Cedar Shingle Siding

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I'm about to help my Dad replace the shingles on a gable wall of his house, and was hoping for a bit of advice...
(His existing shingles are old and worn. They haven't leaked yet, but probably will soon. Also, this wall currently has no insulation, which we'd like to rectify.)
He currently has 4x1" horizontal slats fixed to the vertical 2x4's which form the structure of the wall. (These are in reasonable condition.)
There are no noggins in between these 2x4 studs, so we're assuming that these 4x1's serve both as structural support (to brace up the 2x4's) and also to provide something to which the original builder could fix the shingles.

Option 1)
(I think this is the "legit" way to do it.)
You'd remove all these 4x1's, install horizontal noggins in between the 2x4's, insulate the cavity in between the 2x4's with (maybe 75mm?) celotex (this allows an inch air gap) and then staple a membrane to the outside of the 2x4's. You'd then fix new, treated batons (perhaps 25mm x 38mm) horizontally to the studs, from which you'd then fix your shingles.
BENEFITS: Better heat insulation from celotex VS rockwool and we'd have a waterproof membrane.
DRAWBACKS:
My Dad's concerned that ripping off the 4x1's might disturb all the old lath and plaster inside. (We want to avoid plastering and painting the living room if possible.) I think he also feels it's a bit of a waste of good timber, particularly given we'd then be replacing these 4x1's with 1.5 x 1's (which I agree with.)

Option 2)
We leave the existing 4x1's in place, and stuff rockwool behind them and then fix new shingles directly to these 4x1's.
BENEFITS: No danger of disturbing plasterwork inside. Lots of strength from the 4x1's.
DRAWBACKS: We'd have no waterproof membrane. Rockwool isn't as good heat insulation as celotex.

Option 3)
We leave existing 4x1's in place, stuff rockwool behind them, then fix a membrane to the outside of these 4x1's. We then fix new 25mm x 38mm treated batons onto the 4x1's and then fix the shingles to these.
BENEFITS: No danger of disturbing the plasterwork inside. We also have a membrane, with an air gap between it and the shingles.
DRAWBACKS: Our fixed wall will be an inch further out than the existing. This is going to create real problems with the flashings for the flue for his log burning stove (which shoots out of the wall.) We'll also have to do some work to the window reveals to make this work.

My Dad's leaning towards option 2. His opinion is that the existing shingles have lasted 70 years without a membrane, so he's questioning whether we really need one...?
If anyone's got any thoughts or suggestions about the above options, or if there's a better option 4 that we've not thought of, please let me know!

Also, any thoughts on air vents at top and bottom for air circulation too?

Thanks,
Nick
 

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The underlying timber looks in pretty good condition, I'd be tempted to repair in situ. If replacing the whole lot, I would keep the 4 x 1's, and work in the insulation around that (blown insulation?).

Blup
 
Ok, thanks for that blup. So, option 2 then. Blown insulation might be a good shout if we struggle to get rockwool in through the gaps between the 4x1's.
In some videos I've watched of people installing these shingles, they often temporarily nail a bit of baton horizontally, for them to sit each shingle onto. This speeds up installation time and gives you lovely straight lines, but it strikes me that if you do this (obviously working from the bottom course upwards) it means that each time you remove this baton to do the next course up, you're leaving screw holes in your nice, shiny, new shingles. Seems odd to me, (you risk moisture getting in through those exposed holes) but most people seem to do it that way... any thoughts on that? (Perhaps there's something I'm missing.)
 
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The overlap on the shingles would presumably cover any nail holes. It is always helpful to make a jig to help set the boards level and correctly gapped. I only have experience of doing this on a shed, there maybe different implications if you are doing on a dwelling.

Blup
 

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