Warning This information is for discussion purposes only and cannot be relied upon.
Readers must make their own investment decisions based on their own wide ranging research. This information is provided with the clear understanding that the author(s) cannot be held responsible or liable for errors, omissions or inaccuracies.
Please refer to the discussion forum on this subject.
Risk Level Definition
A similar category set to that used with Reserves Estimation P10, P50 and P90. Risks are defined as inversely affecting our investment.
• Low Risk: 10% likelihood. Unlikely to happen but included as potentially could affect our investment in some way.
• Medium to Low Risk. Some more significant level of risk, not clearly defined to a percentage level but one which we see as more than simply Low Risk. Risk to our original investment is classed as being low but a medium risk that our expected gains may not materialise.
• Medium Risk: 50% likelihood.
• High Risk: 90% likelihood. At this level, even with a low sensitivity to risk we probably should not be invested. Risk to our original investment is now significant.
The Risks Associated with 88e and Project Icewine are as follows:
| Risk Number | Risk Title | Risk Level | Risk Description | Risk Mitigation |
| 1. | Icewine #2H Technical Failure | Low | Technical failures of drilling or fracking may lead to delays in completion of Icewine #2H. There is a Low risk to our investment as only likely to result in perhaps a number of months delay to Flow Rate results. | Assume a 3 month delay. Note Icewine #1 took 73 days to drill: spudded Oct 2015, P&A completed Jan 2nd 2016. So 3 month delay should cover |
| 2. | Risk Of Discovery | Low | As the oil Reserves are currently classified as “Prospective” there is a Risk of Discovery. | Icewine #1 has de-risked potential for no oil so this Risk has been classified as Low Risk. . |
| 3. | Icewine #2 Flow Rate Results disappoint | Medium to Low | As the oil Reserves are currently classified as Prospective there is a Risk of Unmovable Hydrocarbons. Icewine #1 has de-risked potential for low or uneconomic flow rates measured in Icewine #2, but there remains a risk that the experimental fracking and flow rate techniques employed do not provide an economic solution. | Assume a 12 month delay to DW’s predicted date for flow rate results and alternative solutions to projects success to be developed. What are 88e Risk Mitigations? |
| 4. | Funding Risk following Less than optimal results from Icewine #2H | Medium to Low | As the oil Reserves are currently classified as Prospective there is a Risk of Unmovable Hydrocarbons. Icewine #1 has de-risked potential for low or uneconomic flow rates measured in Icewine #2H, but there remains a risk that the experimental fracking and flow rate techniques employed do not provide an economic solution. | Assume a 12 month delay to DW’s predicted date for flow rate results and alternative solutions to projects success to be developed. What are 88e Risk Mitigations here? |
| 5. | Global Oil Price | Medium to Low | Global oil price is dependent on wide economic issues. DW’s best guess prediction for $60 per barrel market price on the 14th April was the 2nd half of 2016. A delay will be reflected in the point at which Icewine becomes viable. | Assume a reliable $60 per barrel will not be seen until 12 months later i.e. 2nd half 2017. |
| 6. | Loss of key personnel | Low | There is a low risk that key people may become unavailable. Dave Wall, Paul Basinski | Assume 88e are mitigating this Risk themselves. |
| 7. | Risk Of Development Beyond Icewine #2. Oil Production Not Commercially Successful or Less Than Predicted at Icewine #3H First Full Production Well | Medium to Low | As the oil Reserves are currently classified as Prospective there is a Risk of Development. Icewine #2 is an experimental well and flow rates of only 100..150 barrels of oil per day are expected. There is a Medium to Low risk that flow rates seen from a full production well are less than that extrapolated from the experimental Icewine #2 or they are not sustained to the extent assumed. | |
| 8. | Funding Risk following Less than optimal results from Icewine #3 | Low | As the oil Reserves are currently classified as Prospective there is a Risk of Development. Icewine #2 is an experimental well and flow rates of only 100..150 barrels of oil per day are expected. There is a Medium to Low risk that flow rates seen from a full production well are less than that extrapolated from the experimental Icewine #2 or they are not sustained to the extent assumed. | |
| 9. | Error in Oil Reserve Estimation | Low | Icewine #1 has significantly de-risked the potential for no Prospective Resource. Oil has been seen in drill core samples, but there is a low risk that the Resource Estimates are wrong. | Assume only 2 billion barrels unconventional to reduce risk. |
| 10. | Change of Alaskan Government attitude to Oil Production | Low | ||
| 11. | Change of US Government | Low | ||
| 12. | Error in Estimated Production Cost | Medium to Low | There is a Medium to Low risk that 88e are wrong in their estimates of $39 per barrel production. | Assume an increased cost per barrel of $45 per barrel to reduce risk to Low. |
| 13. | TAPS Technical Failure | Low | 88e’s route to market is interrupted. Low Risk as TAPS is fully operational. | This is unlikely to affect 88e as they may choose to leave the connection to TAPS to future buyer |
| 14. | Production Well Delays | Low | 88e’s route to market is interrupted. Low Risk as TAPS is fully operational. | |
| 15. | Proof of Asset Delays | Low | Permit delays, finance delays, drilling delays, delays interfacing to TAPS, contribute to delay before production wells are operational. Once the first production well has been seen to be operational commercially then any further Production Delays will be consistent with other global oil operations. So significant but classed as Low Risk. | |
| 16. | Buyer Not Found | Low | Even when Proven Undeveloped there is a Low risk that a buyer willing to pay the expected price cannot be found. | |
| 17. | ||||
| 18. | ||||
| 19. | ||||
| 20. |
The 50/50 Question
SP-O post
"all of these things he said do not mean that the chance of success has to be over 50%. They tick some of the many boxes that have to be ticked.
There are still plenty more to be ticked.
Can it be fracked properly?
Will it give sustained flow?
will oil price be high enough to make it economical?
Will we get regulatory approval (environmental etc)?
Will we find funding?
Amongst others.
As an exercise let us say we use just those five factors, and assign a generous 87% chance to each, and that all other factors are (such as permeability, thermal maturity, resource size, etc. etc.) are all considered to be already proven (so Probability of them all is 100%), then the probability of commercial success would be:
1.0x0.87x0.87x0.87x0.87x0.87 = 0.5 roughly, i.e. 50:50.
Seeing in as there are still many things to be proven, the above simplistic example shows that 50:50 should be considered an excellent chance of success at this stage. I am not saying this is what they are using to get their numbers, simply that the existence of several uncertainties that have not been tested at all yet, even with high probabilities of success, make it easy to arrive at a figure of 50:50."
