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Fox-Davies Capital

Fox-Davies Capital specialises in assisting international resource companies to gain access to the UK, European and North American capital markets and has a substantial background in emerging markets particularly in Africa, Asia, Russia and the CIS.


Afren, Desire Petroleum, Great Eastern Energy, Serica Energy and others feature in Fox-Davies Newsflash

January 21 2013, 10:02am

Daily Oil & Gas Monitor

Afren (LON:AFR) – 2012 Solid, 2013 Should be a Growth Year: Today’s trading update from Afren highlights the progress that has been made in the year, especially on the core Nigerian assets. 2012 was not so much about its core activities, but the continued expansion of its operating base outside of the country. While the majority of this focus was on longer-term exploration projects, the near to medium terms outlook was also bolstered by a successful campaign in Kurdistan. While there are a number of headwinds on the horizon, such as a string of financings that need to be repaid from the middle of this year, we believe that Afren has reached critical mass in terms of how lenders perceive the risks within the Company, i.e. that with the range of producing assets, the Company’s risk profile has been significantly reduced. As a result, 2013 should be a period of significant growth and should see the share price starting to reflect the value of its underlying assets. We are reiterating our BUY recommendation and 250p Target Price. 

In this news:

Exploration and Appraisal Activities

o Three significant exploration discoveries in 2012

§ Okoro Field Extension encountered 549 ft of net oil pay (Pmean 157mm bbl STOIIP). First production well on-stream at 5,000 bopd

§ Ebok North Fault Block encountered 370 ft net oil pay (Pmean 100mm bbl STOIIP)

§ Simrit-2 in the Kurdistan region of Iraq encountered 1,342 ft of net oil pay ; tested 13,584 bopd from Triassic reservoirs, nine further DST's on-going

o Seismic data acquisition and on-going prospect maturation has upgraded Afren East Africa Exploration prospectivity (5,838mm boe net to Afren)

§ 3,483 km 2D seismic, 2,262 km2 3D seismic and 1,193 km gravity and magnetic data acquired in 2012

o 14 well E&A drilling campaign targeting net Pmean resources in excess of 670mm boe

o Okwok-10 appraisal well (Nigeria), Simrit-3 exploration well (Kurdistan region of Iraq) and Paipai exploration well (Kenya) currently drilling

Development and Operations

o FY 2012 net production in line with guidance at 42,830 boepd; FY 2013E net production estimated to average between 40,000 boepd to 47,000 boepd (excluding Barda Rash)

o Progressing Field Development Plans for Okoro Field Extension, Ebok North Fault Block and Okwok offshore Nigeria

o Barda Rash production initiated Q3 2012

Group financials

o Record 2012 financial results expected; 2012 sales revenue of approximately US$1,500 million forecast (+151% increase over 2011); realised average oil price of US$107/bbl (US$3.50/bbl average discount to Brent)

o 2012 full year capital expenditure of US$520 million; forecast 2013 capital expenditure of approximately US$620 million

o Net debt at 31 December 2012 was approximately US$488 million (31 December 2011: US$548 million)

Andes Energia (LON:AEN): Rearranging the Deckchairs – Today’s release from the Company regarding the fact that the Argentine Government has authorised a new export price of $70/bbl (from $42/bbl) is certainly welcome news, but we can’t help think that this is all cosmetic. The Argentine Government has an appalling track record at addressing the economic issues in the country, and chooses instead to blame its failings and the failings of its policy decisions on anybody but itself. We like Management, and believe that the Company would be rated in a far more sympathetic manner if it weren’t for the fact that its operations are located in a country that operates with such charlatans at the helm. Until there is a change of direction in Buenos Aries, we will find it hard to get excited about any Company whose operations are in Argentina, which is a shame, as we believe that the Company has an excellent management team.

Desire Petroleum (LON:DES): Just What was the Reason? – Today’s announcement that Desire’s auditor has resigned, is a curiosity, unless there is a compelling commercial reason, auditors almost never resign. Conflicts of interest can be managed, so just what was the reason? For a Company to change auditor is no problem, in fact, it is a good practice to tender your audit work as a Company every few years. On the face of it, it really is a nothing bit of news, but we would still like to know the exact reason all the same.

Great Eastern Energy (LON:GEEC) – Targets Hit – Now the Start has Finished, It's Time to Push On: Today’s trading update detailing the fact that the Company has achieved its long stated 14mm scfpd production rate will come as a welcome relief to those that have been patient and those that have not. There have always been issues associated with being the first mover in a new technology, and this is what has beset GEEC, with it being the first coal bed methane (“CBM”) producer. Despite being a first mover, regional demand is significant and not a limiting factor to future growth, and now that the production issues have been resolved we believe that progress should be smoother. With this and funding issues apparently resolved, we are reiterating our 440p Target Price and BUY recommendation ahead of the full year results.

Serica Energy (LON:SQZ): 2012 was a Period of Consolidation, 2013 a Year of Action – Today’s operational update has highlights the fact that during 2012, the Company has been in a period of consolidation, and judging by the content of the announcement, that it is all about the activity in 2013. The Company has had a difficult period in the past, and there is a genuine feeling that the combination of North Sea development activity and high impact exploration drilling will see it finally start to make a break from its disappointing progress in the past. We believe that the Company will start with a bang, opposed to a whimper, but we can’t help but think that funding issues will hamper progress. Still, it is a management team and asset portfolio we rate, and once the funding is completed, the shares will start to reflect the value of the underlying portfolio.

In this news:

2013 Programme:

o Columbus field - final development approvals expected to achieve mid-2015 first gas production

o Namibia - full results from the Luderitz Basin 3D seismic survey with drilling decision 2H2013

o Morocco - two well programme, commencing 4Q2013

o Ireland Rockall - partnership arrangements to drill the Muckish prospect

o Ireland Slyne - farm-out campaign to follow up the 2009 oil discovery

o UK North Sea - 3D seismic survey to appraise gas prospects in the York area

o UK East Irish Sea - completion of the Doyle farm-out and site survey prior to drilling


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