Headlines
• Hardy Oil and Gas (LON:HDY) – Forward Momentum Regained: We believe that a funding round is coming, but that this should be an opportunity for investors to gain entry to a stock that represents inherent values above the current market "worth" and although it is taking a punt on a management team that hasn't outwardly progressed the Company to date, should they not deliver quickly, this is easily addressed.
• Ophir Energy (LON:OPHR) – A Milestone Reached: We believe that the Company has an interesting 5 – 10 year period of activity ahead of it, in which an acceleration in closing of the discount in market "worth" to the value of its asset value - if it isn't taken off the exchange by a predator before then.
• Petro Matad (LON:MATD) – Progress, But at What Cost?: We believe that there is a significant risk that just as the Company entered the next stage of development, it shoots itself in the foot. Until such times as the Company discloses the nature of the short term funding, or rules out any form of loan, that equity holders, the Company's owners, are at significant risk of excessive dilution.
• Northern Petroleum (LON:NOP) – Life Begins Again: Today's news is a positive for the Company, and one that should relieve the pressure that has been on both the management and share price. We will be looking for a revised onward programme in the coming months as the ship first steadies, then looks to rebuild.
News Items
Hardy Oil and Gas (LON:HDY) – Forward Momentum Regained
Today's results are only about 2 things, the forward plan, and the cash remaining to undertake those plans. After what has been an interminable length of time, the Company finally seems to be making progress, and of course on PY-3, which at the time it was taken offline it was in production and had been for at least 5 years, it should never have been allowed to get as far as having the rentals on site run out of contract, thus bringing it off line, whatever the reason.
How that we see that there is ~$23mm remaining on the balance sheet, it is clear that with all of the work being planned that there will be a funding round. While part of this will include debt, we believe that there will be some considerable headwinds from the fact that the Company have taken so long to get to this stage.
The Company now needs solid execution for the next 3 years to restore credibility, which in turn will help to unwind the inevitable "execution discount" that attaches to it currently. Once its existing project base has been brought on stream, then the Company will have to turn its attention to the future, but currently, that is a long way off.
We believe that a funding round is coming, but that this should be an opportunity for investors to gain entry to a stock that represents inherent values above the current market "worth" and although it is taking a punt on a management team that hasn't outwardly progressed the Company to date, should they not deliver quickly, this is easily addressed.
Ophir Energy (LON:OPHR) – A Milestone Reached
Today's reserves report is a landmark for the Company in that it represents the culmination of all of the investment to date. While this is an exciting time for the Company, the more notable series of number for us is the contingent resources, which we believe is the longer term future.
The sheer size and scale of the numbers tells you one thing, that the current market "worth" underestimates the Company's asset values, and that there will be further funds to be raised in the future to help pay for the development of its asset base. While cash flow from then online operations will pay for some of it, the size and investment horizon before first revenue will mean that further cash will be required.
We believe that the Company has an interesting 5 – 10 year period of activity ahead of it, in which an acceleration in closing of the discount in market "worth" to the value of its asset value - if it isn't taken off the exchange by a predator before then.
Petro Matad (LON:MATD) – Progress, But at What Cost?
Today's news that the authorities have proved the e try of BG to its Mongolia concessions is a relief, as governments have used these opportunities in the past to leverage concessions from what are usually smaller companies that have invested the risk capital to get the project to a place where it is of interest. We believe that the management will move quickly to resolve the outstanding conditions precedent to the transaction to see it complete.
However, we are troubled by the use of language in the closing paragraphs which reads:
In the event that the farm-out does not complete within the next few weeks the Company is in talks with a potential provider of short term funding to ensure that the Company will have access to the necessary cash resources to be able to continue to operate until the farmout is completed.
To us this means a convertible or other such (initially) non-dilutive form of funding, which is fine if all proceeds according to plan, but become aggressively dilutive (or worse still) if the expected timing is. It met. We do not agree with this approach, and it leaves the equity holder of the Company open to excessive risk for very little gain.
We believe that there is a significant risk that just as the Company entered the next stage of development, it shoots itself in the foot. Until such times as the Company discloses the nature of the short term funding, or rules out any form of loan, that equity holders, the Company's owners, are at significant risk of excessive dilution.
Northern Petroleum (LON:NOP) – Life Begins Again
News that production has restarted in Canada will greatly assist the Company, and provide it with breathing room. Once steady state returns to the Company's operations, it will then be time to reassess where it is at, and what it will do moving forwards, especially in light of the disappointing drilling results just before oil price crash concerns took over.
Obviously, there will also be the small matter of its exploration programme, and what the next steps are, and when, in its programme, especially in Italy, where Niche have farmed in; it will be interesting to see the revisions to the programme due to funding issues.
Today's news is a positive for the Company, and one that should relieve the pressure that has been on both the management and share price. We will be looking for a revised onward programme in the coming months as the ship first steadies, then looks to rebuild.