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SP Angel Morning Oil & Gas 3Legs Resources, Green Dragon Gas and IGas Energy Plc

Published: 10:13 04 Nov 2014 GMT

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3Legs (LON:3LEG) – Taking Off the Polish

Nowhere is the technical difficulties associated with shales more apparent than with the Company. Essentially, like Aurelian before it, it has decided there are better ways to generate returns. With the sale of its acreage position, the Company is now yesterday's news and what happens now is largely mechanical, but it does raise questions for the wider play.

We feel that the Company's management will face headwinds from this decision, mostly arising from investors reluctant to back the management team in the future without a highly compelling argument for doing so.

It now falls to San Leon to address the technical issues and prospectivity of the polish acreage or risk having it's acreage trashed along 3leg's. The questions raised will include (i) what is the route to monetising shales in Poland; (ii) what are the technical issues that need to be overcome; and (iii) are the barriers to commercialisation limited to technical issues.

Post this exit, the Company's management will face headwinds, mostly arising from investors unwilling to back the technical team's judgement and on the back of the fact that it has largely given up. San Leon on the other hand will face pressure to explain its position, which will be reflected in the share price, which will come under increasing pressure until it either delivers results in Poland, or defends the shales from what is now 2 companies walking away from them.

Green Dragon Gas (LON:GDG) – It's not the Economy, Stupid

Green Dragon has signed an offtake agreement for its Shizhuang blocks for up to 2.5bcfpy (2015), rising to 24.7bcfpy (2025); thankfully there is no minimum. In a country where there is a deficit of 1.8tcfpy (BP Statistical Review 2014), that you have a sales contract is a bit like shooting fish in a barrel, but the good news is that there are no minimum supply volumes associated with the contract, which given the management’s track record, that more gas has been produced by third parties on its acreage than it has, is a very good thing indeed.

What would have been a better announcement is how this fits in to a wider plan for the Company to trade its way out of the debt straight jacket that management has placed the Company in. Better yet, the announcement should be how the management team is being replaced to ensure that needs of the Company's owners are first and foremost in the decisions the Company makes, over and above the hubris of management.

Still, we have an open mind and wish to be convinced otherwise, but we doubt that this team has the stomach for the difficult decisions that will have to be made in the next few years with regards to the future. That is the big issue for this team, it is not a question of the underlying market, or economy, it's a question of management’s appetite to do the hard yards.

While we can’t refute the revaluation that happened in April this year, we have seen no difference in the approach to the business by this management from pre the revaluation, to now, and as the saying goes:

“…if you always do what you always did, 

you’ll always get what you always got…”

In this regard, the shares are already drifting off, and in time we see this team forcing the Company's owners to do the hard work again, which, one way or another, will result in dilution of value, not because there is no other way, but because there is no other way for this management.

IGAS (LON:IGAS) – Timely Update – For Everybody

Today's announcement from IGAS underlines the timing that some management teams have in making decisions that could otherwise cause some difficulty. The results of the testing programme, on the shales series about which there has been much hype, will further enhance not only IGAS' acreage, but also the wider shale play in the UK.

In this respect, this data will be keenly received by all the onshore players, who by association, should also trade better, especially those with acreage in the East Midlands Province, such as Egdon and Union Jack Oil.

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