Headlines
• In Brief:
o Circle Oil (LON:COP – 2.00p) – (BUY – 11p) – Operationally Solid, Given Space
o Independent Resources (LON:IRG – 0.08p) – Pressure Off… For Now
o Pantheon Resources (LON:PANR – 144p) – Capital Discipline Impressive
o Range Resources (LON:RRL/ASX:RRS – 0.46p/A$0.01) – Back to the Day Job
o Rockhopper Exploration (LON:RKH– 37p) – Med and Sea Lion the Focus
In Brief
• Circle Oil (LON:COP – 2.00p) – (BUY – 11p) – Operationally Solid, Given Space: Today's disclosure that the second of the two wells planned for 2016 has been brought on stream is a positive for the Company, not least as it comes at a time that the oil price is strengthening. While the issue of the debt continues to overshadow the wider outlook for the Company, we believe that operationally at least, it remains in good stead, although this single issue (the debt) remains the key issue for any investor looking at the Company. Today's news confirms that other than the debt, the remainder of the Company is solid. As such, we are taking this opportunity to reiterate our 11p Target Price and BUY Recommendation.
• Independent Resources (LON:IRG – 0.08p) – Pressure Off… For Now: News today that the Company has received interim financing should provide it with the space needed to finalise its next steps with regards to its Egyptian acreage and other potential asset deals. What will be important, however, is that the free cash flow from the assets is sufficient to service the debt, or the dilution could be significant.
• Pantheon Resources (LON:PANR – 144p) – Capital Discipline Impressive: Today's news is a something and a nothing of an announcement. That the second well has spudded is good news, although we wouldn't expect the spudding of every well to be announced, given that it is part of a wider programme, we would expect only the commissioning and IP of the well to be important, especially with respect to meeting estimates. To our mind, what is more important is that despite being flush with cash that the management team have continued to maintain a tight rein on the spending. This is especially true when set against the backdrop of a lower cost environment (than when they raised the money) a higher oil price environment and being at the start of a fully funded development programme. The Company's owners should feel buoyed more by this than the other news in today's update.
• Range Resources (LON:RRL/ASX:RRS – 0.46p/A$0.01) – Back to the Day Job: News that the litigation with Lind is completed will be a positive, and although it isn't the deciding factor in the Company’s future, there is little doubt that it would have occupied considerable management time, and rightly so. Now that this issue is resolved, it is time for the team to turn to articulating how it will trade its way out of the position that it is in, and leverage off of the asset base that it has in Trinidad. While this kind of plan should already exist, even to produce a new one from scratch will take 2 months, and as such, we now believe that the clock has started. The programme's disclosure should be clear and articulate the milestones that need to be achieved, which we believe will be dictated by the twin KPIs of production and cash flow. Only then will the disaster of the last managem ent team be put finally to bed, and people begin to look at a different future.
• Rockhopper Exploration (LON:RKH – 37p) – Med and Sea Lion the Focus: Today's news, in a sense, supports what we already knew, or what thought we knew. While the Sea Lion and Isobel Contingent Resources are a positive, they are in a sense a “nice to know.” With respect to the Company's Falklands acreage, the timing of Sea Lion is by far and away the most significant element. Although, paradoxically, this is more of an issue for premier oil, who will need to fund the development, and with oil prices still below what is widely accepted as the trigger price (we believe ~$50/bbl), until such times as the oil price remains consistently above those levels, it will be a secondary issue. Given Rockhopper's other interests in the Mediterranean, we believe that these will be the focal point for the immediate future. That said, with a buoyant balance sheet, we believe that there is po tentially more to come from the Company, notably outside of its Falklands base.