Headlines
• Falcon Oil and Gas (LON:FOG – 9p/C$0.16) – Option Value
• Sound Energy (LON:SOU – 17p) – Badile Approval
• Sterling Energy (LON:SEY – 17p) – Ambilobe Withdrawal Capital Underlines Discipline
• Tlou Energy (LON:TLOU/ASX:TOU – 3.50p/A$0.05) – Progress
In Brief
• Falcon Oil and Gas (LON:FOG – 9p/C$0.16) – Option Value: Today's announcement succinctly summarises the Falcon opportunity, in that it is a free option on the development of the Beetaloo shale. The Company is in a good position because if it fails to prove prospective for shale, it hasn't cost it, or its owners, anything. If, however, it is prospective, there is the likelihood that the Company will be able to valorise its position before any lengthy delay, whether by outright acquisition of the Company, or disposal of the interest in the Beetaloo assets. This is exactly what happened with Cove, the assets became too attractive to a larger player that has deeper pockets and a more strategic approach to asset development. As a consequence, we believe that Falcon is effectively a free option.
• Sound Energy (LON:SOU – 17p) – Badile Approval: While it is foolish to ever think that just because approval is given verbally in Italy, that it is given, but we would like to think that today's announcement does indeed signal the start of the long awaited Badile exploration programme. We will wait for the official decree, but on the face of it, this appears to be a positive development, and if the Badile well is successful, will transform the Company. Furthermore, given the limited contribution we believe that Badile makes to the current valuation, it is also further boosted by the fact that the downside is limited.
• Sterling Energy (LON:SEY – 17p) – Ambilobe Withdrawal Capital Underlines Discipline: It has taken a while to get to this point, but we believe that today's news has been sometime in the making for the Company. The withdrawal from the Madagascar licence effectively means that the historic portfolio of licences has all but gone, and of those that remain, we can say with confidence that they are the most attractive and highly prospective. What this also demonstrates is that there are no “sacred cows,” and that capital discipline (in the context of risk management is paramount. As Messers Beardsil and continue to demonstrate (see also Gulfsands), they are adept at identifying value and unlocking it, albeit that it also helps to have a supportive backer too. Still, we will wait and see where the Company goes from here, but as has been common with the last few companies that hav e benefitted from the Waterford group's involvement, we believe that the Company will be in better shape once the management team have completed their programme, than it was before they started.
• Tlou Energy (LON:TLOU/ASX:TOU – 3.50p/A$0.05) – Progress: Today's news is positive in the context that its CBM pilot well continues to follow the general trend (dewater/unload/degas), which at this stage is a positive. While further wells will be required to verify the initial findings and a "well type" developed with confidence, and hence an FDP developed, we believe that the initial signs should support the current value and continued development of the asset.