Headlines
News items
Rockhopper Exploration (LON:RKH) – Isobel – 2 Well Spud: Were Isobel be declared commercial the development of the likelihood of development in the NFB would be shortened considerably, so too would the time line. In this respect, we believe that a successful outcome should generate more value within the Company than just the de risking of Isobel (or the other prospects in the fan system – Elaine South, Doreen and Irene) alone. These are exciting times for Rockhopper.
Xcite Energy (LON:XEL) - ...: The Company need to be more articulate about what their strategy is, and if they are putting themselves up for sale, they should say that too. We have no doubt that ideally they would like an angel investor to foot the development cost while leaving them with the rump of the asset, but in this market, and with the uncertainty surrounding Bentley's enduring commerciality, we see the need to be more inventive, and less rigid on how to structure and develop the asset.
In Brief
Falkland Oil and Gas (LON:FOGL) – Isobel Reprised: confirms NFB as principal development and value creation basin, with SFB the longer term prospectivity.
Nostra Terra Oil and Gas Company (LON:NTOG) – Cash is King: We will wait until the results before we form a more detailed understanding of the impact of the acquisition.
Trinity Exploration and Production (TRIN LN – 5p) – Loan Update: No reason to panic yet, but the doubt is setting in that all is not well with the transaction.
News Items
Rockhopper Exploration – Isobel – 2 Well Spud
Today's news from the Company is promising in that it underlines not just the prospectivity of the fan structure that contains Isobel, but also of Isobel itself. Furthermore, we believe that with a second commercial accumulation in the north Falklands basin ("NFB") it will allow for a cluster development scenario and means that it is difficult to keep deferring the FID for Sealion, even at these oil prices. That said, we believe it would be a courageous decision to make until the oil price has demonstrated some form of stability or growth.
Were Isobel be declared commercial the development of the likelihood of development in the NFB would be shortened considerably, so too would the time line. In this respect, we believe that a successful outcome should generate more value within the Company than just the de risking of Isobel (or the other prospects in the fan system – Elaine South, Doreen and Irene) alone. These are exciting times for Rockhopper.
Today's news is another update from the Company in which the elephant in the room is not tackled, or fully explained, and one wonders how much longer the situation will limp on. To be fair to management, we believe that they want to develop the asset as much as anybody, but it is now a question of whether the asset is the barrier to progress, or structure of the transaction that is being expected.
The former is a nagging doubt that we have had continually about this asset, especially with respect to the gas content and the impact that the J-T effects may have on the reservoir as it is produced, but the latter is very much in the management's bailiwick. All of this is of course set against a backdrop of savage cuts in the North Sea oil market, precipitated by a collapse in the oil price.
We have said previously that:
- …the team are not apparently showing no interest in getting the oil to the custody transfer point, which to shareholders, the owners of the Company, is the only important point. Management’s prevarication, to our mind are now taking value out of the Company in the form of salaries, then dilute the economic interest at point of execution.
- and today we don't see any reason to change our minds.
The Company need to be more articulate about what their strategy is, and if they are putting themselves up for sale, they should say that too. We have no doubt that ideally they would like an angel investor to foot the development cost while leaving them with the rump of the asset, but in this market, and with the uncertainty surrounding Bentley's enduring commerciality, we see the need to be more inventive, and less rigid on how to structure and develop the asset.
In Brief
- Falkland Oil and Gas – Isobel Reprised: Today's news is a step forwards for the NFB, which in all reality is the basin that will be developed first, out of preference to the seemingly gas prone South Falklands Basin (“SFB”). We believe that the Company has already made the changes internally to reflect this, with the development of the NFB likely to be the value generator in the near term, with the SFB will be the long term future of the Company.
- Nostra Terra Oil and Gas Company – Cash is King: Today's update from the Company has no small amount of pride in its lines, and rightly so. The Company has taken a significant step change at the headline level with the acquisition of East Ghazalat in Egypt. While we applaud this, there is only one measure which is important, and that is net cash flow. As we have said previously, we will wait until the results before we form a more detailed understanding of the impact of the acquisition.
- Trinity Exploration and Production – Loan Update: The number of extensions isn't really a concern, for now, as they are so short that they will have to be extended regardless. There is, however, a nagging doubt that if it continues for much longer that the transaction will either be completed with undue risk residing with the Company, or not at all, which places it in the hands of creditors almost immediately.