VSA Capital’s Marc Anis-Hanna has declared himself “very impressed” with Independent Oil & Gas (LON:IOG), which yesterday unveiled a long anticipated funding deal.
IOG’s new arrangements, which see £4.75mln loaned to the company and some £4.5mln of project costs deferred to next December, mean that the North Sea junior can drill the potentially transformational Skipper appraisal well in the New Year.
Crucially, it means the company will have enough working capital through 2016.
Anis-Hanna, VSA’s oil analyst, highlighted it as an achievement in a tough funding environment, and also pointed out the group’s newfound financial flexibility.
“We are very impressed by the capacity of IOG to raise further capital despite the current bearish oil market, highlighting the strong potential of its projects as well as the high quality of its management, which was able to demonstrate the strength of the investment case during this period of negative sentiment towards the sector,” he said in a note.
“More importantly, IOG has made significant progress towards delivery of this project, having secured both funding and a contract with a major service provider for the Skipper appraisal well, as well as raising working capital for the next 12 months.”
With a late January or early February start date pencilled in for the Skipper well, the analyst reckons the submission of a field development plan to the UK authorities by mid-2106 was now “increasingly realistic”.
VSA this morning repeated a ‘buy’ recommendation and, with a 70p per share price target, the broker sees some 900% upside to IOG’s current price of 7p.
Speaking with Proactive Investors yesterday IOG chief executive Mark Routh said the current share price was not factoring in anything for the group’s assets.
“Our share price shows that people expected us to not get funding and go under,” Routh said.
“It (the share price) was absolutely no reflection of the value of our assets.”
“So, it is a transformational deal for us.”
He added: “The biggest hurdle for a company of our size was to get the funding agreed.”
Routh describes Skipper as “an extremely low risk appraisal”. He explains that the primary objective is to retrieve an oil sample from the known reservoir that will be used to help optimise the future oilfield development.
He also highlights that with an estimated break-even price of around US$34 per barrel and the project would be economically viable even at current crude prices.
“At Skipper, from our point of view, is about when we develop rather than if we develop,” Routh said.
“The Skipper field will be the jewel in our crown because 35mln barrels of reserves is a big number for a company of our size, and in fact would be a big number for companies much larger than us, and, of course, we’ll be looking at other deals and other routes to ensuring we can finance our activity without having to issue too many more shares.”