It’s been a busy week. Hurricane Energy (HUR) issued a trading and operational update and addressed the recent share price weakness, confirming that they are not aware of any subsurface, operational or commercial reasons that would have caused such decline. HUR was in the mid-40s a couple of months ago and now it's more than halved to 21p. Generally, I think that with these type of companies, the best profits are to be had in the exploration/appraisal phase; many tend to plateau or decline once the development/production stage is reached.
Also operating in the North Sea, Jersey Oil & Gas (JOG) announced the acquisition of Equinor's 70% interest in Licence P2170. Payment terms are $3 million upon sanctioning by the Oil & Gas Authority of the Field Development Plan, $5 million upon first oil and an undisclosed royalty. This increases total 2C discovered resources across the Greater Buchan Area to 142 million barrels of oil equivalent net to JOG. They will be launching a farm-out process to attract partners, unfortunately the market doesn't appear to be hugely impressed with their news.
Back onshore, UK Oil & Gas (UKOG) announced that they are bringing HH-1 into production during Spring 2020, followed by HH-2z upon completion of the current extended well test. This will enable recoverable reserves to be allocated to the project, a key first step to help access debt-based funding. HH-2z water shut-off intervention is to proceed in February. In relation to Loxley-1, the planning application will be heard by Surrey County Council at the end of February and, if approved, the Company plans to commence drilling in the winter of 2020/21. Can they generate enough new investor interest to offset selling by the convertible loan note holders is the issue here.
With the largest upcoming drill net to its interest, Bahamas Petroleum Company (BPC) announced its "Roadmap to Drilling" resulting in some market excitement. Drilling is expected to commence in April 2020 targeting P50 recoverable prospective resources of 0.77 billion barrels of oil, with an upside of 1.44 billion barrels. It's not actually financed yet though. I discuss all this further in the private blog and, if you're interested in subscribing to that, the link is https://www.oilnewslondon.com/oilman-jim
Moving on, Lekoil (LEK) announced that its Otakikpo field is currently producing 2,122 barrels of oil per day net to LEK's subsidiary, LOGL. Their expansion project has the potential to increase production on the field up to 8,000 barrels of oil per day net to LOGL, although the subsidiary also carries a term loan debt of $19.2 million at LIBOR + a rather large 10%. The big play at LEK is OPL 310, in respect of which $2 million has to be paid on or before 20 March 2020, $7.6 million has to be paid on or before 2 May 2020 and evidence of their ability to fund 42.86% of the costs and expenses for drilling the first OPL 310 appraisal well has to be provided by July 2020. A financing is certainly coming up and I doubt it will just be debt this time.
Baron Oil (BOIL) returned from suspension; its reverse take over of SundaGas has been terminated. They still have an entitlement to an effective 25% interest in the Chuditch Petroleum Sharing Contract, offshore Timor-Leste, providing they reimburse their $500,000 share of costs before 26 April 2020. Perhaps of more immediate interest, an experienced local operator with onshore drilling capability has expressed a desire to drill their Peru block, farming-in by contributing a substantial portion of the costs in return for equity in the block. Drilling this well would be a relatively low-cost operation, estimated at $1.4 million (gross) with two independent reservoir targets which would offer shareholders drilling activity during 2020 and the potential for significant additional value on discovery. They also have a 15% share of the Corallian prospects, but apart from Reabold Resources (RBD) rabbiting on about a huge discovery, I think everyone else accepts that Colter is dead. Currently, I wouldn't pay too much attention to the talk about the Inner Moray Firth licences either. With £346,000 cash as of 31 December 2019, a fundraising clearly now is imminent.
Pantheon Resources (PANR), has been issuing some strong announcements, to no end unfortunately since their shares currently are suspended for failing to file their accounts on time. They announced a report the previous week confirming a contingent resource of 76.5 million barrels of recoverable oil and say that their farm-out process remains underway with a number of groups having entered the data room and with a number of others having expressed interest in entering the data room in the future. It doesn’t really sound that promising actually. Of more relevance to investors perhaps, following receipt of the contingent resource statement, which their auditors insisted upon, they’re “targeting” publication of the financial results and hope to return to trading this month. This week, they're touting their own management estimates that the new acreage they picked up in the December lease sale could contain in excess of 1 billion barrels of oil in place. It all seems a bit of a waste of time with their shares suspended. For some reason, I find it very hard to take this company seriously.
Prospex Oil & Gas (PXOG) announced a placing of 600,000,000 shares at 0.12p to raise £720,000. Two years ago the share price was nearly 0.8p, so you can see the value destruction that has gone on here. Latest wheeze is an old Spanish gas to power project, which sounds quite interesting, until you see that the original "vendors retained the right to 16% of future revenue derived from any further commercial discoveries." That's a 16% royalty on gross production, which is quite something compared to the royalty paid to the actual owner of the gas, the Kingdom of Spain, which is just 3%. PXOG is yet another unfocussed company jumping from here to there and never likely to generate operating profits exceeding administration expenses allowing an actual return to shareholders. I’ve warned about this one and other similar companies before. As investments, they are pointless really. Kind of like burning your money.
In the same category, Coro Energy (CORO) announced the termination of the Bulu PSC acquisition. They say it's due to a change in strategy, but I guess that change was forced upon them since they could not raise the finance needed. CORO is one "person" in James Parson's self styled "holy trinity," the others being Sound Energy (SOU) and Echo Energy (ECHO). With credibility now shattered and the share prices collapsed, unless they've already forward sold the shares at a higher price, only an idiot would invest any money. I’ve warned about all three of them constantly.
There's even worse companies than this though. Anglo African Oil & Gas (AAOG) issued its most positive news in a while, confirming they have enough cash to keep going until the end of March. I've been calling this down since 20p and it's now 0.325p. I took a lot of abuse from its supporters along the way though, but that's very much stopped now. Who is really in change at Anglo African is not clear, but with the ISA shares now gone at a fixed price and the convertible loan note financing no longer needed, at least it is possible for the shares to move up. This is a highly questionable company (and I doubt the real control parties have actually changed) but with a new deal in, which seems a good possibility, it could be back in business.
Zenith Energy (ZEN), Anglo African's new partner in their Congo field took the opportunity to place again: this time, nearly £1,000,000 at 1.68p. Whoever listened to those touting it at up to 2.9p recently got shafted. As a consolation, it's even worse for those who bought over the last year at up to 4.2p. They probably don't realise they may have been buying shares being sold short, which would then be covered in a lower priced placing. ZEN is another one I've constantly warned about, while others have been promoting it as a so called "bargain." It's now down to the placing price at 1.68p, so anyone who took the placing and who didn't forward sell is looking at immediate losses.
Another investor favourite, Block Energy (BLOE) finally announced its operations update. Gas is being flared, so that has no value currently and they're still having to truck away water, which appears to be nearly 80% of their production. They don't exactly try to be clear (quite the opposite in fact), but it appears from what they say that actual oil production is just over 100 barrels of oil per day. They say they're hitting the ground running as they enter 2020, but what about that 1,100 barrels of oil per day production that the CEO and his promoters were touting last year? It's the same sort of nonsense as Anglo African Oil & Gas and Zenith Energy and, although the company will have the occasional run up in its share price, overall and longer-term it's going the same way - to virtual zero. The control parties don't exactly have much confidence either, since the misleadingly named Georgia Oil and Gas Limited of the British Virgin Islands, which actually is run from Switzerland and who almost certainly would have known the flow rates, sold over 4.5 million shares before the announcement. Every red flag possible is flying here and Block is another one I've warned about numerous times. It's difficult to imagine that some people still see Anglo African, Block Energy and Zenith as serious companies, but they do and drop serious money.
This is all grim stuff, but it's the actuality and, overall, there are a lot of people in this market making a lot of bad choices and losing a lot of money. Reality is that there around 10 or so what I would call “certainties” each year. If you can stick with those you can make money and quite a lot of it. Unfortunately, most people lack patience, but that’s how you actually make money in the market. You also need to get in at the start, not later when it’s already up 50-100% or more.
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For those who are not familiar with me, I focus exclusively on small cap oil and gas companies and I know this sector inside out. I have been involved in the stock markets (both UK and US) since the early 1980s and understand exactly how the finance and promotion game works. I also have many years’ operational and corporate experience in the oil business, which enables me to see very quickly whether or not these companies are telling the truth. It's not investment advice that I offer and if you want that, you should speak with a financial advisor. I share my take on companies and the markets and, as those who follow me know, I’m rarely wrong about these matters.
I'll be back on Wednesday with another blog and podcast. In the meantime, I wish everyone a very successful start to the week.
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The author holds one or more investments in one or more of the companies mentioned so this post cannot be viewed as independent research. This post does not constitute investment advice or a recommendation to buy or sell and may be incorrect or outdated.