interest. Any thoughts ?

 

[basilio]

Can't believe this...

I have a little bleat about the slow mo collapse of HOG's SP and lack of activity.

30 minutes later there is a flurry of buyers and the SP goes up 11%. Is there an announcement in the wind or have I just jogged a few peoples memory of what should be happening soon ?

 

[nchardon]

Announcement released today - HOG is buying the gas plant near Sorochynska total expected expenditure approx 2.5 million as opposed to 5.5 million for building their own. Expected cost savings of 200k to 250k a month = 2.4 - 3 million saved a year! It will pay for itself in the first 12 months.

I think I will top up today.

 

[WRONG'UN]

Sounds great - say $2.7m average savings, for 20 years, at a 5% discount rate = an NPV of about 12c per share. More that half the mc on the savings alone!

 

[WRONG'UN]

Putting it another way, the NPV of $2.7m annual savings for say 20 years, at 5%, = around $40m. Buying $40m worth of savings for $2.5m sounds like a good deal to me.

And the company hasn't actually said what production the savings are based on - if it's current production you would think there would be even greater savings as production increases.

 

[basilio]

So its now Nov 21st and HOG announces they have cleaned up the Soros 202 drill and will start to do flow tests....

They hit paydirt on Sept 5th almost 10 weeks ago. I hope I'm wrong but the slowness of news and total lack of enthusiasm from the company suggests this could be a very ordinary well with marginal gas flow. I remember that the original belief was that production would be substantially boosted with possible extra large reserves identified in the lower horizons.

On the strength of the very limited information date that seems so unlikely. And the SP has dropped from 23c at the time of the strike to its current 19.5c . Merde !!

Anyone else have any ideas on this ?

http://newsstore.fairfax.com.au/app...theage.com.au/apps/qt/quote.ac?code=hog&f=pdf

 

[WRONG'UN]

Trying to be optimistic, what about about the gas plant they are buying - not much point rushing Soro 2 into production and then paying through the nose to get the gas processed at the present plant - may as well keep it in the ground and put it through their own plant when it is available.

There may also be a cash flow issue - mitigated by banking the regular income from Soro 1, while adopting a go-slow cash burn rate at Soro 2.

That said, the "in due course" reference is a bit nebulous - surely they know roughly how long the testing is expected to take, and after that how long it would take to get the well on stream , assuming it is commercial, and also how long it will be before their gas plant is processing. In others words, what is the programme?

I put the sp performance down to the general market sentiment - and there are a lot of energy charts that are a lot worse.

Just some thoughts.

 

[WRONG'UN]

ps

Instead of "a cash flow issue", it might be better to say "sound commercial reasons".

Also remember that they took a lot of care with Soro 1, which paid off with enhanced production rates. It would be fair to assume they are taking the same care with Soro 2.

 

[nchardon]

New announcement, what do people think? Is there commercial quantities of gas?

 

[nchardon]

I am a bit confused, isnt Well 202 flowing at a commercial rate good news? Why the massive falls in SP? I understand they havent been able to give an accurate assessment on average rates, but from what I understand it is still commercial ie extra $$$

 

[WRONG'UN]

It looks to me like it's got 12c in its sights - I guess that will happen when they announce stable gas flows similar to or better than Soro 1, and an early on-stream date for their gas processing plant!

 

[WRONG'UN]

Chink goes another half cent in the remorseless slide to oblivion! A princely $32,000 odd changed hands today, almost a staggering 0.1% of the mc of the company! The big spenders are out in force!

I wonder what is happening (not happening?) about that gas plant they said they were buying?

Seven days since the last gas flow non-report - I thought they were doing 24 hour flow tests? - there have been seven days in the last week as far as I know - I suppose (hope) we'll hear some results "in due course".

I'm still giving them the benefit of lousy sector bias, but the patience is getting thin!

 

[nchardon]

Chink goes another half cent in the remorseless slide to oblivion! A princely $32,000 odd changed hands today, almost a staggering 0.1% of the mc of the company! The big spenders are out in force!

I wonder what is happening (not happening?) about that gas plant they said they were buying?

Seven days since the last gas flow non-report - I thought they were doing 24 hour flow tests? - there have been seven days in the last week as far as I know - I suppose (hope) we'll hear some results "in due course".

I'm still giving them the benefit of lousy sector bias, but the patience is getting thin!

I hear what your saying!!!!! They are certainly taking their time to announce their gas flow rates and let the share holders know what progress has been made with the gas plant, meanwhile confidence is waning and people have been selling out.

 

[WRONG'UN]

Oh well, if it's any consolation, at the beginning of August the LNC chart was looking like the current HOG chart - heading into oblivion - since then it's more than doubled!

So you never know!

 

[nchardon]

Oh well, if it's any consolation, at the beginning of August the LNC chart was looking like the current HOG chart - heading into oblivion - since then it's more than doubled!

So you never know!

The company is frustratingly slow in releasing details concerning this new well.

 

[nchardon]

And the downward trend continues... with no sign of recovering despite the moderatley positive announcements from management.

 

[WRONG'UN]

Looks like it's you and me, mate! Any other holders out there?

There's an old adage - the only good stock is rising stock! I know, I should be in something else - there are enough to choose from!

But there's only one thing worse than seeing a stock slide like this, and that's selling out in disgust, and then seeing it rocket up! It's real frying pan into the fire stuff!

Being positive, that was a comprehensive enough announcement - it sounds like the well will be on stream within a relatively short time frame, with more to come down the line.

In the meantime, I wonder what is happening with the gas plant purchase.

 

[nchardon]

Looks like it's you and me, mate! Any other holders out there?

There's an old adage - the only good stock is rising stock! I know, I should be in something else - there are enough to choose from!

But there's only one thing worse than seeing a stock slide like this, and that's selling out in disgust, and then seeing it rocket up! It's real frying pan into the fire stuff!

Being positive, that was a comprehensive enough announcement - it sounds like the well will be on stream within a relatively short time frame, with more to come down the line.

In the meantime, I wonder what is happening with the gas plant purchase.

I agree, nothing worse than selling out and watching it climb back up, been there and done it before. I am confident in the HOG share price rising after the second well is onstream and the physical cash starts flowing into the coffers. The price dropped down to .12 around this time last year with the chets failure, where it remained for a month or so before climbing up to the high .20's.

So as long as the company continues to turn a profit, and 202 is a commercial well which the company has indicated, the aquisition of the gas processing plant which will save upwards of $2 million a year (essentially paying for itself in the first twelve months) I see no reason to drop out of HOG and sell my stock at a loss, because others only in it for a quick buck bail out when they see their holdings dip into the red. It is times like this which is perfect to top up on cheap stock as I continue to do.

I predict an SP rise over the next 6 months, so wont be bailing out just now. It takes time (years) to drill wells, bring them online and build a company up from practically scratch as HOG has done over the last couple of years. So I am in it for the long haul. And I do believe it will pay off in the end.

 

[WRONG'UN]

So I am in it for the long haul. And I do believe it will pay off in the end.

In spite of my grumbling, that's how I see it too.

The recent volume has been pretty tiny - most of the 287million shares on issue are sitting tight.

Merry Xmas to all holders, and may 2013 be the year our patience starts to pay off.