Sign up UNITED KINGDOM
Proactive Investors - Run By Investors For Investors

Northern Petroleum: Canada could transform this oversold oil development play

Northern Petroleum's £23mln valuation pays absolutely no regard to NOP’s present – as a cashed up oil junior with £21.4mln on the balance sheet – or its future as a producer.
Northern Petroleum: Canada could transform this oversold oil development play

The stock market, and in particular that segment devoted to growth companies, is one driven by sentiment.

While its bi-polar fluctuations can be disorientating at times, they do create opportunities, particularly where a share is oversold.

Take Northern Petroleum (LON:NOP); its rather chequered past definitely counts against it in the eyes of market makers, traders and long-term investors who steer its price.

However, the current £23mln valuation pays absolutely no regard to NOP’s present – as a cashed up oil junior with £21.4mln on the balance sheet – or its future as a producer.115

In fact, it saddles the new board and management tasked with making a fresh start with the legacy of the old regime.

That fresh start for chief executive Keith Bush and the team is in Canada, where there’s the opportunity to add meaningful production very quickly. 

It is a fairly easy way to add significant value, while the current share price provides an opportunity to ride the upswing if Northern succeeds with what looks like a fairly low-risk oil field development.

Last year it picked up 9,320 acres of the Keg River carbonate formation in north-west Alberta and subsequently increased its land bank to 26,454 acres with 101mln barrels of oil in place.

This was a productive corner of the province during the 1970s when recoveries were in the order of 20% and was shut in when the oil price was far lower than it is currently.

Today, Northern’s team is using 3D seismic data to guide the development of the reefs.

Three proof-of-concept wells have already been drilled and, while we’ll have to wait a few more weeks for the definitive data, including flow rates, this is a proven hydrocarbon producing play.

However, we do already know Northern’s re-entry well (14-22) flowed at 150 barrels a day (from the early swabbing test on a pro rata basis) before being put on long-term test to establish a production rate that will maximise oil recovery. 

The deviated well hit a 15 metre gross oil column, while the new reef well hit a 22 metre column

As mentioned earlier, this development project is not high risk exploration. The hydrocarbons are there.

The first three wells will give investors an indication of the daily rate that can be achieved. The economics could go wrong if the group has hideously misjudged the decline curve.

However, lifetime production of 100,000 barrels of oil looks realistic.

These are reasonably low cost wells. The current programme – one re-entry, one deviated and one completely new well – are estimated to have cost US$5.5-$6mln.

The hope would be to get the cost down to the US$1.7mln per well spent by near neighbour Strategic Oil & Gas.

Meanwhile, operating costs are likely to fall once production is tied into the local pipeline rather than being trucked. In those circumstances a ‘net back’ of US$35-$40 a barrel of crude is not unrealistic.

Of course, the emphasis on Canada ignores other areas of operation: Italy, the UK and Australia.

It is understood the group will look to be carried on a planned 3D seismic survey of its potentially world-class licences in the southern Adriatic.

Meanwhile, its onshore Horndean and Avington fields here in Britain (combined production 20 barrels a day) could be offloaded at the right price. Australia, while exciting, is at a very early stage of development.

The focus on Canada is one orchestrated by the new management team, led by Bush and finance director Nick Morgan. CEO Bush cut his teeth at Amerada Hess and Burlington Resources before becoming general manager of operations for E.ON Ruhrgas in Norway.

Morgan, meanwhile, comes with 13 years’ investment banking experience, specialising in mergers and acquisitions – possibly giving a pointer to future strategy once Northern’s credibility has been restored.

Equally as interesting is the industry heavyweight team of non-executives the AIM group has managed to attract.

The board includes Jonathan Murphy, former chief operating officer of Venture Production; Stewart Gibson, ex of Sterling Resources; and Ian Lanaghan, who was finance director of Faroe Petroleum.

Each has a track record of success and one assumes they wouldn’t back Bush et al unless they were confident the Northern CEO had crafted a convincing strategy to initiate and grow production in Canada.

Northern investors might take for inspiration the phoenix-like resurrection of Nighthawk over the past year.

Here was a North America focused group where expectations were mismanaged.

But buoyed by new management it has turned from a sporadic producer to one churning out 1,885 barrels of crude a day.

The share price reaction, although muted at first, has been spectacular over the past year or so as Nighthawk has advanced almost 200% in the last 12 months.

On that basis, it should only take limited success to move the dial of Northern, which has an enterprise value of just £1.6mln. 

View full CAB profile View Profile

Cabot Energy Timeline

Related Articles

picture of gas flare
February 13 2018
A new gas generator also came on stream recently and has started to produce the first power from the project
oil and gas operations
May 01 2018
It was a year of portfolio building and progress for the onshore UK-focused minor, punctuated by improved production volumes and a number of acquisitions with value-adding potential
oil and gas operations
January 25 2018
Success in the field and in the boardroom has driven Cabot Energy to rapid growth, and it now has ambitious targets for 2018

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use