Headlines
• In Brief:
Union Jack Oil* (LON:UJO – 0.14p) – (BUY – 0.63p) – Laughton Uncommercial
Northern Petroleum (LON:NOP – 2.50p) – Upward Trend
Circle Oil (LON:COP – 2.38p) – Operating and Financial Update
Cairn Energy (LON:CNE – 190p) – Final Results Overshadowed by Senegal
Urals Energy (LON:UEN – 2.38p) – Operational Update
Aminex (LON:AEX – 1.43p) – Kiliwani Update Starts the Clock on the Future
Green Dragon Gas (LON:GDG – 293p) – CBM Cash Subsidy Positive, What Will it do With the Cash?
Northcote Energy (LON:NCT – 0.06p) – Shoats Creek Sale
In Brief
• Union Jack Oil* (LON:UJO – 0.14p) – (BUY – 0.63p) – Laughton Uncommercial: News late yesterday from the Company reported that the Laughton well has not contained commercial quantities of hydrocarbons. While this is undoubtedly disappointing the result of the well does not impact our target price as the accumulation did not contribute to our assessment of the Company’s valuation. We believe that the Company continues to remain focused on providing investors with exposure to the kind of explosive upside that can be associated with exploration, but at the same time through portfolio management, limiting the overall risk associated with any one single well. Following this news, we are reiterating our BUY Recommendation and 0.63p Target Price.
• Northern Petroleum (LON:NOP – 2.50p) – Upward Trend: Today's news from the Company is the restarting of a programme that will, providing the oil price environment supports it, see the development of its Canadian production base. What the last few reporting periods have shown us is that the Company is not afraid to take difficult decisions to ensure that the wider company remains intact. While there is undoubtedly further hurdles for the management to overcome before we can an upward trend can be established, we believe that today is a solid start down that path.
• Circle Oil (LON:COP – 2.38p) – Operating and Financial Update: Today's news that the Company has initiated a strategic review is somewhat disappointing given the modest uptick in the outlook for the oil price, but in this respect it is not the commodity market driving the outlook but the debt, as we have oft mentioned. We continue to believe that any right-sizing of the balance sheet will leave the Company in a much stronger place than it is currently, and this process may involve the issuance of new more appropriately structured debt, and equity. While we continue to see value in the asset base, the issue of the debt, like so many companies in the sector, obscures the vision through to that value. Nevertheless, on the basis that we believe that the team will be able to secure adequate headroom, we are reiterating our previous target and recommendation and title of our note, that it i s “Attractive, But Debt the Decider” – BUY (10p).
• Cairn Energy (LON:CNE – 190p) – Final Results Overshadowed by Senegal: It so not often that a solid set of results in an otherwise lacklustre market, or that for a company with a declining cash pile heavy investment programme and no offsetting revenues, is positively overshadowed by other news, but today Cairn's release of management estimates for the recent drilling campaign in Senegal do just that. The 2C estimate of 385mm bbl has eclipsed (if in the short term at least) the remainder of the Company's announcement, and while flow testing will be required before the asset can be considered fully appraised, today's news is a solid step forwards. Given that the Company is entering the final stages of development on a number of assets, and it has ~$600mm on the balance sheet, we believe that it is in relatively good shape. However, we do acknowledge that should the timelines slip by mor e than a couple of quarters, we will start to become concerned that the critical mass associated with such a strong balance sheet will start to be eroded.
• Urals Energy (LON:UEN – 2.38p) – Operational Update: The Company has reported that it has been able to increase production marginally (~2%) in comparison to the previous year, but given the upheaval that has best the Company in the last 4 years, we believe that the fact that it has appeared to have returned to a growth path is to be applauded. Now all that is required, from our perspective, is that these green shoots of growth become more solidly established, and in a wider sense, we believe that it is now appropriate for the Company to start to provide more detailed insights in to its forward programme, including where it expects to grow its business. While not a transformational announcement per se, we believe that this does clearly identify a company starting to accelerate its transformation.
• Aminex (LON:AEX – 1.43p) – Kiliwani Update Starts the Clock on the Future: News that the long awaited commissioning of the Kiliwani field is now weeks away should provide significant impetus to the Company's valuation. This journey has t been without pitfalls, and investors can now rightly start to feel increasingly optimistic about the Company's immediate future. Now that is done, attention, rather boringly, can start o urn to the future, and more specifically what will be the next development project, and also the longer term outlook. While past managements have failed to deliver, the success of the incumbent team now creates expectation.
• Green Dragon Gas (LON:GDG – 293p) – CBM Cash Subsidy Positive, What Will it do With the Cash?: Today's news, while not transformational for the Company, is supportive, but given the opacity of the Company’s arrangements and finances, we don't actually know what this will mean for the Company, and once received, what the Company will do with it. While we always get a blizzard of information, most of it is anecdotal and very little provides us with a meaningful benchmark against which we can measure performance. So, the important question is what will the Company do with the (yet unquantified) additional cash? Accelerate its development programme? Pay down debt? Investors should be asking these pertinent questions.
• Northcote Energy (LON:NCT – 0.06p) – Shoats Creek Sale: We are somewhat confused by what today's transaction means for the Company. We are used to seeing the word transformational associated with the Shoats Creek asset, yet in the transactions we have observed, the valuation of $1mm (cash terms) seems to be repeated often. Indeed, from our understanding of the announcement, only $100m of the muted $500m for 50% is paid to the Company upfront, the remainder comes at some point in the future. While there is no denying the positive impact that the removal of $30m per month will have on the cash burn, there is an increasing need for the Company to put all of the transactions in to perspective (we have no base line to assess whether this is a good deal for example), and provide investors with a clearly articulated forward programme and strategy for the future. As it currently stands, there is too little information on the “transformational asset base” to be able to adequately quantify just how transformational it is.