Interesting times. Many say there should be a lockdown and some even think the markets should close. A lockdown is a virtual certainty now and the Coronavirus is going to change society’s priorities massively. The stock market will keep going, though, just as it did all the way through World War II, and the game there will remain the same, as it has through all the changes over the last few hundred years. Just with a larger audience now, since in future most people will be in front of the computer working (or not) from home.
Moving on to the oil and gas company news:
88 Energy (88E) announced drilling of the production hole is to commence imminently. They say that “results from the logging while drilling phase of the program are expected to be announced after total depth has been reached and initial analyses have been completed, scheduled for early April.” 88E was a particularly strong performer on Friday rising 25% to 0.75p. Perhaps sensing the tone, Pantheon Resources (PANR) now have strategically refocussed with Alaska as their primary asset and are looking for a farm out.
Jersey Oil & Gas (JOG) announced it is evaluating with neighbouring field operators a collaborative development of the wider Greater Buchan Area, which contains discovered oil and gas resources in excess of 200 million barrels of oil equivalent. It’s a sensible scheme, endorsed by the Oil & Gas Authority, and JOG has sufficient working capital to keep going through to the end of 2021.
Rockhopper Exploration (RKH) outlined the impact of the Coronavirus on its operations. In fact, none, and it appears the announcement was really just an excuse to mention that their cash balance is greater than their market capitalisation.
Caspian Sunrise (CASP) decided to suspend all new drilling activities and the Board will defer a significant portion of its salary payments to help bring ongoing costs into line with the income receivable at the reduced world and domestic prices. New wells obviously are uneconomic, even for this low cost producer.
Gulf Keystone Petroleum (GKP) has decided that in view of the impact of Coronavirus on operations, it is "prudent to suspend drilling and certain production facility expansion operations during this time.” Fortunately, they should be capable of riding out the storm with a cash balance of $159 million as at 13 March 2020. Jadestone Energy (JSE) also announced the delaying of their Southwest Vietnam gas development.
Hurricane Energy (HUR) announced final results and stated that at their “guided production rate of 18,000 barrels of oil per day (which includes a 90% uptime assumption) cash operating costs are expected to be approximately $17 per barrel.” They also pointed out that they had “$164.3 million of unrestricted cash as at 18 March 2020.”
Bahamas Petroleum Company (BPC) announced an expansion of the death spiral financing, but it’s all theoretical, since after an initial small ramp, it went under 2p, the lower limit for conversion. Eventually the board is going to have to face reality here and do a large, heavily discounted placing. What the investor appetite may be for that though at the current oil price is another matter entirely. But the hard fact is that if they don’t drill this year, they lose the licence and perhaps it’s time for them to stop playing games.
I3 Energy (I3E) announced a drilling contract with Dolphin Drilling to commence not later than 1 September 2020 or as otherwise agreed between the parties. The contract is conditional on I3E confirming availability of funds 90 days prior to drilling commencement. The minimum programme for the appraisal drilling consists of two appraisal wells on Serenity plus a sidetrack on each well, contingent on drilling outcomes, at a total expected gross cost of approximately $33 million. They estimate 197 million barrels P50 oil initially in place for Serenity which, as a stand-alone development, demonstrates an after-tax NPV10 break-even at $20 per barrel Brent pricing.
Egdon Resources (EDR), Europa Oil & Gas (EOG) and Union Jack Oil (UJO) all announced that their Wressle development project has an estimated break-even oil price of $17.62 per barrel. UJO also re-confirmed that “with in excess of £6.2 million in cash and no debt, Union Jack is funded for all testing and drilling commitments for 2020."
Angus Energy (ANGS) meanwhile is trying to make a positive out of the recommendation by the Planning Officer to decline the Balcombe Oil Field Planning Application by claiming it will reduce cash outflow during calendar 2020 due to forecast capital expenditures at the site. If Balcombe is uneconomic, as it may well be, then the recommendation actually is a hidden bonus for them.
Echo Energy (ECHO) admitted that their Santa Cruz Sur assets are not currently cash flow positive and existing cash resources are not sufficient to sustain operations. I’ve been warning about this one all the way down from 17p and ECHO would have come back to where it is now anyway, regardless of the oil price. The giveaway here right at the start was the initial share structure. It’s only ever been a stock promote.
Nu-Oil & Gas (NUOG) announced that it’s now willing to take on any business that might give the directors an excuse to raise money and keep paying their salaries. Like ECHO had, they’ve also got a lot of stock to shift privately. NUOG halved on the news and I’m not sure whether these type of games are still going to work in the current market. Times are starting to look hard for this crowd, since those left at Sound Energy (SOU) have now managed to ensure that Parsons and Mitchener can no longer clear out whatever little will be left of the company's cash. I guess they want it to pay their own salaries. Are there really still investors left who are willing to finance these absurdities?
Reality is most of these companies are flawed and would eventually have gone to zero anyway. Let’s face it, what relevance does the oil price have to the success or failure of companies from Anglo African Oil & Gas (AAOG) to Zenith Energy (ZEN). Failure was factored in right from the start and I’m sure the directors are greatly relieved that the oil price has collapsed giving them a credible excuse for that failure now.
Away from all this sort of nonsense, which only exists due to the special circumstances which I explain in the trading course, there actually are some excellent opportunities out there now and they’re highlighted in the private blog. The market never stops and I’ve seen all this before.
"Don’t throw darts at a board, bet on sure things.”
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The author may hold 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.