Headlines
• Independent Oil and Gas (LON:IOG) – Rides Again!: While it’s inevitable that there will be a further funding round required for the Company if it is to continue, we believe that this fundraising, at only ~9% discount, is not only required for the Company to continue, but we believe is no small vindication of its prospects and management.
• Sound Energy (LON:SOU) – Risks Shared: In entering into such an arrangement with Schlumberger, the Company has limited the risks to its shareholders whilst maintaining a meaningful interest in the asset. We believe that investors should be pleased with management continued focus on eliminating excessive risk from the portfolio.
• Trinity Exploration and Production (LON:TRIN) – A Sorry State: Once this transaction is complete, the Company has to outline its future plans clearly to the market, how it will restore sustainable cash flows, the risk mitigation procedures it has put in place to address the weaknesses that have obviously been exposed, along with its additional funding requirements to get to the point at which it becomes self-sustaining.
• Oilex (LON:OEX/ASX:OEX) – Cambay Close to Contributing: The outlook for the Company at this stage is promising, and while we don’t share the Company’s view on the gas price in India, we believe that it will be able to generate sufficient cash flow to fund the next stage of its development. We just need to better understand what that will look like, how much it will cost, and what the risks involved in getting there are. Still, that is for the future, for now, the focus must be cash flow positive operations.
News Items
Independent Oil and Gas (LON:IOG) – Rides Again!
Today’s news that the Company has sufficient funds to last until February 2016 is a welcome fillip, and that it is been conducted at a modest 8% discount to the prevailing market price probably states a significant amount about: (i) the esteem in which the management is held by the investor; and (ii) the opportunity ahead for the Company.
While it’s inevitable that there will be a further funding round required for the Company if it is to continue, we believe that this fundraising, at only ~9% discount, is not only required for the Company to continue, but we believe is no small vindication of its prospects and management.
Sound Energy (LON:SOU) – Risks Shared
Sound Energy (the “Company”) has today announced a strategic collaboration and with Schlumberger, which will provide the Company with access to Schlumberger’s technical expertise on a risked basis. This is essentially a new service provided by Schlumberger in which it provides its services on a risk priced or carried cost basis in return for a percentage of the revenues above certain trigger points.
While an argument could be made that this is giving away value in Tendara, especially if the asset is at the development phase, this should be offset by the fact that there needs to be a significant amount of technical work completed before either the full potential is understood, or it achieves that potential, and as such there remains significant risks to development.
In entering into such an arrangement with Schlumberger, the Company has limited the risks to its shareholders whilst maintaining a meaningful interest in the asset. We believe that investors should be pleased with management continued focus on eliminating excessive risk from the portfolio.
Trinity Exploration and Production (LON:TRIN) – A Sorry State
Today’s news charts the sorry demise of the Company, from leading light amongst the Trinidadian independents, to now looking like an irrelevance, especially as now it looks like it is divesting its onshore portfolio to pay its creditors. It seems ironic that the assets that we believe that it has largely neglected, its onshore portfolio, will now be used to save it from its creditors.
In the context of a pending transaction, that the creditors keep such short extensions on the loan notes demonstrates their complete lack of trust in the management, and given that they have presided over such a calamitous decline in fortune, which is unrelated to the oil price, it is not surprising.
Clearly the finance function has failed and the CFO will need to be replaced, but it is unfair to shoulder the full blame for this calamity on the CFO. There is a collective failure to manage the risks in the group, that most likely started with an unbalanced focus on their higher risk offshore portfolio.
There is no doubt that had the oil price not declined as it has done, the Company would not be in this position, which merely emphasises the fact that the Company has not adequately assessed the risks in its portfolio.
Once this transaction is complete, the Company has to outline its future plans clearly to the market, how it will restore sustainable cash flows, the risk mitigation procedures it has put in place to address the weaknesses that have obviously been exposed, along with its additional funding requirements to get to the point at which it becomes self-sustaining.
Oilex (LON:OEXASX:OEX ) – Cambay Close to Contributing
Today’s news from the Company is another step forwards, and with the reaffirmation that it aims to be operationally cash flow positive by year end will be the key milestone that should trigger a revaluation, but also shift focus to the next stage of development. We have previously stated that:
Today's news is a solid step forwards for the Company, and while it is one that deserves to be congratulated, the next stages are now the most important, such as the field's full development strategy and the use of proceeds to generate further value.
and in essence, today’s news is really more of the same.
The outlook for the Company at this stage is promising, and while we don’t share the Company’s view on the gas price in India, we believe that it will be able to generate sufficient cash flow to fund the next stage of its development. We just need to better understand what that will look like, how much it will cost, and what the risks involved in getting there are. Still, that is for the future, for now, the focus must be cash flow positive operations.