MS on IOC

[admin]

IOC 1Q14 operational results were in-line. Three exploration wells drilling, results of 2 wells in 2Q14, 1 exploration well in 3Q14 and 2 Elk/Antelope appraisal well in 2H14, we see event driven upside.

What happened? IOC reported results that exceeded expectations yet included asset sale proceeds from Total. We believe exploration and appraisal results are significantly more important to IOC than refining and marketing, which, in our view, become less critical and could be monetized at some point in the future. The call was a progress update and contained no results, yet given the pullback, we see upside into expected 2H14 results and June shareholder meeting (NYC).

Focused & funded: exploration next. IOC spud 3 exploration wells in 1Q14 (Wahoo, Raptor and Bobcat). We expect results of at least two exploration wells in 2Q14 (Wahoo and Raptor) and the third in 2Q14-3Q14 (Bobcat). IOC stated on its conference call that they will disclose results of each well with log and DST data that will help dimension preliminary meaning (i.e., size). Mgt also discussed the frontier nature of exploration and typical success rates (10%) that, in our view, was cautiously construed by markets given three wells are in progress. We expect Wahoo results first where we see higher geological risk given the step-out from Antelope.

Focused & funded: Elk/Antelope appraisal in 2H14. We expect two Elk Antelope appraisal wells before year-end, up from one well prior to conference call update. The location or decision by the partnership to drill the third well is conditioned upon results of the first two wells. If the third well is not drilled, it could accelerate the time for the resource payment. We expect appraisal well results will provide context for what was generally assumed in the IOC’s published resource assessment. Given the variable price per $/mcfe and resource size, the appraisal wells are the biggest potential catalyst (binary) for up to +2Bn resource payment from TOT. IOC also retains a 27.5% interest of similar to value to what was sold, so implied valuation and size accrete to the NPV of its retained interest. 

[johnwgrant]

"Mgt also discussed the frontier nature of exploration and typical success rates (10%)"

This bothered me about the conference call. Why bring this up now? Setting expectations? Probably? Warning us that Wahoo is a dry hole? Don't know!

It was Hession that set the expectations for results in 60 days or so. Where are they? This is a dual-edged 'delay'. If it was known to be a dry hole, there is no need to test or delay in pulling the plug. If the results are mixed or uncertain, then the full range of tests need to be completed (and would take some time).

Wish I know which of the two 'spins' to put on the 'delay'... Stock price says that it is a dry hole. We will see if the stock price is really a good forecaster of actual results...

Signed,

- Impatient Investor

[admin]

Well, we had a poster here citing several industry publications testifying to that 10% range, so it can't have come as too much of a surprise. Chances are pretty good that we'll hit something in those three prospects being drilled, and since these are all potentially large structures, this could still move the needle in a rather material way..

[Getitrt2]

"Mgt also discussed the frontier nature of exploration and typical success rates (10%)" This bothered me about the conference call. Why bring this up now? Setting expectations? Probably? Warning us that Wahoo is a dry hole? Don't know! It was Hession that set the expectations for results in 60 days or so. Where are they? This is a dual-edged 'delay'. If it was known to be a dry hole, there is no need to test or delay in pulling the plug. If the results are mixed or uncertain, then the full range of tests need to be completed (and would take some time). Wish I know which of the two 'spins' to put on the 'delay'... Stock price says that it is a dry hole. We will see if the stock price is really a good forecaster of actual results... Signed, - Impatient Investor

The impression I got about the delays is that they have been caused mostly by the seal rock above the formations being so "sticky" and difficult to get through.

[sageo]

"Mgt also discussed the frontier nature of exploration and typical success rates (10%)" This bothered me about the conference call. Why bring this up now? Setting expectations? Probably? Warning us that Wahoo is a dry hole? Don't know! It was Hession that set the expectations for results in 60 days or so. Where are they? This is a dual-edged 'delay'. If it was known to be a dry hole, there is no need to test or delay in pulling the plug. If the results are mixed or uncertain, then the full range of tests need to be completed (and would take some time). Wish I know which of the two 'spins' to put on the 'delay'... Stock price says that it is a dry hole. We will see if the stock price is really a good forecaster of actual results... Signed, - Impatient Investor

The impression I got about the delays is that they have been caused mostly by the seal rock above the formations being so "sticky" and difficult to get through.

Getit- Kinda' sounds like a "sticky" way to avoid what they don't want to tell us.

[Thylacine-2]

As I recall, the side tracks at Bobcat were attributed to the shale seal rock being sticky. Has there been mention of delays at Wahoo?

[Libtardius Maximus]

guys, if memory serves same sticky situation was encountered at EA

[sageo]

As I recall, the side tracks at Bobcat were attributed to the shale seal rock being sticky. Has there been mention of delays at Wahoo?

Thy- I believe MH said,"Wahoo.....late April or early May" (or words to that effect) for some reports. The pps since then is not looking like positive results are coming soon, if at all.  [ not trying to be pessimistic,just realistic ] Sure hope I will be surprised eventually.

[trans]

As I recall, the side tracks at Bobcat were attributed to the shale seal rock being sticky. Has there been mention of delays at Wahoo?

Thy- I believe MH said,"Wahoo.....late April or early May" (or words to that effect) for some reports. The pps since then is not looking like positive results are coming soon, if at all.  [ not trying to be pessimistic,just realistic ] Sure hope I will be surprised eventually.

Sageo, this may help.......Peteng once said the heavy lifting work is done right before entering formation, in order to control the potential high pressure potential in the formation.  Otherwise the well can blow out, liner, casing, BOP, other technical stuff, but you get the idea.  I figured that stuff was likely 5-7 days work.   So my take is that we are close to the formation by now, despite some delay, and are likely doing the grunt work before attempting to to into the formation.    So likely not a place yet for good or bad news, but close.  Maybe Pet can give his much moore precise thought than my best guesses.     trans

PS, stock T?A is likely making a low area here, imo

[Getitrt2]

trans, I think you're right on all counts. I'm pretty sure the market does not know something negative about the drilling the rest of us don't and reflecting it in the price, although there may be some effect from the uninformed fears of some about such a possibility, arising from the delays, referenced global probabilities of 1 in 10, etc. I agree it's probably making a bottom here, too.