by Travis Johnson, Stock Gumshoe | May 13, 2013 11:43 am
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Travis thanks for the quick insight on HRT please keep us informed with any new info
Just read an update on Etrade. Two investors (%20) engineered a power shuffle on the board of directors. Then ousted Mello for mismanagement. Waiting for Travis to update.
Still sounds pretty speculative — expect we’ll get more info on Wednesday. Heres the WSJ update: http://online.wsj.com/article/BT-CO-20130513-712440.html?mod=googlenews_wsj
Following are Byron Kings comments:
Outstanding Investments
May 14, 2013
Shakeup at HRT — Where Do Things Stand?
Dear Outstanding Investments Reader,
HRT News
Big-picture oil discussion must await another day, however. It’s pre-empted by company-specific news that hit the wires over the weekend and Monday. HRT Petroleo (HRP: TSX-V) issued two press releases that caught pretty much everyone — certainly me — by surprise.
Here’s what we know. Marcio Mello has resigned as CEO of HRT, and Wagner Peres has left his post as CEO of HRT America. That is, Messrs. Mello and Peres have left their executive posts at HRT, although they both remain members of the board of directors.
According to HRT board chairman John Willott, a former vice president for exploration at Exxon Mobil, the board did NOT seek Mello’s resignation. The board specifically requested Mello to reconsider his decision and stay onboard as CEO.
Still, Mello resigned his operational job. HRT’s new CEO will be Milton Franke, a longtime veteran of Petrobras (PBR: NYSE) and part of the HRT team since 2009. Messrs. Franke and Mello have worked closely together for many years.
As I write, there’s no new CEO appointed to HRT America. At this stage, I do NOT expect to see an outsider sitting in the captain’s chair. As I’ll discuss below, HRT America is running a complex drilling operation at sea. You do NOT bring in a newbie at a time like this. You need continuity and a deep book of corporate knowledge. Thus, I expect that one of the individuals already on staff at HRT America will move up to the role of CEO for day-to-day operations.
In my numerous visits to the Houston office of HRT America, I’ve met every single employee. In my view, the entire HRT America team bench is filled with immensely qualified people. They all know how to drill wells in deep water. They all know how to find oil.
What Does It All Mean?
Still, you seldom see something like this. Two CEO resignations? It’s a stunning operational development. HRT shares were rising sharply in price on Friday. Then the weekend-Monday news knocked off a chunk of value, taking HRT shares from $1.20 down to $1.03.
This comes as drilling rig Marianas, owned by Transocean (RIG: NYSE), nears completion of the first of a four-well exploration package offshore Namibia. This is the Wingat prospect, of which I’ve written before. The drilling target is a carbonate zone that, according to 3-D seismic imaging, appears to have excellent porosity. From the outside looking in, it’s similar to other proven oil plays offshore Brazil in the pre-salt zones.
Let me emphasize — we do NOT yet know what the drill bit is finding (or has found) at Wingat. The Marianas is far offshore Namibia, in cold, deep, swift-moving water. There’s very limited movement of personnel on or off the vessel. All of the data that come from the drilling work go via secure communications to a tightly controlled space at the HRT offices in Houston.
The timing of the two resignations is strange. First, you don’t often see two high-level executives — CEO-level, no less! — leave a company. Plus, it’s remarkable that they’re both leaving before the results of the first well have come in. Nor do senior executives often leave operational jobs at companies while remaining on the board of directors.
Did something good happen? Something bad? What’s going on? What does it mean? Well, you can speculate all you want, but without more facts from inside the boardroom, it’s just guessing right now.
Let’s Think It Through
Let not guess. Let’s focus on what we know. HRT is drilling four wells. The geophysics are complete. The four well sites are surveyed, permitted and drill-ready. The long-lead items are bought and paid for. The shore staging facility is in place. The wells are already budgeted, including a key contributing partner for three wells, Galp Energia of Portugal, which has been successful offshore both Brazil and Mozambique.
Let’s say that some Big Oil company had come in and bought out HRT two months ago. If the foregoing operational items were “all” that Messrs. Mello and Peres had accomplished, it would have been a fabulous success in many respects. But there was no buyout. HRT is still standing alone and drilling wells.
Plus, for now and looking ahead, there’s no “hurry up and wait” about this play. Offshore, the drill bit is turning, with one well — Wingat — nearly complete. For the next three wells, much of the cost is entirely obligated, in that Transocean will get paid, as will contractor Schlumberger (SLB: NYSE). So it’s not like HRT can stop what it’s doing. You don’t just walk away from these kinds of contracts.
In other words, Mello and Peres or no, over the next five months, HRT will finish up at Wingat and drill three more wells. We WILL learn what’s down at the bottom of the holes. Maybe there’s lots of oil (or gas). Or maybe nothing — maybe it’s “not commercial,” in the lingo that Chariot Oil & Gas used last year for an unsuccessful effort in a different block off Namibia.
Let’s be optimistic, yet realistic. Maybe there’s oil and gas at Wingat and the HRT team has to review the data and figure out if they’re commercial. It will take much technical analysis to make this all work. Frankly, it could take months to analyze the well data.
Along these lines, I’ve had calls and emails asking about technical aspects of the HRT wells. I need to emphasize that this is NOT like some old movie about drilling in Texas or such where the rock bit hits oil and we see a “gusher” raining black crude juice down over the rig. No, not at all. Today, that’s called a “blowout.” We do NOT want that!
Out on the rig, thousands of tons of drilling “mud” hold fluids down inside their deep reservoirs. So even if HRT drills into a major oil column on one or more of its wells, it could take months to analyze things and years more to develop the fields.
Risk ON!
As I’ve said MANY (!) times before, this HRT-Namibia operation is a high-risk play. HRT is looking for oil offshore, in deep water, in a frontier region of the world, with virtually no well control, at the far end of a logistic pipeline. Other than that, it’s a piece of cake, right?
No, no cake for you, to paraphrase that guy in the TV show Seinfeld. Everything about HRT broadcasts risk. You should be involved in this idea only if you have high investment-risk tolerance. I’ve said this all along. Otherwise, stay on the bench, because this exploration game is a full-contact sport.
Still, while it’s risky, what if (or when!) HRT finds something? The reward ought to be there, too — and I say “ought” because the share markets are fickle. Really, anymore, you have market risk to go with your geological, technical, political risk, etc.
So now, just before well number one moves to the endgame, the CEOs of HRT and HRT America resign… but remain on the board of directors. It’s perplexing. Still, in light of everything — meaning the facts that we know — I don’t see a Romanesque sort of “fall on your sword” event.
As a matter of corporate governance, I see two very good people (Mello and Peres are VERY good, IMHO), separating their operational CEO roles from their governance board roles.
I’m sure that Messrs. Mello and Peres have their reasons, although I cannot speak for other people’s intent. But the move, on this chessboard, appears to be that Mello and Peres have removed any appearance of future conflict between operational decisions at HRT and the board-level search for the best interest of shareholders.
What do we do now? I say sit tight, even though it may feel like pins and needles. But for now, let events unfold. We await — eagerly — news from the Wingat well. Then we’ll find out what HRT management can tell us.
Soon, the Transocean rig will move to Murombe, and then Moosehead, and finally Meerkat. We bought into four wells. Each one is a different prospect. It’s exploration. The only way to do it is to explore.
That’s all for now. Yes, I’m as nervous as any of you. Let’s get back to work on things we can control. I’ll follow developments. Have a good week. Thank you for subscribing to OI.
Best wishes…
Thanks Dan, my take on this is Mello and Peres, are still on the board, just working on the side lines. 😉 The oil auction by Brazil is over, no HRTPY buy, that could be good.
Travis now that I’m a paid customer could I request 8^) attention to the well update. 8-]
I’m not going to become an expert on interpreting well data, that’s for sure, but I do own shares of this one and I am paying attention.
Quotes from an exec yesterday indicate they see results from the first Namibia well either “this week” or “by next week”, depending on who the quote’s from: http://online.wsj.com/article/BT-CO-20130514-716934.html?mod=googlenews_wsj
And they say the Namibia exploration, with funding in place for the first three wells, will not be impacted by the departure of Mello as CEO. They are going to put more money into the expansion of their new producing asset offshore Brazil, which indicates to me that they want to make sure they don’t have all of their assets in the “exploration” category or in the probably-slow-to-develop onshore gas fields. We’ll see — the stock is still declining, so clearly folks are worried that the executive departures is telegraphing something about the Namibia wells, but I don’t see any reason to make a move now with my money.
I got into these shares on the admittedly risky proposition that they might find oil offshore Namibia in at least one of their first three wells (hopefully the first one, but perhaps that’s optimistic), so I’m simply waiting for that news. The company is being otherwise valued as almost worthless, which I expect mostly reflects a lack of interest in taking chances on exploration. Sometimes you invest, sometimes you speculate or gamble — this is the latter.
I caught the DJ and Byron’s take on the well, a little sketchy. It’s not clear to me whether they are done drilling and core is off for analyst, be back next week, or drilling will be done next week. Thoughts on this well, it’s the closest to the rigs last port, does that put it on the edge of the oil field, analyst in the center of field would be better(?). Then the next two wells would determine the value of the field. One thing I did get out of the report was the forth well may not be drilled. This well took not quite three weeks to drill. I would expect about the same for the next plus some travel time.
Hi,
news from 21/May/2013 for OI readers:
May 21, 2013
HRT’s First Offshore Namibia Well: No “Commercial” Oil
Dear Outstanding Investments Reader,
Late yesterday, HRT Petroleo (HRP: TSX-V) released results of the Wingat-1 well, which it just drilled about 120 miles offshore Namibia, in deep water. According to HRT, the well was drilled in 68 days by the semi-submersible rig Marianas, owned by Transocean (RIG: NYSE). The well came in within budget, and “found oil although not in commercial volumes.”
That’s it for me.
Good luck for every gambler,
Richard