Headlines
• Caza Oil and Gas (LON:CAZA – 0.58p/C$0.01) – Have We Learned Nothing?: The question is, why not wait until that has been delivered before turning to a credit committee? Today is indeed a turning point in the Company’s fortunes, and on the basis of today’s results, we just hope that it isn’t a u-turn.
• Borders and Southern Petroleum (BOR LN – 1.70p) – Onshore the Only Way: Given the gas content and geography, we believe that this will only be persuasively commercial utilising a near-shore or onshore development scheme, especially given the operating geography and quantities of gas involved. That said, the Company is in a strong position and we believe that once the Falkland Islands Government allows onshore development, the share price will respond accordingly.
In Brief:
o New World Oil and Gas (LON:NEW – 0.06p) – What, Where, How?
o Nu-Oil and Gas (LON:NUOG – 0.19p) – Jam Tomorrow... Always Tomorrow
News Items
Caza Oil and Gas (LON:CAZA – 0.58p/C$0.01) – Have We Learned Nothing?
Today’s full year results are a milestone for the Company, in that it has emerged in one piece at the end of what has been a difficult period. With operations (and finances) appearing to have been stabilised and the management team looking forwards, there is little doubt the equity injection has saved the Company. We said previously that that:
its focus must now be on paying down its debt as quickly as its investment plans and prudent cash accumulation will allow, as while we believe that oil prices will continue to recover, it won't be in a straight line, and the Company needs to maintain a fighting reserve.
Following today’s results, however, the question is, to what end? The Company has taken on board a $100mm facility, of which the Company only gets access to $15mm, until that is the lending institution’s credit committee provides its approval. The $15mm is understandable, but quite why it has got a burdensome $85mm costing 0.5% annually (charged daily) is beyond us.
Management might like to point towards flexibility to move quickly, but it would only ever be on a case by case basis and approved by the lending credit committee, so why pay for the privilege? The Company needs a period of stability and growth driven by sound fundamentals, but we fear that this $100mm debt is a vanity instrument built on some future performance, or acquisition, neither of which are in the portfolio currently.
The question is, why not wait until that has been delivered before turning to a credit committee? Today is indeed a turning point in the Company’s fortunes, and on the basis of today’s results, we just hope that it isn’t a u-turn.
Borders and Southern Petroleum (LON:BOR – 1.70p) – Onshore the Only Way
Today’s results are not so much about the numbers, although the cash balance is important, but about the outlook, and in this respect, the commentary promising for the Company, and we believe that the Darwin asset will be a company maker once it gets to FID. We have said previously that:
While the Darwin discovery underlined the basin's [the South Falklands Basin] prospectivity, and was a play opener, we believe that the route to commerciality will still only lie through the development of onshore, or near shore, processing facilities. Be under no doubt, were Darwin in the North Sea, we would be talking of the Company's valuation far in excess of the current valuation, most likely an order of magnitude, or two orders of magnitude.
For us, the real issue for the SFB [South Falklands Basin] has always been the ability to adequately process the volumes of gas required to sell the liquids, and in the absence of a liquids rich stream, we continue to believe that an integrated onshore gas approach, potentially encompassing the Johnson gas condensate discovery in the north, will be the key to commercialising the southern basin, and nothing in today's announcement will change our mind.
and nothing has transpired since that would change our mind.
Given the gas content and geography, we believe that this will only be persuasively commercial utilising a near-shore or onshore development scheme, especially given the operating geography and quantities of gas involved. That said, the Company is in a strong position and we believe that once the Falkland Islands Government allows onshore development, the share price will respond accordingly.
In Brief
• New World Oil and Gas (LON:NEW – 0.06p) – What, Where, How?: In the context of the Company’s past licence activity, today’s full year results are only important for the outstanding cash balance. At $3.6mm and further licence obligations still outstanding, albeit minimal, the Company has now firmly entered the “wait and see” phase of its restructuring. While this should be sufficient for management to keep the lights on for at least 3 years, in order to do anything meaningful beyond that will require further funds. This is what now needs to be articulated clearly to the Company’s owners, namely: (i) What is happening next? (ii) Where is it likely to be? and (iii) How will this happen? Once those questions have been addressed, or articulated, then there could be further funding available to management.
• Nu-Oil and Gas (LON:NUOG – 0.19p) – Jam Tomorrow... Always Tomorrow: Today’s results tell us that progress should be measured by project announcements. With ~$100m on the balance sheet, it should be better measured by cash flow. The Company has told us a lot about the opportunities, but nothing material about how investors will see value from the Company’s participation in them. The management team always talk of jam tomorrow, but sometimes, there needs to be delivery on revenue generating projects. While there will be at least one further down round to fund the business, we believe that investors should extract a clear and measurable route map to revenue and cash flow generation in return for their continued support.
We may provide a further update on one, or all, of the stories above later today. However, if there is anything that you would like to discuss, please feel free to contact us.