Headlines
In Brief:
Frontera Resources (LON:FRR – 0.108p) – Only Now the Workover Rig?
Nostra Terra (LON:NTOG– 1.43p) – Pine Mills a Building Block
SDX Energy (LON:SDX / CVE:SDX – 46p/C$0.73) – Fundraising Raises Circle Questions
Zenith Energy (LON:ZEN/ CVE:ZEE – 7p/C$0.14) – Sustained Production is Key
In Brief
Frontera Resources (LON:FRR – 0.108p) – Only Now the Workover Rig?: Today's news, that a workover rig is mobilising to test the findings of a well drilled by previous licence holders is an interesting development. It begs the question as to why the Company is targeting it now when it obviously wasn't good enough before, it all sounds a bit chaotic. While there is a “new” management team, and this could be the change of direction that is required, but we fail to see how anything can change the fact that the previous management team destroyed value. To our mind, there is still such a lack of transparency, that we find ourselves asking the question as to what value the Georgian assets have, and is it achievable in the real world. We conservatively estimate that between this incarnation, and the previous one, that ~$400mm has been invested in the Georgian assets which has gotten them no further than late stage appraisal. Against this backdrop, we fail to see how early equity investors will even make back their money, or how the Company will be funded in any meaningful way without substantial dilution, given the contempt with which the previous team treated the convertible holders. What the Company requires is a clean slate and a complete break with the management team that oversaw the destruction in value. That can start with the “new” CEO, but it must be compete, and involve a new approach to investors.
Nostra Terra (LON:NTOG – 1.43p) – Pine Mills a Building Block: Today's news is a positive for the Company as it now allows it to fully access Pine Mills' value, both in terms of a lever to other assets, and a cash source. On the latter point, of more importance to NTOG, is the cash that it is owed, and if delivered to the Company, will provide a significant building block for other things. Egypt still remains a thorn, but the underlying asset is a solid base, provided the operating costs can be fully resolved. All in all, the summer has been a positive one, but the forward roadmap is now more important than ever.
SDX Energy (LON:SDX / CVE:SDX – 46p/C$0.73) – Fundraising Raises Circle Questions: There is no doubt that SDX's management team completed a great deal for its shareholders when it acquired Circle's assets for the price they did. Make no bones about it, the bid was a competitive one set in the context of the Circle’s then distressed situation. That SDX was able to raise the cash it did, and has gone from strength to strength on what is a higher-grade portfolio than its legacy portfolio, is testament to the deal that was done. What is continues to do, however, in the context of the performance since, is raise the question of whether the creditors achieved a fair price for the Circle’s owners, or in that matter, themselves. However, businesses aren't charities, the creditors have an obligation to their investors, and it is SDX's shareholders that are reaping the rewards.
Zenith Energy (LON:ZEN / CVE:ZEE – 7p/C$0.14) – Sustained Production is Key: Today's announcement neatly summarises the good work that Mike Palmer is doing, and although the 1m bpd target is a good sound bite, we believe that further funding will be required to get there. What is more important, however, is how the wells produce over the longer term, not just after the well has been worked-over. While nearly all workovers return the cash cost (eventually), only successful programmes generate a return. While the difference sounds trite, this is the central tenet of ZEN's offering, and one which we have not seen articulated adequately. What is needed is a clear programme, with costs and milestone against which we can measure the Company's (and managements) performance. We know that Mike Palmer has the ability to be able to this, it's now up to the management team to fully harness it.