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First Oil 15 October 2018 - SP Angel's Snapshot of Oil & Gas News

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15th October 2018

Headlines

  • In Brief:
    • Block Energy (LON:BLOE) – 3.05p – Compare & Contrast
    • Columbus Energy Resources (LON:CERP) – 3.70p – Unclear Implication
    • Echo Energy (LON:ECHO) – 10p – Long-Term Project
    • Frontera Resources (LON:FRR) – 0.39p – All is Not as it Seems
    • Hurricane Energy (LON:HUR) – 52p – Next Stop, Testing
    • Oilex (LON:OEX) – SUSP – Every Silver Lining has a Cloud
    • Urals Energy (LON:UEN) – 53p – Group Update
    • Zenith Energy (LON:ZEN) – 3.25p – Context, Plan, Disclose, Execute

In Brief

  • Block Energy (LON:BLOE) – 3.05p – Compare & Contrast: Now that the Company is moving into its testing programme, we have a company that can act as a direct comparison to Frontera. Both are similarly constituted by non-oil & gas people in key positions and have broadly similar asset bases. What happens from here will be instructive and place one in the context of the other. For Frontera, it's immaterial how successful Block Energy is as it will be about the programme. How Block Energy, emerging from the stain that is Frontera will be an automatic uplift in their shares. Failure to do so will condemn both companies and the country, from being able to be invested in again. At least Block has the benefit of being staffed with people that at least have an understanding of the technical demands of natural resources, which we hope is the differentiating factor.  
  • Columbus Energy Resources (LON:CERP) – 3.70p – Unclear Implication: Today’s fundraising (£2.5mm) has been announced to be aimed at accelerating growth in the Company. However, with approximately half disappearing out the door to a third party, it doesn’t say much about the prospectivity or validity of the remaining half that is invested in the underlying assets. We would like to think that the Company would be able to find a home for the full amount in its programme, that would generate considerably more than the $1.25mm loan amount. While strengthening the balance sheet is never a bad idea when it's so weak, we now find ourselves asking questions about the asset base that weren’t there previously. Consequently, we believe that management need to step up their communication strategy and start clearly identifying the value within their portfolio.
  • Echo Energy (LON:ECHO) – 10p – Long-Term Project: Today’s news that the Company has executed the Rio Salado TEA has signalled that the Company is now a long-term project, opposed to a “turn and burn,” focused on short-term gains. With this execution, we believe that the Company is improving its longer-term portfolio, and in a highly prospective basin too. What causes us concern, however, is the fact that Bolivia is Venezuela light, or Venezuela early, depending on your perspective, and while we are sceptical that the reforms being pushed by Marci will stick in the long-term, Argentina is still the better place to be than Bolivia, which isn’t as bad as Ecuador, and still has a long way to go to get as bad as Venezuela.
  • Frontera Resources (LON:FRR– 0.39p – All is Not as it Seems: To our mind, today’s announcement is a rear-guard action in that the Company, as in announcing its actions without detail it is grandstanding, which although fair, denies the Company’s owners the ability to assess the actions that the management team have taken. Management should provide a clear and cogent appraisal of the situation and why it’s assessment/approach is valid and the right one to take. We believe that they have not is contrary to its claim that it has the interests of shareholders at the apex of their thinking in what actions they are taking. Proceedings such as these, both in initiation and response (to be fair), are not undertaken lightly and without due thought and consideration. The Outrider Master Fund (“Outrider”) has only its investors to worry about, and that any actions it takes only have to be according to the agreements between them and the Company, irrespective of the Company’s shareholders. Outrider has no responsibility to the Company other than that outlined in the loan agreements. The director, in this case, Hope, has a responsibility only to the Company’s owners. If Hope can demonstrate that on balance he has acted in the shareholders best interests, which can also result in a negative outcome (it just has to be a less negative outcome than if he did not act), then he will be vindicated, even if it is contrary to the remaining directors’ personal interests. What is key here, is to differentiate between shareholders and directors’ interests, irrespective of whether they’re shareholders, or not. We look forward to receipt of the court documents, but to our mind, the interesting thing from here on in is what its Georgian PSCs say in relation to such actions and default claims, of which we are sure Outrider is fully cognisant of. To our mind, this is more evidence of the management team’s poor performance for the Company’s shareholders.
  • Hurricane Energy (LON:HUR) – 52p – Next Stop, Testing: Today’s news shouldn’t really be news, this is in the sense that such is the commoditisation of the FPSO market, that these types of things are routine. However, this is really one of the last publicly identifiable hurdles that needs clearing before the FPSO arrives onsite and production commences, which given the genesis of the Company is a significant achievement. We do not expect too many more of these announcements before first oil, which is when the real hard work begins.  
  • Oilex (LON:OEX) – SUSP – Every Silver Lining has a Cloud: Today’s suspension is likely to be a frustration to the Company’s owners, as much as it is the management team, but the actions of the Gujarat State Petroleum Corporation (“GSPC”) has made the directors’ actions completely unavoidable. While no private company likes to take a state entity to court to assert their rights, both are subject to the same binding terms and obligations in the Joint Operating Agreement, and we have no doubt that the Company thought long and hard about even issuing the default notice. Nevertheless, the silver lining to take away from this position is the fact that GSPC is sufficiently concerned about maintaining its participation that taking blocking measures. While frustrating for the Company’s owners, from here on there is upside, as GSPC will either remedy the breach (by honouring the cash call) or be removed from the licence.
  • Urals Energy (LON:UEN) – 53p – Group Update: While today’s news is the latest in a rather unpleasant and difficult situation, the one grain of comfort that investors can take from this period is the fact that the checks and balances in place to detect such activity has succeeded in achieving its aim. While the working capital issues will have enduring ramifications in the short term, as we do not expect an early or complete resolution to the outstanding monies, investors should also take further comfort from the fact that their management team has not only acted decisively in favour of the Company and its shareholders, but also been open and Frank with respect to the issues and potential resolutions. Make no bones, operating in provincial locations in Russia is difficult, and management needs to be applauded for this approach. That’s not to say that there are no further issues will need to be dealt with or other ramifications for the shareholders to consider, but we believe that the conduct of the management team shouldn’t be one of them.
  • Zenith Energy (LON:ZEN) – 3.25p – Context, Plan, Disclose, Execute: Today’s news, while positive in some respects, also highlights how far away the Company is from executing a credible development/delineation plan. That the Company’s geological study (belated as it is) has identified potential further prospectivity is a positive, that it can tested from an existing well that only needs deepening, is better still, but what is the payoff? What is the prospect size? What the Company needs to do is spend longer catching up to where it should be, such that it can present a clearly articulated, fully costed development/exploration programme. To us, this all seems a little slapdash and chaotic and lacks the credibility that we would associate with a successfully executed forward programme.

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