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Today's Oil and Gas Update - Curzon Energy and Green Dragon Gas

Today's Oil and Gas Update -  Curzon Energy and Green Dragon Gas

Curzon Energy* (LON:CZN– 8p) – $32.5mm (37p) – Getting on With It: Today’s news underlines the appetite with which the Company is tackling its appraisal programme, with the rig secured and turning so quickly after securing funds. While some commentators will point towards the fact that the wells being tackled are pre-existing wells, we believe that by focusing on the wells that will generate cash flow first, the Company is ensuring that shareholders achieve maximum value as quickly as possible. While the wells are pre-existing and will flow gas immediately, it must be remembered that due to the flow characteristics of CBM wells, the testing programme, albeit simpler, has a longer duration due to the need to dewater before the full productivity of the well is understood. Still, the gas produced will generate revenue which if sufficient, wil l be reinvested into new wells at ready identified drill locations, further increasing cash generation. If successful, the programme will see the ~270bcf of Contingent Resources quickly reclassified into Reserves, which will carry a higher than usual NPV (for the United States) due to the differentiated gas pricing in Oregon.

Green Dragon Gas (LON:GBG– 62p) – Listing Plans Ignore Underlying Reason for Weakness: Today’s news that the Company will be listing its producing businesses on the Hong Kong Exchange to raise enough funds to pay down the debt on its balance sheet, citing the fact that the London market doesn’t value the assets sufficiently, ignores the one single largest flaw in the plan. London doesn’t value the assets because Green Dragon Gas is laden with debt that has had no way of paying it off for a long time, that was run up by a management team that overlooked the fact that the majority of its assets have been developed by a third party without its knowledge. That’s why its poorly rated. So, what is going to remain in the London listing? Not much of anything. This management team have failed to deliver value on any basis for the shareholders, and are now seeking to take the value enhancing business away from those shareholders that have supported the Company thus far. Instead of fixing the problem and addressing the issues that the market is telling them are there, management are taking their brand of failure to a new location. Given this, it is unlikely they have learned their lessons and will fail again. We believe that this is a wasteful exercise based on the management team’s vanity, but given the fact that the majority of shares are owned by a concert party to management, this resolution will likely be passed. Best thing to do is to stay with the shares, get the new shares on dividend and then work with the new investors that come in through the HK listing to change the management team for one that can deliver. After the split, what’s left in London will not be worth anything.


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