Headlines
In Brief:
Union Jack Oil* (LON:UJO – 0.18p) (BUY – 0.35 to 0.65p) – Placing Provides Flexibility
Eland Oil and Gas (LON:ELA – 37p) – Jam Tomorrow
Gulf Keystone (LON:GKP – 2.15p) – Restructuring Dominates
Hurricane Energy (LON:HUR – 39p) – Nothing New, But Outlook Confirms Prospectivity
In Brief
Union Jack Oil* (LON:UJO – 0.18p) (BUY – 0.35 to 0.65p) – Placing Provides Flexibility: Today’s news that the Company has completed a raise approximately $1mm, provides the Company with flexibility at just the right time, given the fact that the UK onshore oil and gas segment appears to be showing signs of a return activity at the field level. We believe that the Company will be able to take advantage of not only the thaw in onshore corporate activity, but the fact that its migration from Explorer to producer is imminent, with the commissioning and first oil from Wressle. We are taking this opportunity to reiterate our valuation range of $13.8 – 25.5mm (0.35 – 0.65p), which given SPA's recommendation guidelines implies a BUY recommendation.
Eland Oil and Gas (LON:ELA – 37p) – Jam Tomorrow: The Company’s interim announcement, released today, on the one hand underlines the impact that the closure of a sole export route can have on a company’s underlying business, but on the other demonstrates that the management team have not let this period of inactivity goes to waste, taking advantage of a window in the market to raise sufficient funds to enable them to continue with their planned work programme, albeit focused away from its existing producing assets for obvious reasons. We believe that Forcados will come back on stream in the fourth quarter, albeit late, which means that 2016 will be one of consolidation for the Company, and making the outlook for 2017 more exciting. Whilst the adage “jam tomorrow” in describing a company is normally meant in a pejorative sense, we believe that the Company is act ually utilising the current period of inactivity in a constructive manner, which will indeed result in “jam tomorrow.” However, as with everything there is the possibility that things could change, and one of the largest variables for our recommissioning of the Forcados export terminal, which will be essential for the Company received its near, medium and long-term ambitions.
Gulf Keystone (LON:GKP – 2.15p) – Restructuring Dominates: Today’s results, on the face of them point towards a more positive future of the Company once it’s been able to restructure its balance sheet, given the $30mm net cash generation for the period. Of course this excludes approximately the same in bond coupon payments, which is why we think it underlines the need for this balance sheet restructuring. Invariably the equity holders will be significantly diluted, but they will have some measure of value, and provided that an opportunistic acquirer does not subsequently make a bid for the Company, which is a real and significant risk now that the balance sheet has been restored, then, once oil prices recover to “more normal levels,” we would expect the full value of Shaikan to be better reflective in the then share price, which will be significantly above the settled market price post restructuring. While investors will not be happy currently, the silver lining to this restructuring cloud is the fact that operationally the Company will be able to meet not only its ongoing costs but with the Company generating $30mm of free revenues, it should also be able to fund its forward programme, albeit to a limited extent.
Hurricane Energy (LON:HUR – 39p) – Nothing New, But Outlook Confirms Prospectivity: Today’s results announcement doesn’t really tell us anything of note that we didn’t already know. The cash balance is healthy, but what is really going to be the catalyst for this company in the near-term is going to be the publication and acceptance of the field development plan, and resolution on the extent of funding that the Company will have to provide over and above any credit based instrument or farmin. All in all, we believe that investors should be pleased with the progress that the Company is making, and the steps that it is taking going forward.