Headlines
• In Brief:
o TomCo Energy (LON:TOM – 0.075p) – ($13.8mm – 0.40p) – Back to Oil Shale
o Saffron Energy (LON:SRON – 9p) – Po Valley II Not an Option
In Brief
• TomCo Energy (LON:TOM – 0.075p) – ($13.8mm – 0.40p) – Back to Oil Shale: Following a brief flirtation in other business areas, today's news confirms that the Company is back to focusing on the valorisation of its Holiday block in Utah. The Company aims to use Redleaf's EcoShale technology, which is currently in the process of finalising its commercialisation trials. While Opex costs have continued to decline, we still estimate that the breakeven price is still $58 – 64/bbl, above current pricing. Nevertheless, we believe that further trials will be required to bring this down further. What is clear is that the Company has up to 126mm bbl of recoverable hydrocarbons. We believe that the project will not commence until at least 2021, which implies a value for the Company that ranges up to $13.8mm (0.40p). To have this value reflected in its market worth, management need to mai ntain the licence in good standing and keep the permits live, such that when the moment to trigger the project comes it can move quickly, and lay out a strategic “Plan A, B & C,” attendant with potential cash flow scenarios.
• Saffron Energy (LON:SRON – 9p) – Po Valley II Not an Option: The news that Shell has extended its marketing agreement isn't a surprise given the demand for gas in the Italian market and that the pricing structure allows for some measure of parity with liquids prices. What the management team need to do as a matter of urgency is delineate what this new vehicle will do differently from Po Valley Energy (its parent company), and how it will drive its business forward. It requires a clear strategy to unlock the remaining value within its asset base and where it will be focusing to restart its growth. This will represent a significant sea change from the approach of its parent company which has largely squandered the opportunity to continue to grow its portfolio in the past, which it now can't afford to do as it now has a direct comparable in the form of Sound Energy. We look forward to the manage ment team establishing clear milestones against which it can be measured, especially as to repeat the same pattern as Po Valley Energy will lead to its business being compared unfavourably to Sound, and valued accordingly.