I mentioned Baron Oil (BOIL) last weekend and said I thought there would be a fundraising. The preliminaries for that started on Tuesday with a website update incorporating an old Shell report already in the public domain and, with plenty of misunderstandings and misinterpretations on social media, the share price rose 1,000%. In the real world, Baron has $500,000 to pay on 26 April 2020, plus of course all its other expenses, and as at 31 December 2019, its net cash position was £346,000. Only question now is the price of the placing.
Touchstone Exploration (TXP) pleased the market with its announcement that the average flow back rate at Cascadura during the final 14-hour test period was 5,180 barrels of oil equivalent per day and the shares enjoyed a strong performance with the company stating that the Cascadura production test results represented a dramatic change for Touchstone. This was a bright spot, since much of the news last week had negative impacts on the companies’ share prices.
Eco (Atlantic) Oil & Gas (ECO) announced what appeared to some to be a positive reserves report, but in fact it was not. Whereas very few investors would ever actually read the 74 page CPR filed at SEDAR, those that did would have noted the following: "The results from the drilling of the Jethro 1 and Joe 1 wells indicated the presence of oil and gas; however, the level of testing of these hydrocarbon accumulations was not sufficient to change the category of those resources from Prospective to Contingent." So it's still all down to future drills and the big question now is whether majority partner Tullow Oil (TLW) will want to proceed. Remember, I warned in the blog three weeks ago Tullow’s trading statement and operational update stated that “exploration costs written off…include Jethro, Joe and Carapa well costs in Guyana” and that ECO should be asked some hard questions now, but all they really tried to do was to continue to promote it, the same as when they were failing to inform investors that what they had found was actually heavy oil. End result is that the share price, which was already down significantly, has nearly halved again over the last month. ECO was a blog favourite that gained more than 100% last year, but then collapsed when it turned out that their oil was heavy. Fortunately, I did warn that the upward share price movement had run out of steam before that collapse happened. It’s invariably best to take profits and not get greedy. I’m always happy with 100%, since I know that there’s always going to be another one like it coming along soon. Back to the present, though, it now all comes down to Tullow’s drilling decision, which is due this month. If that’s positive, then ECO could again become interesting.
Jersey Oil & Gas (JOG) has been weak since its announcement that it had acquired Equinor (EQNR)'s 70% interest in Licence P2170. Part of the reason for that was disclosed with last week's announcement that Richard Griffiths has been selling. JOG are now looking for farm-in partners, but with Equinor out, how many will want in? Equinor also notified Valeura Energy (VLU) that it intends to discontinue participation in their deep gas appraisal programme. VLU has $37 million working capital and a £21 million market cap. People might think that offers value, but what it actually indicates is the market expects management to lose the money.
Hurricane Energy (HUR)’s share price decline continued as it announced another operational update. I was cautioning about HUR towards the end of last year when it was in the low 30s. It’s now down to 17p. The most money that’s lost in the market is by those who think they’re buying bargains. Most exposed to this are those who think they understand fundamental analysis, but don't. Like VLU above, there’s always a reason why what appears to some to be a "bargain" may not in fact be mis-priced.
A quick comment about UK Oil & Gas (UKOG) in passing, because I'm asked about it, and that concerns the convertible loan notes, the latest tranche of which were converted at 0.56p. To clear these, and there's still a balance of £3.15 million outstanding, there needs to be net buying in the market, otherwise the price will fall as convertible loan note holders sell. I made this point in the blog twice in December and, at the end of the day, it's all going to come down to the results of the HH-2z extended well test.
I also regularly get asked about Petrel Resources (PET), which I mentioned as a favourite several times last year around 1p. I said it had the potential to 10 bag and it did a lot more than that, rising around 2,500%. Quite frankly, PET is now just a pure gambling stock. It was interesting at 1p, but those who keep asking me about it and who bought it at 15p, 20p and 25p must be crazy. Personally, I would never buy a share that’s up 100% or more, let alone 1,000% or 2,500%. You have to get in at, or close to, the ground floor with these things. Like buying what you think are bargains, FOMO (fear of missing out) is the other thing that will destroy you in the market. Control emotions and be patient. All it’s about is getting the timing right.
I3 Energy (I3E) announced a board and operational update. David Knox has resigned as chairman, the site survey on Serenity and Liberator West is ongoing, they’d like to start drilling late summer but don’t have funding yet, and they’re seeking a secondary exchange listing, presumably to help them raise the money. Unfortunately, peoples’ view of this has changed. What was previously seen as a low-risk development proposition, which was able to attract significant debt funding, is now more perceived as a wildcat. Perhaps they will be able to raise more debt financing, but I think it is more likely a substantial equity raise will be required. The big question is at how low a price?
Another one requiring finance, Tower Resources (TRP), announced that the survey vessel should be about to complete its boreholes and the Company aims to move to more concrete scheduling of the NJOM-3 well on the Thali block later in February. Now 0.58p, having been nearly as high as 0.8p in January, I said a couple of times towards the end of last year that Tower was a good buying opportunity under 0.4p. Key of course to move this forward is a farm-out.
RockRose Energy (RRE) announced the acquisition of a 100% interest in the Cotton gas field for a limited initial consideration, with the larger part of the consideration becoming due at Final Investment Decision. Essentially, they're just paying option money now for Cotton while they evaluate it, although it's not really a material acquisition. Hannam & Partners only state its risked value at 25p per share. For some who can't understand the share price in the context of its cash generation, that same source also estimates negative free cash flow of around $30 million in 2020 as RRE focuses on development projects.
IGas Energy (IGAS) announced a reserves and trading update. Compared to a current market capitalisation of £48 million, the independent expert's valuation of conventional assets is around $180 million on a 2P NPV10 basis, and approximately £15.5 million of free operating cash flow was generated in 2019 from the conventional business before administrative expenses, capital investment and finance costs. This really is a bet on whether the moratorium on fracking is lifted, in which case the share price could double or more and, in the meantime being reasonably underwritten by a fairly solid oil and gas business.
To explain what I think and what I do, my personal trading philosophy is based upon conviction, elimination of possible loss making trades and only going for those which are certainties. It takes some discipline, but it maximises profits, which is what this is all about. I write two blogs. The main blog (and associated podcast) focusses on the news. The private blog focusses on the trades. Writing it all down and publishing it is an excellent discipline, requiring focus and accuracy, since I'm open to public criticism if I don't get it right. I started writing the main blog a couple of years ago, because doing that ensures staying on top of and correctly assessing all the oil and gas public company news each week. Writing the private blog and sharing my thoughts ensures careful and accurate analysis of the trading ideas. The main blog is free. The private blog costs £95 a month. Some question the cost, but what I can say is that of those who try the £23.75 first month's trial subscription, the vast majority see the value of it and continue at the full monthly rate. The link is https://oilnewslondon.com/subscribe
I’ve 40 years experience in the markets (both UK and US) from both sides of the fence. It’s not just about understanding the fundamentals, critical is to understand how the finance and promotion side works. That’s why I know what’s going on at these companies and where they’re likely to go.
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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.