2 May 2019
MiFID II Exempt Information
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Summary
In Brief
Echo Energy (LON:ECHO) 2.95p
Dangerous Mix
JKX Oil & Gas JKX (LON:JKX) 59p
West Mashivska Improves on Testing
Predator Oil & Gas (LON:PRD) 10p
Ram Head Shows Promise
News In Brief
Echo Energy
(LON:ECHO) 2.95p
Dangerous Mix
The Company's final results, issued today, an interesting mix of progress (in terms of revenue) and early warning signs. The Company has made good progress over the year, delivering maiden revenues from its asset base.
While the maiden revenues are a significant positive, the Company needs to present a revised plan following some recent management departures. Consequently, the Company needs to articulate its forward programme and demonstrate that it understands the issues, particularly important when there is now a paucity (currently) of technical expertise at the top of the Company.
We are also concerned by the level of senior debt which requires continuing forward momentum to repay. In order to be able to pay off the debt, is assumed that the Company's forward momentum growth will continue, driven by revenues generated by its work programme.
Given that the management team responsible for that growth thus far has disappeared, and there appears to be little appetite to replace them, even at this early juncture, there is a warning sign that there may be trouble ahead.
While five years is a long time, in that period the Company must articulate a forward plan that not only generates sufficient cash to cover its operating costs, but a sufficient excess of cash to be able to continue to grow the Company and service the debt, and then execute it.
Consequently, we believe that the current mix of lack of suitable management and an indebted balance sheet are a dangerous combination, and although there is plenty of time to address the situation, should a series of missteps be taken, the Company could find itself "behind the curve" early.
The directors of the Company will understand this predicament and will soon be in a position to appoint the team necessary to take the Company forward, and in so doing be able to steer a path to smoother the waters.
JKX Oil & Gas
(LON:JKX) 59p
West Mashivska Improves on Testing
The Company's testing of its first West Mashivska appraisal well ("WM3") has highlighted the potential of the productive horizons. The data gathered from this series of testing will enable the Company to elucidate the performance of the productive horizons further and develop a forward programme to valorise the asset base.
We believe that this once again underlines the renewed focus that the Company has on delivering value accreting growth to the Company.
Predator Oil & Gas
(LON:PRD) 10p
Ram Head Shows Promise
Today's update on Ram Head highlights the progress that the Company has been making in the background to not only broaden its risk profile but also advance its asset base. This independent report also supports management's approach to the asset.
While the technical work conducted to date is yet to yield material value growth, the time approaching where the Company to start seeking a farmout partner to execute the forward programme, which is when some of the inherent value will be realised. Further value will be realised if the programme is successful, with the remainder upon delivery of first gas.