When most people think of oil production in the UK, the North Sea immediately pops to mind. There is also a sprinkling of small onshore fields that are producing oil profitably too. Europa Oil & Gas has produced a profit before tax for the last three years, primarily from onshore production in the East Midlands Oil Province. Granted the quantity of oil produced here is pretty small ? 205 bopd (barrels of oil per day) - but production it is - and free cash flow of any kind is a major success for an oil junior! For the six months ended 31st January 2006 Europa posted profit before tax of £419,000 and EPS of 0.69p with Net Assets at £9.03 million. However, additional production coming on stream this summer in Romania will effectively double Europa?s revenues.
Europa also has a number of other targets onshore in England and two offshore licences in the Southern Gas Basin, which could produce up to 6500 boepd (barrels of oil equivalent per day). There is a catch; although these adjacent blocks, Block 41/24 and 41/25,contain two gas fields that have already shown gas can flow to the surface, the fields are fractured and require a horizontal well to go into production. Horizontal wells are enormously expensive so even though the target exists, this doesn?t guarantee the well will be drilled in the right manner to produce. However, these fields could hold as much as 160bcf (billion cubic feet) ? a company changing type of target for Europa. At this stage, though, it is not clear how, when, or even if Europa will drill these fields horizontally. After chatting to Managing Director Paul Barrett the impression that Proactive received was that Europa is still considering their options.
Europa has earned into a number of gas production blocks in Romania and this investment will soon begin to reap dividends. The Bilca Gasfield Development will effectively double cash flow for Europa, despite the fact that gas prices in Romania are only US$3mcf ? equivalent to $20-$25 a barrel of oil. This price is quite low compared to northern Europe, but it?s rising steadily and can only add to the value of Europa?s assets as they go forward.
Combined with production in England, the bottom line is starting to look very healthy. However, despite the cash flow, Europa will require some additional finance to maintain its drilling ambitions in England and Romania, with some small expenditures coming up in Egypt and the Western Sahara. Europa has a number of frontier properties in Northern Africa, both of which are at the very early stages of investigation.
The company has already announced a £1.5 million debt facility with Headstart, which can be drawn down in £100k trances in return for equity. It is possible that a further equity or debt finance may be needed to cover capital commitments over the next year, however, the company is loathe to dilute shareholders at the current share price. There are also 18.9 million warrants outstanding at an exercise price of 30p ? which could bring in another £5.4 million ? but the shares would need to get a move on and climb back to at least 35p.
Europa Oil & Gas have a number of interesting assets in their portfolio that we haven?t mentioned. You can read more about these in the ?AIM Prospectus Document? on the ?Investors? section of Europa?s website (see link above).
So, planned increases in production from Romania in the near term should help boost sentiment and let the company get on with drilling and exploiting its assets to the fullest. Europa listed two years ago with a market capitalisation of £15 million. Today you can pick up Europa for around the listing price with a considerably developed asset base and a track record of producing cash flow ? this kind of opportunity is few and far between.