Headlines
• Edge Resources (LON:EDG/CVE:EDE) – Costs Contained: In difficult operating conditions for heavy oil, we believe the Company has made progress. While we will be updating the market later today with our revised estimates, at this stage we are reiterating our BUY Recommendation and 12p/C$.20 Target Price.
• Tullow Oil (LON:TLW) – Undemanding Valuation: Whilst it is always difficult to make any meaningful commentary on operational updates, the production number looks promising. We believe that the Company remains significantly undervalued, especially in the context of what we believe will be increasing amounts of M&A activity, precipitated by low market valuations.
• Trinity Exploration & Production (LON:TRIN) – A Brief Respite: The coming weeks and months will be a tense time for the Company and its owners and the outcome not altogether certain. We believe that there is a solid operating core at Trinity, and if the management are provided with additional time, we believe that they would be able to turn around the existing situation. Until then, we believe that the best that the Company can hope for is to tread water.
News Items
Edge Resources (LON:EDG/CVE:EDE) – Costs Contained
The Company released its results towards the end of the trading day yesterday, in which they outlined the progress that they had made in the year to March 2015, but also highlighted the future direction.
Despite difficult headwinds, the Company has managed to maintain revenues, and although it posted a significant loss for the period (on the back of an impairment charge), the more important measure of cash flow, things improved significantly.
This is been principally due to the Company’s focus on removing costs from its business and while we don’t doubt that the full impact of the cost saving initiatives that the Company has undertaken have not been reflected in this year’s results, we believe that the current financial year will see the full impact of these measures.
Production was boosted too, by more moderate decline rates than anticipated in the heavy oil CHOPS wells, as well as the capture and sale of the associated gas at Eye Hill, which is usually vented or flared, which all added to the revenue generation.
The cost saving measures will undoubtedly improve cash flow, which along with more moderate decline rates in existing production and quarter on quarter increases in oil price should combine to allow for further investment at the wellhead and reductions in the Company’s debt.
In difficult operating conditions for heavy oil, we believe the Company has made progress. While we will be updating the market later today with our revised estimates, at this stage we are reiterating our BUY Recommendation and 12p/C$.20 Target Price.
Tullow Oil (LON:TLW) – Undemanding Valuation
Today’s trading update underlines the progress that the Company has made in what can realistically be called difficult headwinds. While we will wait until the all-important disclosure of cash flow before we make any judgements on just how good this period has been, at the headline stage we are optimistic.
Whilst it is always difficult to make any meaningful commentary on operational updates, the production number looks promising. We believe that the Company remains significantly undervalued, especially in the context of what we believe will be increasing amounts of M&A activity, precipitated by low market valuations.
Trinity Exploration & Production (LON:TRIN) – A Brief Respite
Today’s news relaying the deferment of the outstanding $13mm debt while the sales process is underway provide significant relief to the business, and allows it to focus on the process at hand. While we are uncertain as to what the outcome will be, what is certain is that Trinity will not be continuing in the format that it is in currently.
The coming weeks and months will be a tense time for the Company and its owners and the outcome not altogether certain. We believe that there is a solid operating core at Trinity, and if the management are provided with additional time, we believe that they would be able to turn around the existing situation. Until then, we believe that the best that the Company can hope for is to tread water.