Headlines
• Nostra Terra (LON:NTOG) – Gearing Up: We believe that today's news is positive for investors as it not only raises the prospect of a step change in valuation, for minimal fiscal outlay, but represents a more ambitious management team that is well positioned to take on the next stage of development.
• Gulf Keystone (LON:GKP) – Forward Looking Statement Better than the Past Results: While the Company's owners have seen significant losses in the value of their company, we see the point at which the value of the asset base being unlocked as approaching, and with greater confidence. We estimate that within 3 years the operators will have announced and export line and the KRG will have established a track record of payment management. This is of course assuming that the Company is not bid for in the intervening period.
News Items
Nostra Terra (LON:NTOG) – Gearing Up
The Company has today announced that it will earn up to 100% working interest in the 2,440 acre Paw Paw asset in Wyoming in return for funding 100% of the exploration well cost, which is ~$1.2mm. While the asset size isn't large by international standards, drilling success at Paw Paw would transform the Company, not only because of its size, the P50 is ~7.0mm bbl, but because it would represent a material step up in the Company's scale and ambition.
We have said previously that:
…Both (production rises and higher working interests) are necessary for the Company to be able to move to a point at which it is self-sufficient and self-funding…
and today's news achieves that goal in spades.
While exploration risk still needs to be taken, whether it is a success, or not, there is a significant positive to be taken from this step, most notably in the shape of the fact that the Company is gearing up, and is taking the right steps to ensure that it achieves critical mass.
We believe that today's news is positive for investors as it not only raises the prospect of a step change in valuation, for minimal fiscal outlay, but represents a more ambitious management team that is well positioned to take on the next stage of development.
Gulf Keystone (LON:GKP) – Forward Looking Statement Better than the Past Results
While ordinarily today's update would represent a disappointment, isn't he face of the headwinds that operating in northern Iraq can bring, we believe today's update is a strong positive. While the full valorisation of the Company's asset base remains elusive as the fully productive capacity of Shaikan has not been utilised (we estimate is could produce up to 400m bpd), that the cash generated from the field is meeting corporate needs is a step in the right direction.
In the past we have said of the new management team that:
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.
and we don't see anything new to change our minds, but in essence, we believe that the next steps to unlocking the Company's value (export line, regular access to the international markets), are more macro to the region, opposed to micro to the Company, and as such we believe that our statement (repeated above) is becoming de-emphasised.
While the Company's owners have seen significant losses in the value of their company, we see the point at which the value of the asset base being unlocked as approaching, and with greater confidence. We estimate that within 3 years the operators will have announced and export line and the KRG will have established a track record of payment management. This is of course assuming that the Company is not bid for in the intervening period.