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Today's Oil and Gas Update: Nighthawk Energy, Mayan Energy, Ophir Energy Plc, Premier Oil PLC, Union Jack Oil PLC

Published: 09:43 12 Jan 2017 GMT

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Headlines

In Brief:

Union Jack Oil* (LON:UJO – 0.14p) – $4.9mm – $33.6mm (0.11p – 0.74p) – Wressle Decision Flawed

Mayan Energy (LON:MYN – 0.01p) – Where Will Value Come From?

Nighthawk Energy (LON:HAWK – 1.40p) – Fiddling

Ophir Energy (LON:OPHR – 95p) – Cash Balance a Concern

Premier Oil (LON:PMO – 86p) – Future Looking Brighter

In Brief

Union Jack Oil* (LON:UJO – 0.14p) – $4.9mm – $33.6mm (0.11p – 0.74p) – Wressle Decision Flawed: If the public record of the statements made at the planning meeting are correct the rejection of the Wressle development planning application was not based on the merits of the application, but in reaction to the Environment Agency's handling of the flood response in the recent past. On this basis, the councillors have overstepped their remit and while they may have a point about the Environment Agency, they have opened themselves up to legal challenge. We also believe that the focus on the British Steel boreholes, which we assume draws water from a shallower aquifer, is a red herring and can’t have been formulated by anybody with an understanding of the engineering, and the abject stupidity in the statements suggests something else is at work, especially as its not driven b y engineering or fact. The planning approval process must only be concerned with planning matters and, with no respect any concerned, they should do their jobs, not grandstand. This will be disappointing for all involved, especially UJO, but we are confident that planning permission will ultimately be granted. There is little doubt that this will impact the share price, but at this stage, save for the changes to timing, until we have updated information, we will maintain our previous assumptions.

Mayan Energy (LON:MYN – 0.01p) – Where Will Value Come From?: Another announcement comes that causes us to question the value of Shoats creek, especially as the wells that they are looking to intervene in have only recently been brought on line. This, and all of the often contradictory valuation points, switches in focus and changes to the programme, coupled with so much prominence given to what is essentially stripper well production (not suitable for a public company) we are growing increasingly concerned as to what the strategy is. What is needed, more than at any time in its past, is a clearly articulated strategy, with measurable, against which the Company can be measured. Otherwise, the company will disappear.

Nighthawk Energy (LON:HAWK – 1.40p) – Fiddling: Today's update, while a positive in the context of the recent news flow, to our mind, misses the point, and by not referring to its earlier corporate update (March 2016, Page 10), raises questions as to how likely it is that the material uptick in production (cash flow) will be achieved. Spending so much time on something that is ultimately not going to move the needle suggests to us that management is fiddling while Rome burns. The alternative is that in the wake of the previous failures, that the cupboard might be bare. We believe that it is now imperative that management reconcile the previously outline plan to current expectations, and not switch the focus to cash flow, which will have been distorted by the increase in oil price. Given the volatility in oil prices, it is more important than ever to focus on economic production as the measure .

Ophir Energy (LON:OPHR – 95p) – Cash Balance a Concern: Today's trading statement is, operationally at least, a positive update, with all projects seeming to be on time and to budget, or better. The only concern we have is that the Company, in looking (sensibly) to remain within its RBL limits and not draw against its existing facilities, the Company has effectively increased its cash burn. Given this, and the fact that it's projects are high spend items, increases the risk that further funding could be required in the future. Set against this is the fact that services costs are still competitive and utilisation rates means that cost inflation (from services at least) is unlikely, but we are still concerned that the ~$160mm of cash resources, could, disappear far quicker than is desired. Consequently, we believe that the shares could come under increasing pressure, until such times as the Com pany makes clear its cash position, including the obligation and "at risk" spending.

Premier Oil (LON:PMO – 86p) – Future Looking Brighter: Today's trading update should make happier reading for the equity holders, if not the bond holders. Now that it appears that the Company has resolved its creditor issues, we believe that the attention now needs to turn the current cash requirements, resources and needs, especially as it is now essentially out of the market for fixed income until it can make inroads in to its existing indebtedness. To what extent that impacts the future programmes remains to be seen, but we believe that there will inevitably be delays, and the most likely candidate is Sea Lion. Still, that the future, the more immediate needs are for management to learn from the experience, assuming it is resolved, and understand what it can do better next time around, which we would suggest is principally sharpen its focus around its dividend policy. We have no doubt that that equity investors will be pleased with today's news and the shares should trade ahead as a result.

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