Headlines
• BowLeven (LON:BLVN) – Pick it up and Start Again: BowLeven have demonstrated that they can commercialise successfully in Cameroon, and we don’t doubt that should the Company make a discovery, and it be potentially commercial, that it will be able to valorise the asset.
• Circle Oil (LON:COP) – Times they are a Changing: While we have no doubt that the Company remains in good hands, the advent of these two events represents, to some extent, a dilution of Circle’s portfolio. While this should not have an impact on the current market valuation of the Company, as we don’t believe that it is currently trading at a point at which it can be considered to be a fair reflection of the current nature of the Company’s portfolio, we see further weakness ahead, which only increases its attractiveness to predators.
• Fastnet Oil and Gas (LON:FAST) – A Year of Transition: The management team have been great pains to guide the Company forward, and in reducing costs and being sufficiently open to opportunities, we believe that whichever one presents itself to be the most beneficial for the owners of the Company, the team will take.
• Frontier Resources International (LON:FRI) - Out Of the Frying Pan…: The AGR subscription would have provided the Company with the flexibility and the breathing space in order to do that, and what this means we not entirely sure. In securing the initial funding on a loan basis, we believe that the management team have imperilled the future of the business, as loans have no place on the balance sheet of an exploration company, and as such we believe it places significantly more pressure on the Company. The next 12 months will be instructive.
• Gulf Keystone Petroleum (LON:GKP) – Safe Appointment, but Is It Relevant?: Whilst we don’t believe that this is the right appointment, we have sufficient confidence in the operational management of the business, that with sufficient support at the executive level, that it will be better able to get the underlying value of its portfolio better reflected in its worth, as dictated by the market value.
• Kina Petroleum (ASX:KPL) – Raintree Dry: Despite the limited contribution that Raintree made to the overall portfolio valuation, we believe that the share price will reflect this disappointment, and as such, we believe any weakness in the share price from these levels is an opportunity to gain exposure to a growth region.
• RusPetro (LON:RPO) – Making Progress: While there is no doubt that further relief will be provided by a rising oil price, there is still the headwinds that is provided by the fact that it operations are based in Russia, and whilst we believe that very little can be done to address either of these, all the Company can do is ensure that when it does start to get support from both the oil price and the geopolitical situation, that its operations maximise their benefits.
• San Leon Energy (LON:SLE) – Commercialising Investment: While dilutive at point of raising, we see the money raised here, if invested in the manner described in the announcement, as being accretive to the underlying value of the business, and we believe that while it won’t be a “slamdunk,” it should be well supported.
• Serica Energy (LON:SQZ) – A Curio of a Company: While risks remain, despite the acquisition of Erskine from BP, we believe that 2015 will see the Company strengthen and by summer 2016, we believe that it will have emerged from a transitional period in which it is better able to assert control over its future.
• Range Resources (LON:RRL/ASX:RRS) – Difficult to See any Future: Whilst there is little doubt that the Company has the asset base with which to deliver value to shareholders, even now, we are finding it increasingly difficult to see where this team will be able to get access to sufficient human resources to be able to access that value in sufficient time.
News Items
BowLeven (LON:BLVN) – Pick it up and Start Again
Following its successes offshore on the Etinde permit, the Company can start again on the Bomono permit with the pending commencement of the Zingana well. Whilst the area has been subject to previous exploration phases, to date with the exception of the Logbaba gas field which is to the south of the permit in a carved out area, there has been little commercial success.
As Logbaba has shown, however, the geology is complex and can be both deep, overpressured and hot, all of which exponentially increase the complexity of the drilling and completion design. Given this, were not surprised there has been limited success, and we believe that the Company’s own 2D seismic will help.
BowLeven have demonstrated that they can commercialise successfully in Cameroon, and we don’t doubt that should the Company make a discovery, and it be potentially commercial, that it will be able to valorise the asset.
Circle Oil (LON:COP) – Time they are a Changing
Today’s annual results are solid enough, and given the position that some of its peers have found itself in, set it up quite nicely for what we believe will be a transitional year. However, in amongst all of the positive news, such as the arrival of the excellent Anthony Maris as a non-exec director, is the fact that we believe that cash flow is starting to become an issue, which is troubling as the Company has also secured additional reserve base lending.
Anecdotally, the loss of permits in both Oman and Tunisia is also somewhat perplexing, especially in the current environment when we know definitively that Oman is, in comparison to some of its global peers, as a sovereign regulator, remarkably approachable and understanding.
While we have no doubt that the Company remains in good hands, the advent of these two events represents, to some extent, a dilution of Circle’s portfolio. While this should not have an impact on the current market valuation of the Company, as we don’t believe that it is currently trading at a point at which it can be considered to be a fair reflection of the current nature of the Company’s portfolio, we see further weakness ahead, which only increases its attractiveness to predators.
Fastnet Oil and Gas (LON:FAST) – A Year of Transition
A company that is focused on exploration needs to key elements, prospectivity and cash. Fastnet has both of these, and whilst it doesn’t have enough cash to do meaningful exploration work, it has enough to provide it with adequate flexibility to drive its programme forward and achieve meaningful farmout terms.
The management team have been great pains to guide the Company forward, and in reducing costs and being sufficiently open to opportunities, we believe that whichever one presents itself to be the most beneficial for the owners of the Company, the team will take.
Frontier Resources (LON:FRI) - Out Of the Frying Pan…
Today’s news that the AGR subscription will not now transpire will create significant headwinds for the Company, not least because it creates a need for $200m before any money can be invested in the business, but because it also now raises the question as to whether there will be sufficient flexibility within its remaining options.
We continue to believe that of its portfolio, that Oman remains the standout, and given the extent of the seismic and well control over the licence area, that given sufficient time and proper organisation, that the Company will be able to achieve a farmout.
The AGR subscription would have provided the Company with the flexibility and the breathing space in order to do that, and what this means we not entirely sure. In securing the initial funding on a loan basis, we believe that the management team have imperilled the future of the business, as loans have no place on the balance sheet of an exploration company, and as such we believe it places significantly more pressure on the Company. The next 12 months will be instructive.
Gulf Keystone Petroleum (LON:GKP) – Safe Appointment, but Is It Relevant?
Today’s appointment of Jón Ferrier to replace John Gerstenlauer is a solid appointment, and given his track record should go some way to offsetting what we believe will be a significant loss when Gerstenlauer steps down.
We are not certain, however, that this was the appointment that was required. We can understand from a market perspective how Ferrier would be a preferred choice, but we believe that the political and strategic appointee is of considerably less use to Gulf Keystone at this point in its development cycle than a CEO that is willing to roll their sleeves up and get on with the business of delivering barrels into the market.
In this respect, this is an appointment that has been made directly from London rather than from the perspective of understanding what the Company actually needs in order to move forwards. Whilst we have no doubt of Ferrier’s capabilities, some things just need a different mindset.
Whilst we don’t believe that this is the right appointment, we have sufficient confidence in the operational management of the business, that with sufficient support at the executive level, that it will be better able to get the underlying value of its portfolio better reflected in its worth, as dictated by the market value.
Kina Petroleum (ASX:KPL) – Raintree Dry
Today’s disclosure that the Raintree-1 well was dry is disappointing, and the news that the seismic anomaly identified and targeted as part of this drilling was a volcanic layer, is surprisingly. We believe that intersecting a horizon of volcanics is a new piece of data, which will now need to be integrated into the existing seismic data and understanding of the localised geology before any further prospectivity can be opined on.
We have no doubt that this news will act as a headwind to the remainder of its portfolio, which remains not only highly prospective, but given that its value (to our mind) is primarily driven by its interest in PRL 21 and PRL 38, today’s news should have little impact.
Despite the limited contribution that Raintree made to the overall portfolio valuation, we believe that the share price will reflect this disappointment, and as such, we believe any weakness in the share price from these levels is an opportunity to gain exposure to a growth region.
RusPetro (LON:RPO) – Making Progress
After what has been an interminable number of years, the Company finally seems to be making headway with its portfolio, delivering what seems to be a “fit for purpose” programme, tailored for the subsurface conditions.
Whilst there is still the issue of the weakness on the balance sheet, the only route to limiting its impact, or indeed mitigating it completely, is generating sufficient excess cash flow, over and above what is required to grow the business, to meet the obligations as and when they arise.
While we believe that the Company will still need the largess of its creditors to survive, that it is aggressively pursuing and valorising its asset base will go a long way to seeing its creditors provide it with the leeway that it will so desperately require.
While there is no doubt that further relief will be provided by a rising oil price, there is still the headwinds that is provided by the fact that it operations are based in Russia, and whilst we believe that very little can be done to address either of these, all the Company can do is ensure that when it does start to get support from both the oil price and the geopolitical situation, that its operations maximise their benefits.
San Leon Energy (LON:SLE) – Commercialising Investment
Today’s news that the Company will be doing a fundraising to pay for its share of the development on Rawicz and Siekierki, its commitment Wells in Morocco and to progress its directly licence in Albania is a clear step in the right direction.
Given, however, that the Company raised approximately €30mm to pay for a Turkish acquisition, which quite rightly never went ahead, the Company will have to give cast-iron assurances that the money that is being raised will be invested in the projects that it’s highlighted.
Although we have highlighted it as an issue for us, on reflection the probability that the Company will not utilise the funds for these things are relatively low for a number of reasons, not least that the Polish assets will generate cash (which will provide it with flexibility) but that failure to invest in Morocco and Albania could well put its licences in jeopardy, which for us would severely hamper its valuation.
While dilutive at point of raising, we see the money raised here, if invested in the manner described in the announcement, as being accretive to the underlying value of the business, and we believe that while it won’t be a “slamdunk,” it should be well supported.
Serica Energy (LON:SQZ) – A Curio of a Company
Today’s news from the Company in many ways underlines everything that we think about it, it is at once a well-balanced company that has great opportunities that it never seems to be able to fully realise.
Despite the acquisition of Erskine, the Company is still essentially an explorationist, and as such is imperative that it move as quickly as possible to generating revenues and income. Additionally we believe that for a company in its position, despite the number of licences that it has, that administrative costs of almost $5mm is too high, and this will have to be addressed.
Despite this, 2015 should be a transitional year, which should see it emerging at the end of it in a far stronger position than it started. The acquisition of Erskine should provide it with some measure of flexibility that will enable it to access the prospectivity in the remainder of its portfolio more efficiently and in a manner that creates more value for shareholders.
While risks remain, despite the acquisition of Erskine from BP, we believe that 2015 will see the Company strengthen and by summer 2016, we believe that it will have emerged from a transitional period in which it is better able to assert control over its future.
Range Resources (LON:RRL/ASX:RRS) – Difficult to See any Future
The Company’s disclosure that it is currently producing 620bpd and is cash positive, which is good news, has been accompanied by the fact that yet again the Company’s drilling operations have encountered difficulties to such an extent that they have to be shut down.
This isn’t the first time that ranges drilling operations have required an investigation, and one begins to wonder whether there is any positives at all. We have every confidence in the in country technical team, with this latest drilling incident we believe that its drilling business should be disposed of as it is now more of a liability than a benefit.
At every turn there appears to be something new that besets the Company. While many would talk about “luck,” in engineering it is a truism to say that the luckiest operators are the ones that take time to plan properly.
Whilst there is little doubt that the Company has the asset base with which to deliver value to shareholders, even now, we are finding it increasingly difficult to see where this team will be able to get access to sufficient human resources to be able to access that value in sufficient time.