Headlines
Comment
• Premier Oil (LON:PMO) – Norwegian Disposal Boost Balance Sheet: While we think this news should ultimately lift the Company, the growing concern is that the focus on the debt pile, which we believe to be manageable, may actually be of greater concern to the management than previously thought. This will present itself in due course, but until then, the shares may well trade against headwinds.
• Rockhopper Exploration (LON:RKH) – MOG Portfolio to Take Centre Stage… For Now: With the MOG portfolio and increasing cash flow Rockhopper is becoming more balanced and better able to govern its own future, which it may have to take more control over of Premier Oil can't satisfy its obligations with respect to financing. We believe that the MOG portfolio will remain the operational focus for the near term at least as the Company focuses on building its cash generating assets.
• Eland Oil & Gas (LON:ELA) – Portfolio Shaping up Nicely: While we have no doubt that there will continue use to be headwinds in the continued progress of the Company, today's news demonstrates that the management and operational team are tackling them head on.
• JKX Oil and Gas (LON:JKX) – Hungary a Welcome Diversification: We believe that the Company needs to undertake a strategic review of its direction, and where the risks to its progress resides, and those findings shared with the Company's owners. While we have no doubt that internally this is continually done, we ideally would like to place the Hungarian assets in their full context.
• Trinity Exploration and Production (LON:TRIN) - Operational and Strategic Update: The 20th of November is still the key focus for the Company, and until they successfully complete the transaction, the remainder is white noise. Arguably there needs to be not only a revised strategic outline, more than offered here, but also a review on how the business got in to this position in the first place, along with any amendments to policies and procedures to ensure that it does not happen again.
In Brief
- Rose Petroleum (LON:ROSE) – Change of Management to Fit its New Profile: Well-timed and apt.
- Ithaca Energy (LON:IAE/CVE:IAE) – Solid Cash Flow: The 3Q results are positive for the Company and its outlook.
- SacOil (LON:SAC) – Wrong Place, Wrong Time: Needs to focus on greater returns in West Africa.
Research Published
TomCo Energy*** (LON:TOM) - BUY (0.95p) - Fully Permitted Project With Attractive Optionality
In Brief
The Company is awaiting Red Leaf and Total to complete their EPS trial in 2018 and commercialisation evaluation before proceeding with heavy expenditures, which we estimate to occur in 2020. Additionally, the management team have demonstrated that they can take a project from greenfield operation to fully permitted Oil and Gas asset quickly. Both place the Company in the most advantageous position, one in which it is best able to maximise returns on its existing acreage position, and take advantage of the current opportunities in the segment. We initiate with a BUY Recommendation and 0.95p Target Price.
Contact us for a full copy of the note.
News Items
Premier Oil (LON:PMO) – Norwegian Disposal Boost Balance Sheet
The Company has today announced its exit for Norway for the sum of $120mm, which given the investment it has made there over the years seems to be a little light to our mind. Still, when compared with its portfolio elsewhere is it of lesser importance, and given that we believe that the debt pile will be better served being smaller, the Company should actually trade up on the back of this news.
While we think this news should ultimately lift the Company, the growing concern is that the focus on the debt pile, which we believe to be manageable, may actually be of greater concern to the management than previously thought. This will present itself in due course, but until then, the shares may well trade against headwinds.
Rockhopper Exploration (LON:RKH) – MOG Portfolio to Take Centre Stage… For Now
The news that the Company has delivered first gas at Civita is a welcome filip, and further proof if any were needed, that the MOG acquisition has added significant value to the Company. We believe that the Mediterranean portfolio will continue to be the focus for the medium term, at least until 2017, when the Sealion asset should be closing on sanction.
With the MOG portfolio and increasing cash flow Rockhopper is becoming more balanced and better able to govern its own future, which it may have to take more control over of Premier Oil can't satisfy its obligations with respect to financing. We believe that the MOG portfolio will remain the operational focus for the near term at least as the Company focuses on building its cash generating assets.
Eland Oil & Gas (LON:ELA) – Portfolio Shaping Up Nicely
Elands operational update continues to focus on the valorisation of its asset base, which we expect to continue for the medium term at least. However, as time progresses, and cash flows stabilise, we believe that the Company will look to the remainder of the prospecting in its portfolio to start to deliver additional value.
While we believe this will start with the step out exploration of its OML40 block, which means that any successful discoveries can be quickly tied in to the existing production infrastructure, the Company will also start to look at the remaining assets in its portfolio, such as Ubima Creek, which the COO knows well having looked at it with Dubai World.
Today's news continues the Company's theme of focusing on the only thing that is important for companies currently – cash flow. We believe that this not only underlines the fact that the team has a handle on its own position, but also the risks that are facing it.
While we have no doubt that there will continue use to be headwinds in the continued progress of the Company, today's news demonstrates that the management and operational team are tackling them head on.
JKX Oil and Gas (LON:JKX) – Hungary a Welcome Diversification
The award of the Hungarian production licences is timely, and will provide much needed diversification away from Russia and Ukraine. Quite how much of a proportion the new country contributes will be not only a function of the size of the Hungarian business, but the reminder of its portfolio too, which we fear is getting smaller and smaller with each subsequent period.
We believe that the Company needs to undertake a strategic review of its direction, and where the risks to its progress resides, and those findings shared with the Company's owners. While we have no doubt that internally this is continually done, we ideally would like to place the Hungarian assets in their full context.
Trinity Exploration and Production (LON:TRIN) - Operational and Strategic Update
While today's update is positive, the only focus at the moment is the debt repayment, and the transaction that needs to happen to make that happen. While it is only natural to talk of life after the loss of the onshore business, the Company needs to focus on what cash generation will look like, how it will stay afloat and what the Company will look like, not just in terms of the portfolio which was done here, but financially too.
The 20th of November is still the key focus for the Company, and until they successfully complete the transaction, the remainder is white noise. Arguably there needs to be not only a revised strategic outline, more than offered here, but also a review on how the business got in to this position in the first place, along with any amendments to policies and procedures to ensure that it does not happen again.
In Brief
- Rose Petroleum (LON:ROSE) – Change of Management to Fit its New Profile: Well-timed and apt. A US onshore oil and gas team whose returns are geared to free cash flow and share price accretion needs to be installed to maximise shareholder value. Until the structure, forward programme and management profile is better known, we believe that the Company will tread water.
- Ithaca Energy (LON:IAE/CVE:IAE) – Solid Cash Flow: The 3Q results are positive for the Company and its outlook. While there are still significant hedging gains in the portfolio, which are due to remain until 2017, the debt pile remains a concern. Management's continued focus on its reduction will only add to the strength of the Company. Let be clear, without the concerns of the dragging effect of the debt on the balance sheet, the full value of the portfolio would be better reflected in its share price.
- SacOil (LON:SAC) – Wrong Place, Wrong Time: Needs to focus on greater returns in West Africa. The Company's venture in to heavy oil in Egypt is the wrong place for the Company to be, and the returns will be marginal in comparison to the investment opportunities in its home patch of Nigeria/West Africa. This is compounded by the fact that Egypt is continuing to descend in to chaos, and this company is not robust, nor is the asset big enough, to undertake what is needed to protect the investment that will be required to maximise the value creation from heavy oil.