G'day all, it has been great to see the sustained rise in BCC's sp since the EGM. It has been quite consistent with one small breakdown through the 2nd down trend line (post EGM) when the new directors resigned, but it got back on track again after the farm out agreement was executed.
While BCC are nearing the end of their onshore drill with KL#1-4 and should be about to spud offshore with SCU#1, I would normally be expecting to see a run to 7.6c without hiccups. However I do believe there are now several variables introducing a little uncertainty that may present a few hiccups. I can't see them turning the sp around, it's just that if they are not cleared then the sp may go sideways after the end of this month. This is my opinion only and I would love to see the sp's sustained rise continue in its current uptrend channel.
The variables I see that currently represent some potential hurdles are:
1) The spacing issue for KL#1-4. I personally can't see this as a major hurdle, however until it is resolved it will provide a drag on the sp. I would also like to have seen words like 'gas kick' or 'increased mud weight' in the KL drilling updates. Hopefully this is just a new conservative reporting style from BCC. The drilling of this well across an identified fault also makes me nervous for obvious historical reasons.
2) SCU#1 spud is now over due and I cannot see how they can expect to drill and test this well before the offshore drilling season in the Cook Inlet comes to a close around the end of October. This I believe does provide a hurdle to a continuing sustained sp rise that will be harder to overcome this year. Keep in mind it took 90 days for Cosmo#1 to be drilled and tested and its TVD was 7,999' TVD. There is now approximately 45 days for SCU#1 to be drilled and tested and for BCC to claim either the $25 million ACES incentive or the 65% ACES rebate for drilling SCU they need to drill into the Pre-Tertiary which means a minimum TVD of at least 12,000' TVD. So at this stage although I would love to see some oil flowing from SCU#1 this year in the form of a flow test, I think at this stage it may be more likely BCC just spuds SCU#1 to retain the lease and comes back to it after April next year when the offshore drilling season re-commences. I would love to be proved wrong on this but can not at this stage see how that might happen.
3) The farm out agreement with EOS being signed off (for $150 - $200 million) has certainly greatly reduced risk in the eyes of the market and correspondingly increased sentiment towards BCC. However I (like Dan and some others have also expressed) will be a lot more comfortable when the money is actually in the bank for BCC. The most recent balance sheet for EOS shows cash of $749,742, deposits and other current assets of $3,138 so ta total figure of $752,880….as of June 2013 (unaudited accounts). EOS have a current market value of $319 million. EOS are therefore going to be sourcing this potential $200 million for farming in with BCC from the Global Emerging Markets group. Now GEM is a major player with the necessary funds and I would have been a lot more comfortable seeing a deal directly between BCC and GEM. When there are 'middle men' between the actual capital and the recipient (BCC) I always get a bit nervous until the actual $ are transferred.
Having said all that and the variables that I am keeping an eye on currently, things are looking better for BCC than they have in a very long time. Seeing Contango Asset Management take a substantial holder position in BCC is great news. One of the previous negatives about BCC had been the loose share register. To see over 60% of BCC now in stronger hands certainly bodes well IMO.
Cheers and have a great weekend!
BCC Price at posting:
6.8¢ Sentiment: Buy Disclosure: Held
