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Today's Oil and Gas Update - Egdon Resources,Frontera Resources, Gulf Keystone,Providence Resources and others

Published: 09:54 16 Nov 2016 GMT

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Headlines
• In Brief:
o Egdon Resources (LON:EDR– 15p) – Portfolio Building
o Frontera Resources (LON:FRR– 0.10p) – Another 10 Years?
o Gulf Keystone (LON:GKP– 1.15p) – (HOLD – $203 – 519mm; 0.65 – 1.66p) – Wrong Focus
o Providence Resources (LON:PVR– 10p) – Solid, But Not the Focus
o Sirius Petroleum (LON:SRSP– 0.50p) – The Action Begins… Sort Of
o Soco International (LON:SIA– 134p) – Time to Look to the Future
o Tethys Petroleum (LON:TPL, TSE:TPL  – 1.38p/C$0.02) – Rock and a Hard Place

In Brief
• Egdon Resources (LON:EDR – 15p) – Portfolio Building: Today's acquisition of a 10% interest in PEDL201 serves to consolidate its position in the midlands basins, with which not only adds volumetric prospectivity, but also provides it with additional currency to negotiate with prospective farminees. The wider impact, however, is, in this case, more marked, especially as the unconventional prospectivity is yet to be assessed, and while it may be that the shale series is ultimately unproductive, until such times as that is proven, it represents significant optionality.
• Frontera Resources (FRR LN – 0.10p) – Another 10 Years?: While ordinarily a new country entry would be assessed on its merits as a geological province, but given that it has taken over 10 years to get a more mature province to the point of potential declaration of reserves, we believe that even if this were a mature province such is the management's track record that it is actually a negative. Given that the progress to date in Georgia was the net effect of 100% of management time, now that this time will be spread more thinly, we find ourselves wondering what effect the inclusion of Moldovan acreage will have on the progress of both assets. Either way, a fundraising will be in the offing.
• Gulf Keystone (LON:GKP – 1.15p) – (HOLD – $203 – 519mm; 0.65 – 1.66p) – Wrong Focus: Today's announcement isn't really a surprise, but it isn't the right thing to do, not yet anyway. The smaller shareholders have supported the Company through a significantly trying period, and for shareholders holding less than 100 shares to see such an albeit significant destruction in value, essentially reduced to nil, will gall some. However, and we need to be frank here, the alternative was nil for all shareholders had the conversion not happened. While we can appreciate that the management want to separate themselves from the past and move forwards, but given that past, and the lingering debt that remains, we think that the number of shares in issue should be the least of their worries. What will change investors' perception of the Company is delivery and free cash flow generation . Our valuation range remains $203 – 519mm, 0.65 – 1.66p using the current shares in issue, but post the share consolidation the per share valuation range will be 65 – 166p. Reiterate HOLD
• Providence Resources (LON:PVR– 10p) – Solid, But Not the Focus: Today's news is a shot in the arm for the Company's portfolio, and as we have said previously, is a reflection of the esteem in which its technical capability is held in governmental circles. However, what is undeniable is the fact that no matter how much good news the Company receives on its exploration prospects, these make little contribution to the current valuation, and the market sees this as medium to longer term opportunities to peruse once the Company is generating cash flow from Barryroe. As a result, and while we can appreciate the step forwards that this undoubtedly is, the announcement that investors are looking for is on the next stage of Barryroe. Until then, we believe that everything else will be viewed as a side show.
• Sirius Petroleum (LON:SRSP– 0.50p) – The Action Begins… Sort Of: After much delay, it appears that Sirius may finally start drilling the Ororo wells. While this is good news, and the Company’s shares should rightly trade ahead on the news, there are a number of concerns, namely: (i) that management state “if successful,” which to us is a step back from their previous language of “bring the Ororo field (OML 95) in Nigeria… …into production” where that spoke of development. This can now fairly and squarely be called an appraisal well; (ii) given that it is an appraisal well, we need more information on how it will get to production in under 6 months given that management talk of “first hydrocarbons in 1H 2017;” and (iii) given that only 4.2mm bbl of the 2C Resources of 11.4mm boe are liquids, to what extent is the $3.5/mcf gas solu tion necessary for a commercial development. Of these points, the last is the more pressing, as it transcends the timing issue. Interesting times ahead for the Company, and we suspect that a funding round will be required post the well results, it will be a question of what level and how much.
• Soco International (LON:SIA– 134p) – Time to Look to the Future: today's update is significant not because of the operations, which remain on track, but because of the fact that the delay in the Mongolian payment has a minimal impact on the overall progress of the Company. Given this, we believe that it is now the right time for the Company to start to start to expand its exploration efforts, which in turn will hopefully feed the appraisal, development and production portfolios in due course, quite a luxury problem to have in this current market. All in all, investors should be happy with the Company, and more importantly, the way that it is being managed.
• Tethys Petroleum (LON:TPL – 1.38p/C$0.02) – Rock and a Hard Place: Today's results make sobering reading, especially as the Company is essentially one quarter away from closing down. What is needed is a resolution with Olisol and funds to be able to satisfy creditors (initially), and intervene in its asset base to lift production. The focus on Olisol has meant that the Company has proceeded too far down one funding route to effectively be able to enter in to any wider funding programme, and now needs to pursue the “rifle shot” approaches from other stalking horses. While there is a glimmer of hope, unless it is of a size that enables the Company to address its deficiencies currently and achieve a significant proportion of the production necessary to grow its business, we do not see how this provides anything other than a Band-Aid to the Company. Still, the monies have to be remitted first, which is now the only focus for the Management team, and rightly so.

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