Headlines
• Petroceltic (LON:PCI) – All the Right Ingredients: We believe that the Company is well funded presently and has access to sufficient capital to meet its obligations as they arise, even if delays occur. Furthermore, we also have confidence in the management team to address the issues and risks within their control, and adapt to those that are not. Consequently, we believe that PCI represents a significant investing opportunity at these levels for investors.
• Baron Oil (LON:BOIL) – Disappointing News, But Right Decision: The Company still has a significant asset base that has significant inherent value, and this now needs to be pulled together in the form of a forward plan, which we believe will not only be a positive for investors, but management alike.
• Gulf Keystone (LON:GKP) – Geopolitics Still a Significant Concern: We continue to keep a watching brief on the Company and believe that it continues to remain undervalued, even when adjustments are made for security and operational risks. However, risks are subjective and we understand that although we believe the geopolitical risk discount to be unduly excessive, that this assessment is based on our extensive operational experience in the region.
News Items
Petroceltic (LON:PCI) – All the Right Ingredients
Today's results are of course important as it provides us with an understanding g of how the cash generating businesses are faring and how much cash there is on the balance sheet. However, the big issue, for us anyway, is the outlook and more specifically the timing of the Ain Tsila facility in Algeria.
We suggest that this overshadows everything else due simply to the fact that it accounts for in excess of 80% of the Company's future value, and in that context, it is vital to understand where it is at.
While PCI has a first rate in-country partner in the shape of Sonatrach, they are oft accused of being slow to move and bureaucratic, which could induce delays in bringing the facility online. That said, we continue to believe that Ain Tsila is on time, but this continues to be a risk, especially given the fact that the development is remotely located and a gas condensate facility.
The contemporaneous announcement that the Company is contemplating a bond raising is not a surprise, and nor is it an issue, provided that the principal amount is no more than they can pay under their stress tests utilising reasonable variances, key of which is timing (of the Ain Tsila project) and price.
We believe that the Company is well funded presently and has access to sufficient capital to meet its obligations as they arise, even if delays occur. Furthermore, we also have confidence in the management team to address the issues and risks within their control, and adapt to those that are not. Consequently, we believe that PCI represents a significant investing opportunity at these levels for investors.
Baron Oil (LON:BOIL) – Disappointing News, But Right Decision
The relinquishment of the Nancy Burdine Maxine ("NBM") licence to Ecopetrol is a disappointing step in the Company's asset development, but understandable given the fact that under the current environment it was not making sufficient revenues to meet its costs.
The Company still has a significant asset base that has significant inherent value, and this now needs to be pulled together in the form of a forward plan, which we believe will not only be a positive for investors, but management alike.
Gulf Keystone (LON:GKP) – Geopolitics Still a Significant Concern
Today's update details the significant progress the Company is making in the face of what can only be described as a hostile and unforgiving operating environment. We believe that the fact that the Company is able to deliver upwards of 40m bpd to the Turkish coast for export is a minor miracle, given the turbulence in the region.
That said, in the context of realising full value for the asset base, this is still below what is required, and until such times as an export line is installed allowing for the full development plan to be executed, we can only see the stock treading water.
That said, we believe that the time is approaching where the pieces start to fall in to place, not just for GKP, but all of the Kurdistan operators. While we have no doubt that secondary action will be required to eliminate the ISIL threat from the region, we believe that the Peshmurga are better positioned, and on the face of it better motivated, to achieve operational security than their Iraqi neighbours.
We continue to keep a watching brief on the Company and believe that it continues to remain undervalued, even when adjustments are made for security and operational risks. However, risks are subjective and we understand that although we believe the geopolitical risk discount to be unduly excessive, that this assessment is based on our extensive operational experience in the region.