In Brief:
San Leon Energy (LON:SLE – 54p) – Game Changer
Petroneft Resources (LON:PTR – 2.13p) – Update Will Disappoint
Providence Resources (LON:PVR – 11p) – Licence Update
Tlou Energy (LON:TLOU/ASX:TOU – 7p/A$0.12) – Placement Gives Flexibility
In Brief
• San Leon Energy (LON:SLE – 54p) – Game Changer: This week San Leon announced that its raise has allowed it to complete its acquisition of an interest in OML18. The mechanism provides for an accelerated recovery of its investment and we believe that the scope for further increases to production means that in completing this transaction, that it radically changes the outlook for the Company. We believe that in opening a new hub in west Africa, specifically Nigeria, that the Company has strengthened its outlook markedly. Approval at the EGM is now the only obstacle to completion, but given the scale of the step change in outlook, we can't see this not being approved.
• Petroneft Resources (LON:PTR – 2.13p) – Update Will Disappoint: today's update will disappoint investors as it has declining production, a production issue and a dry appraisal well. That said, it is important to remember that these reservoirs, being shallow, have low energy, and so once the initial pressure release has occurred, prosecution engineers will always be fighting a rear-guard action (such as water flooding) to limit the decline, rather than offset it. The way to maintain or grow production in these types of fields is to continue to drill, which given the topology and operating environment, needs the operator to have used the winter to construct the all-weather roads and well pads in sufficient number to allow for drilling throughout the following year. This has been compounded in this instance by a water wet appraisal well, but here again, this is at the extreme boundary of the field and while disappointing, the risk profile associated with this well was always going to be higher than would otherwise be expected, and significantly higher than a step out in infill development well. All told, we believe that the news today will place significant pressure on the share price, but that this dislocation will be short-lived as the Company targets drilling in the core areas in its next campaign.
• Providence Resources (LON:PVR – 11p) – Licence Update: Today's update detailing the extent of the drop in cost estimates underlines the ongoing difficulties in the rig market, which is to the betterment of oil and gas companies with active exploration programmes. The repayment of the existing debt and availability of liquid resources places the Company in the strong position, and the portfolio remains a key feature, attention will continue to turn towards the farmout of Barryroe. Despite the low oil price environment, progress needs to be made, and quickly, as doubts over the economics of Barryroe start to manifest.
• Tlou Energy (LON:TLOU/ASX:TOU – 7p/A$0.12) – Placement Gives Flexibility: The news that the Company has completed its planned placing achieves two things, namely that it: (i) confirms the markets' interest in the story; and (ii) provides the Company with flexibility to complete its work programme efficiently. Historically we had concerns over the availability of a ready market for the gas and the reservoir performance. The deal with end users, amongst which GE is notable, in recent months significantly reduces the risks associated with the market development, which means that the ability of the reservoir to produce commercially is now outstanding. We continue to believe that while prospective, the key variable for us remains the dewatering and degassing profile from the coal measures. Today's funding allows the Company to achieve that.