In Brief
• Tower Resources*** (LON:TRP– 1.42p) – Independent Review a Sound Step: Today the Company has appointed Oilfield International to undertake a review of the work conducted on Thali, the Company’s offshore Cameroon appraisal project. Given EPI’s past track record as Tower technical team, we believe that this is not only a sound step as the results will provide greater confidence in the assessment of the field, but also an essential part in rebooting the Company.
• Hurricane (LON:HUR– 36p) – The Time has Come: Today’s results are less about the numbers, although the balance sheet remains healthy enough for a company at this stage of its development, and more about the forward plan and progress towards the delivery of first oil. In this respect, the Company is on track, and with more than sufficient cash resources to deliver first oil, if not a full field development plan, the piecemeal approach adopted by the Company, in which it produces oil from an interim system while it develops its understanding of the field and generates cash, is an excellent first step. The disadvantage, or benefit to this approach, is that your competitors can get an understanding of the field’s performance. If that understanding is ahead of the wider market, a bid could arbitrage the difference between the field’s value (as an entity held to maturity for cash), over the immediate “worth.” Still, this is a luxury problem to have. Either way, the Company’s owners should be pleased with the management’s performance to date and the direction the Company is moving in.
• Serica Energy (LON:SQZ– 68p) – 2018 A Milestone Year: Today’s results are less about the financial performance of the overwhelming majority of 2017, but more about the impact that the BP acquisition has made on the Company’s outlook. To that extent, only the balance sheet is really useful, with the rest being a guide. While there have been intermittent operational issues, we believe that the transaction has been transformational, with the Company’s outlook so dramatically different from what existed before the transaction, to be a new company. However, given the Company’s size, what it must ensure is that sufficient downside risk protection exists to allow it to weather a period of low oil prices, or at least long enough to put itself into a position that it can weather such a storm. Whatever the future holds, the Company is currently has a brighter future from a stronger base, than it did 12 months ago, which is significant progress in a year.
• Zenith Energy (LON:ZEN– 6p) – Devil is Always in the Detail: We were curious as to why so quickly after exiting Argentina and entering Azerbaijan the Company chose to dilute its scant resources further by widening its operational base to Indonesia. Today, we know why: the asset is not performing, as today’s news discloses that 41% of its wells are to be shut-in due to being sub-economic, and presumably decommissioned, which is another cost. This also provides some insight as to why the Company has chosen to not disclose the plans for the field ahead of time, it is either: (i) didn’t have a plan, and management are learning as they go; or (ii) the field is performing so badly against its original plan that they may as well have not made them in the first place. This particular rod is one of its own making, by not being open and clear. Projects such as these require a measure of pilot study and appraisal before plans are finalised. Nevertheless, there still needs to be an outline, an aim for what the pilot study is going to achieve. In these studies, the results can sometimes be contradictory and sub-optimal, and reassessment is often required before a wider forward plan can be developed and implemented. That way you avoid embarrassing days like these. We would urge the Company’s owners ensure that the original plans are reconciled to the current understanding of the field and that this is consistent with the next phases of development.