Headlines
• JKX Oil and Gas (LON:JKX – 24p) – Frying Pan in to Fire: While there may be a relief rally that things aren't as bad as first thought, there is a sense that in management terms at least, it could be a sense of jumping from frying pan in to the fire. We can only hope that the CEO has learned his lessons and will be applying those to the management of JKX.
• In Brief:
o Genel Energy (LON:GENL – 92p) – Taq Taq Downgrade Reflects Risks
o Sound Energy (LON:SOU – 17p) – Badile Countdown Starts
o Victoria Oil and Gas (LON:VOG – 48p) – Logbaba Delivering on Promise
News Items
JKX Oil and Gas (LON:JKX – 24p) – Frying Pan in to Fire
Today's announcement that the management have identified cost saving opportunities and production increases doesn't really suggest that the previous management was failing excessively. Furthermore, we would suggest that Tom Reed, as part of the RusPetro management team that oversaw the catastrophic destruction in its value since IPO, and that Tom Reed was the CFO who was party to the assumption of the debt that so crippled it, doesn't really instil a great deal of confidence in his judgement. We said on Tom Reed’s departure from RusPetro that:
Ordinarily, when an announcement of a change to management, that effectively completes the wholesale removal of the Company's founders, it is met with uncertainty and doubt. In this instance, one would imagine that it is good riddance, as the departure of Tom Reed is the final stage of the ejection of the management team that so disastrously oversaw the pilotage of the Company from highs of $1.1bn market cap to lows of $60mm.
Still, the starting gun has now been fired, and it is time to see what happens, what changes they instil, if any, but one would suggest that if all they can provide is cost savings, it would be somewhat of a vindication of the previous management’s overall strategy. On that, if previous board awarded themselves $2.5mm in payments as suggested in the text of today's announcement, then the previous management have left a bitter taste for investors.
While there may be a relief rally that things aren't as bad as first thought, there is a sense that in management terms at least, it could be a sense of jumping from frying pan in to the fire. We can only hope that the CEO has learned his lessons and will be applying those to the management of JKX.
In Brief
• Genel Energy (LON:GENL – 92p) – Taq Taq Downgrade Reflects Risks: Today's downgrade in reserves to ~172mm bbl while mechanical at the moment, is a reflection of the issues that can arise once a field is better known and the reservoir's responses to changes in draw provides more data points giving a clearer picture of what's there. While this will be disappointing to investors, unless the resultant follow-up Reserves statement has a significant portion of any downward revision associated with reservoir performance, we expect a downward revision to result from the change in oil price.
• Sound Energy (LON:SOU – 17p) – Badile Countdown Starts: Today's news that the rig is in the process of being contracted is supportive for the Company, as the Badile exploration well is a significant proportion of the Company's future growth strategy. As has been well reported, however, Italian exploration timelines can often be long drawn out affairs with barriers to progress being thrown up almost at will by local, regional and governmental regulators with impunity. Still, investors should be buoyed by the progress the Company is making.
• Victoria Oil and Gas (LON:VOG – 48p) – Logbaba Delivering on Promise: Today's interim statement (soon to be followed by the full year statement following the change of accounting reference date) details a company increasingly comfortable with its position in its frontier market, and with defensiveness being effectively delivered by it's midstream exposure; we believe that the Company should do well compared to its peers. The Company now needs to make sure that the cash generation starts to provide it with a healthy cushion and allows it to fill the midstream space in the wider Cameroon, outside of Douala. That way it will ensure that it becomes the partner of choice for any gas development in country, or the wider West African region, especially Nigeria, which has had trouble progressing its own gas master plan since it was seriously discussed in 2006.