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SP Angel Morning Oil & Gas LGO Energy, MX Oil, Great Eastern Energy and Baron Oil

SP Angel Morning Oil & Gas LGO Energy, MX Oil, Great Eastern Energy and Baron Oil

Headlines

MX Oil (LON:MXO) – Aje a Bargaining Chip, Not a Development Option: We believe that the Company is better off in the near term by taking the forward momentum from this news and disposing of its interest in the asset at the FID stage, as bar Panoro, the remainder of its partners don't inspire sufficient confidence to bring solving the technical issues, or bringing this project in on time and on budget.
LGO Energy (LON:LGO) – A Unwelcome Headwind: This is a hiccup, but one that isn't terminal as long as the cash flow remains at sufficient levels to meet the bank debt covenants and repayments. However, there will be an opportunity to buy in to the shares as the Company will undoubtedly be conducting another down round.
Baron Oil (LON:BOIL) – Nancy is No More: We believe that the Company needs to now address the issue of the longer term future of the Company, which will include an asset review and understanding of its long term cash needs.
Great Eastern Energy (LON:GEEC) – Disappointing, But Not Terminal – Is It?: What the key information will be in the short term is what impact this will have on the cash flows, and more importantly, whether there will be a need to undertake a financing. We will wait until we see this information before we can say that we understand the full implication of today's news on the Company.

News Items

MX Oil (LON:MXO) – Aje a Bargaining Chip, Not a Development Option

Today's news, if it hadn't reported hydrocarbons, would have been more news worthy than it is. It is important to remember that the Aje field has been a discovery since 1996, When Aje-1 encountered oil and gas over three zones of the Cretaceous Turonian age. It flowed at the rate of 60.2mm cfpd gas, 1,729bpd of condensate and 2,389bpd oil.

Consequently, the past, when looking at the development options, it has been difficult to get around the fact that ~72% of the Contingent Resources were allocated to gas/LPG, and the balance to liquids, which means that there will either be a gas reinjection programme to undertake, for development at a future date, or an alternate development strategy to allow for the sequential development of the resources.

Given that we do not see flaring as a credible long term solution, this needs to be addressed in order for us to be able to assess the longevity of the asset, and hence its true value to the Company.
This also ignores the fact that as with any development project, the more gas you have to handle, the steeper the development cost and complexity of the asset has to be, which in turn increases operating costs. All this has to be set against the current oil price environment, and while it is true to say that operating costs have fallen with the oil price, whether this is sufficient to ensure the commerciality of a sensible and responsible liquids only development programme now, and in the long term, is open to debate.

We believe that the Company is better off in the near term by taking the forward momentum from this news and disposing of its interest in the asset at the FID stage, as bar Panoro, the remainder of its partners don't inspire sufficient confidence to bring solving the technical issues, or bringing this project in on time and on budget.

LGO Energy (LON:LGO) – A Unwelcome Headwind

Today's news on the one hand is a positive, but financially, the issues are manifest, that cash flow may be an issue, and for any company, no matter the size, cash is always King. Operationally, the Company remains in good standing, but this recent turn of events leads us to try to understand what the insurance arrangements are for the Company, and whether there are other areas of risk that need to be addressed.

While the sums involved are not major, and we believe that there will be support in the market should an equity raise be required, we believe that ahead of that, the Company needs to update the market on its forward plan and cash flows, and as now in this instance, it's risk mitigation strategy.

This is a hiccup, but one that isn't terminal as long as the cash flow remains at sufficient levels to meet the bank debt covenants and repayments. However, there will be an opportunity to buy in to the shares as the Company will undoubtedly be conducting another down round.

Baron Oil (LON:BOIL) – Nancy is no more

The Company has today announced its handover of the Nancy Burdine field to Ecopetrol, the Colombian state oil company.

We believe that the Company needs to now address the issue of the longer term future of the Company, which will include an asset review and understanding of its long term cash needs.

Great Eastern Energy (LON:GEEC) – Disappointing, But Not Terminal – Is It?

Today's update from the Company, in which it details a delays start-up of deliveries to a new customer, is disappointing, but not terminal. What we believe is of more concern to investors at this stage is the prices at which the gas will be sold, and the overall net delivered price to the factory gates - this will be of more use at this stage.

The Government of India has tragically mismanaged its gas pricing mechanism, which GEEC by and large has been removed from due to the fact that the prices that it is able to sell at are largely deregulated. However, we still need to see what pricing power the Company has in its marketplace. 

What the key information will be in the short term is what impact this will have on the cash flows, and more importantly, whether there will be a need to undertake a financing. We will wait until we see this information before we can say that we understand the full implication of today's news on the Company.

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