RE: RE: RE: RE: Today's newsMatt,
Thanks for the kind words. We have a good board here with a civilized tone and I’m happy to take your questions.
To start off with, I’m not as confident about TPL as I would like (or should) to be, and the reason for that is lack of information from Management. This is in my eyes their biggest flaw. I follow many juniors and few are as tight-lipped as TPL about their plans and prospects. With that said, I’d rather have a management that doesn’t exaggerate and boast and instead deliver in silence than a company like for example CNE which spray-paints their presentations with huge numbers and then just refers to it as “management estimate”.
There are many ways of putting characters on a management group, and I don’t believe share price is the best indicator of performance, at least not in the short run. We mustn’t forget that this was a small company 3-4 years back with not much more than a piece of land in the middle of nowhere in Kazakhstan, and today we have a company which is sitting on a VERY promising position where almost every well they have drilled has either tested oil or have had traces of it. If you look around, that is not very common in this wild-catting setting. In my mind, the whole Kazakh position could hold 100’s of million of light sweet barrels oil all.
Matt, later you said “My thoughts are that the geology will save management, although I agree with yours and Nuttbars assesment that Management beats geology.” First of all, it’s not a coincidence that TPL is sitting on the Kul-bas block and Akkulka block, it’s a testament to management’s ability to see what other’s didn’t see. There were extensive drilling in this area back in the 60s, and all the Soviets found was gas. Later, they drilled on the high (which is normally a good thing to do…), but Robson and his team had a different model and that is what lead to the discovery of Doris. And secondly, if you don’t have “geology”, then you have nothing.
Lately I have also started to appreciate the Tajikistan asset more and more, this is a huge area in the eastern part a very prolific basin (Amu-Darya) which has been overlooked both by the Soviets and the internationals until TPL managed to land a fantastic contract back in 2008. Hopefully they will be able to bring in a partner here eventually; this land package is just too big for TPL to handle on their own. But first I would like to see them making a few discoveries and bring them into (test) production, in addition to acquiring more seismic data. They mustn’t let anyone in too cheaply here.
But, I’m not suggesting Management is perfect on the operational issues either, there are many things they could have done better the last year. It’s not just a string of bad luck to fail to test any wells positively since Doris-1, and I think this is one of the reasons they brought in the very capable Mark Sarssam (which in itself is a validation of TPL's asset base) from Dragon Oil. I’m positive he brings a wealth of experience to the table, especially on drilling and completion in carbonates.
So as you can see, there’s not just the share price that decides if management is good or bad. I do agree with you that sooner or later TPL should bring in a partner for Kaz as well. They need it to fund the development, especially the export pipeline. However, I don’t think the time is right yet, the asset base is still to immature, and it’s in TPL’s interest to drill more expl/appr wells, certify reserves, and submit a Plan of Development to the authorities before they start looking for a partner. An alternative could be to borrow money, but I’m not so sure TPL would get very good terms, especially not with US/western banks, which leads me to my next point about TPL’s lagging share price, the Kazakh discount.
There have been many small co’s who have rolled the dice in Kazakhstan over the years, and many of them are not with us today. Several of these were US companies and investors got their fingers burned, badly. So in order to overcome the K discount, TPL should be much more open and clear about their plans and prospects, but they are rather the opposite. Have you ever seen a prospect inventory list with a P10-P50-P90 range and a Pg? Have you seen a plan for the ramping up of production (phase 2) and scenarios for full field development. Have you seen them discuss strategic alternatives along the lines I mention above? Have you seen any net-back calculations? Do we know what they will get for the oil once production ramps up? Have we seen well logs, seismic images, reservoir simulation results etc etc…I could go on forever, but the point here is that with the Kazakh head wind, management should do more to reduce it, not increase it. To me, it’s obvious that Dr Robson does not care much about where the share price is for the moment; his focus is on the long term goals, and building an “empire”. He has said TPL should be a mid sized E&P company in a few years time, producing something like 50,000 bbl/d. Many CEOs say these things, but I actually believe TPL has the asset base to back it up. If he succeeds, the share price is bound to follow, and that’s why I’m in this play.
On your second question Matt, we have to remember what appraisal drilling really means. The purpose of appraisal drilling is to investigate the boundaries of the field, in order to be able to tell the size and scale and move on to development. So, a well like AKD04 is not necessarily a failure just because it doesn’t encounter oil or has a fantastic flow rate. I think we will see more wells like this in the future, but with the 3D and well data, we will also see better placed wells due the development of the facies model (basically telling where the sand is, and how it is distributed). So in short, 3D is crucial for well placement, to try to develop a field on sparse 2D is like doing brain surgery in the dark, it gets pretty messy…
All the best,
Darcy