News in Brief
Anglo African Oil & Gas (LON:AAOG) – 10p
Djeno Promising
Recently, the Company reported that its combined exploration and appraisal well had intersected hydrocarbon bearing horizons and logging indicated a 12m oil column.
While we continue to have our concerns about the technical content of the board, we also believe that it must be remembered that even for strong exploration targets there is a 1 in 4 chance of success, and of that 1 in 4 success, only 1 in 3 are commercial, so successes are rare and must be celebrated.
While there remains the issue of the test program to undertake, across all the horizons intersected by TLP-103C, there has to be oil present in the first place to be able to be in a position to declare commerciality.
Anecdotally, we also believe that management’s election to replace the existing rig is the right one, and while this may take a little longer and be a little bit more expensive, it will be better in the long run. In selecting the rig for the TLP-104 well, we would hope that the management team will engage a suitable expert to be able to review and inspect the available equipment as necessary.
Now the drilling has been completed, the hard work of unlocking the value needs to start in earnest.
Global Petroleum (LON:GBP) – 1.38p
An Italian Tragedy
The Company’s update has provided an excellent snapshot of where the Company is currently. While the Company has faced significant headwinds in Namibia following the dry hole in adjacent acreage (Cormorant – October 2018), perhaps the most disappointing element of the update is the continuing difficulties that the management team is facing in securing the highly prospective Adriatic acreage.
While we are supportive of the Italian hydrocarbon sector, the availability of skilled personnel and the fiscal system, this is all offset by the haphazard nature of the regulatory environment. This contrasts well with the Company’s other acreage in Namibia, where a supportive government does all it can to help companies move forward, including understanding the commercial pressures that often accompany independent companies.
There is little here for the investors to either be disappointed with or get excited about, and we believe that the next news that will provide a catalyst to revaluation will focus on the farmout process that the Company has been undertaking since January last year.
Oilex (LON:OEX) – 0.33p
An Eye to the Future
Despite Gujarat State Petroleum Company (“GSPC”) remaining a recalcitrant joint venture partner in respect of historical cash call payments, the recent payment of cash calls submitted to GSPC post the Company’s issuance of a dispute notice, the Company is continuing to focus on its underlying asset base.
We believe that despite the issues that the Company is facing with GSPC, there remains underlying value within both the Cambay and Bhandut fields, which if unlocked will provide an ample springboard to further growth.
In respect of this, the statement that the management is seeking ways in which to diversify its risk profile, whether in context of the E&P cycle, or geopolitically, should also provide comfort. By looking for alternative assets, the Company is not intending to stand still, and will seek to leverage its existing asset base to generate value for shareholders elsewhere.
President Energy (LON:PPC) – 9p
2019 Should Be Transformational to the Outlook
The disclosure of highlights from the Company’s management reports make for interesting reading and point towards a company whose focus on cash generation is starting to bear fruit.
While a fuller picture will be provided by the audited results, especially the cash flow statement, we believe that the exit to 2019 will see the Company consolidate its operating base and strengthened its outlook exponentially.
Our only concern, however, is the potential headwinds that could be provided by the Company’s exposure to Argentina, which we still consider to be a high-risk country in which to conduct oil and gas operations in the wake of the nationalisation of YPF from Repsol.
That said, the management team can only seek to change and influence what is in their control, and on these results, we can only see that its actions in 2019 will bring similarly positive results. On the back of this disclosure, the Company’s owners should be very pleased with their management team.
Range Resources (LON:RRL) – 0.04p
Restructuring Now Key
The contents of the Company’s quarterly report won’t provide much comfort for the Company’s owners. Irrespective of the operational progress that the Company has made, the dominant factor governing every investors’ mind is to what extent they are likely to be diverted in any balance sheet restructuring that the Company’s creditors allow them to undertake. That is if they don’t liquidate the Company.
Operationally, management has taken to a period of study on its asset base, which ordinarily we would wholeheartedly support. However, in this instance, we believe that there must be something amiss given the studies that have been conducted across the majority of their assets to date, or the management is now so gun shy that it lacks the confidence to execute the program that the studies to date have indicated is required.
The operational issues notwithstanding, as we highlighted, the restructuring is now key, not only to the future direction of the Company but to its very existence, which is the only issue that shareholders need to focus on in the near term.