Interesting first couple of days. Eco (Atlantic) Oil & Gas (ECO) announced what appeared to be a positive reserves report, but there was a muted market response. Problem is that whereas very few investors would ever actually read the 74 page CPR available 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 down to future drills and the big question now is whether majority partner Tullow Oil (TLW) wants to proceed. ECO is 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 happened. A drilling decision from the partners is due soon.
I'll make 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..
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 this 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 £23 million market cap. People might think that offers value, but what it actually indicates is the market expects management to lose the money.
Tower Resources (TRP) announced that the survey vessel should have completed its boreholes in a few days. Analysis of the data and preparation of final reports will take a little longer, but should allow the Company to move to more concrete scheduling of the NJOM-3 well on the Thali block later in February. Now 0.485p, 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 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. Cotton contains recoverable gas resources of 97 billion cubic feet of gas and has the potential to produce at a peak rate of up to 70 million cubic feet of gas per day. 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 its development projects.
Baron Oil (BOIL) announced a website update with publicly available information from reports on the area prepared by Shell in 1998 and 2001 following the drilling of the Chuditch-1 discovery well and the share price went up 250% on the "news." However, check out the 28 January 2020 RNS and consider the following statements: "Baron estimates that the total monies that will fall due on 26 April 2020 under the Carry Agreement will be approximately US$500,000" and "as at 31 December 2019, Baron's net cash position was approximately £346,000." A fund raising here is as close to a certainty as you get.
I'll be back on Sunday with the next blog and podcast and if you’re interested in knowing my actual trading ideas and more about what I think of the various companies, then subscribe to the private blog at https://oilnewslondon.com/oilman-jim I think you’ll find it’s worth it.
Contact me on Twitter @Oilman_Jim
Click “SUBSCRIBE” to receive posts by email
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.