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PROACTIVE NEWS SUMMARY: RBS, Facebook, Egdon Resources, Sefton Resources, Valiant Petroleum

Last updated: 16:19 04 May 2012 BST, First published: 20:19 04 May 2012 BST

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Investors in London turned attention to the banking sector today as heavyweight Royal Bank of Scotland (LON:RBSrevealed its quarterly results.

The taxpayer-owned bank posted another quarterly loss, though chief executive Stephen Hester said he was happy with the bank's progress.

Losses rose to £1.4 billion in the three months to March, compared to a loss of £116 million in the same period last year.

These figures were heavily distorted by movements on what RBS calls own credit adjustments. Stripping those out, pre-tax profits totalled £1.05 billion while operating profits were flat at £1.18 billion.

Hester said: “We are happy with progress in the first quarter though the economic and regulatory backdrop remains tough.”

As a signal of its improving financial position, the bank also confirmed it is to pay off the last of the £163 billion UK government-backed rescue funds it received after the financial crisis in 2008.

RBS said it will make a final repayment of £5.7 billion this month, meaning it will have repaid the Special Liquidity Scheme and Credit Guarantee Scheme (CGS) funding.

The bank said it will also resume discretionary coupons and dividend payments on hybrid capital instruments, which have been deferred for the last two years.

Income rose by 25 per cent at £7.13 billion over the quarter, while expenses rose 9 per cent to £3.9 billion and impairments fell by 22 per cent to £1.3 billion.

Another main story by Proactive Investors was dedicated to the hotly anticipated market flotation of Facebook, which could value the social networking phenomenon at just shy of the US$100 billion mark, making it one of the most valuable internet companies in the world.

Overnight, investors learned that chief executive Mark Zuckerberg and his team plan to raise up to US$13.6  billion from the initial public offering of stock, which will be priced at between US$28 and $35 a share. 

On that basis, Facebook will be worth between US$77 and US$96 billion, though the market cap will be well behind that of Google (NASDAQ:GOOG), which at US$199 billion is the daddy of the new internet generation.

However, the company’s valuation ranks it up there alongside the e-commerce site Amazon (US$103 million) and catapults it past traditional ‘techhies’ such as Hewlett Packard (NYSE:HPQ).  

The IPO later this month is likely to be the largest for an internet company, dwarfing even the $23 billion debut of Google in 2004.

Zuckerberg's personal holding in Facebook, which he invented while studying at Harvard, could be worth as much as US$19 billion, making the 27-year-old into one of America’s richest men.

Proactive also took a closer look at oil and gas companies Egdon Resources (LON:EDR) and Sefton Resources (LON:SER).

Traditional UK onshore oil and gas projects have been overshadowed by recent shale and coal bed developments, but they still have appeal, brokers say, especially as small successes can have a big impact.

Egdon has a large onshore portfolio in the UK and broker Seymour Pierce has started coverage with a bullish assessment of its prospects and potential for further development.

After a strategic review, Egdon has rationalised its prospective resource base to 248 million barrels oil equivalent and Seymour Pierce says this has left it well placed to exploit its newly prioritised assets in the near term.

The broker said today Egdon’s portfolio of assets in the UK and France could be worth double the £11.5 million value and 9 pence share price currently being placed on it by the market.

Egdon plans to participate in at least five wells this year targeting 15 million barrels of resources.

The company also has the opportunity to participate in a further seven wells and three seismic programmes during the next 18 months.

The company expects average net production to be between 125- 150 boepd from existing fields this year, which could rise to 350boepd once the Ceres field comes back on stream.

If the currently shut-in Kirkleatham gas field can be restored to production, output could increase to 400boepd, Seymour adds, which it says would be a major boost to the company’s revenues.

Europa Oil (LON:EOG) is another onshore focused group that could see an immediate boost if its drilling targets are successful.

Sector peer Sefton has followed a very shrewd strategy of picking up assets right at the bottom of the market, betting there would be a rebound.

It acquired the Tapia Canyon heavy oil field in south-west California in 1997 when crude was selling for less than US$20 a barrel.

Similarly, its portfolio in Kansas was bought against the backdrop of record low gas prices.

In this sense Sefton operates like the majors by assessing the long-term potential of an opportunity rather than trying to make a quick buck.

It might explain why the group is profitable and cashflow generative, when other oil juniors just seem to burn through cash.

The latest update reveals that approximately 20 wells at Tapia are producing 142 barrels of oil a day, which has risen to around 220 barrels in recent days.

It’s a heavy crude with an API of 17-19 degrees, which has traditionally sold at a discount to NYMEX but now commands a premium.

This year a further two wells at least are planned. However, a major transformation could occur if the group decides to go ahead with plans to use a process called full field wide steam flooding.

Currently it is cyclical steaming individual wells where steam is injected into a producing well, which is then shut-in for a short time before being put on production again. 

An initial report from Dr Farouq Ali, of Heavy Oil Recovery Technologies, suggests it could lift recoveries to between 51-78 per cent in a full field wide steam flood, with daily output potentially rising to 1,750 barrels a day.

The cost of the current programme, meanwhile, could be somewhere in the order of US$7 million or more, funded by cash flow, debt etc, according to a report from Edison Investment Research.

The full report is expected to be completed in the summer and will provide a “road map” to fully develop the field at which time the economics and the required investment will be better understood 

“We have several industry partners interested in looking to see how they can work with us to develop this asset,” said chairman Jim Ellerton.

“The size of the capital required is attracting some interesting potential partners.”

We also covered today’s news from another oil and gas company, Valiant Petroleum (LON:VPP), which expects an exploration well on the Timon prospect to spud in the next few days. This will be the latest in a series of wells in the North Sea.

It is currently one of the most active areas for exploration and appraisal drilling. 

And a recent pick up in M&A deals and an improving tax environment is helping revitalise investor interest.

That said well results have been something of a mixed bag in the year so far.

The Timon well is targeting an Upper Jurassic channelised sand play, estimated to have 30 million barrels of prospective resources. And it is believed to be similar to the Cladhan and Tybalt discoveries in the North Sea.

Valiant has a 10 per cent stake in the Timon venture. The project is operated by MPX North Sea which owns a 15 per cent stake.

Meanwhile the other partners include 25 per cent stakeholder Agora Oil & Gas - which is being acquired by Cairn Energy (LON:CNE) - and Abu Dhabi oil firm Taqa owns 18 per cent, while Wintershall and Sorgenia own 17 and 15 per cent respectively.

Cairn agreed a US$450 million deal to buy Agora last month.

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