I know it can all look gloomy, but actually it's not. The number one on the private blog list rose over 100% in 8 trading days. It all just depends upon which shares you're in. On to the news, and it’s been a busy week. I3 Energy (I3E) entered into an option agreement to acquire Toscana, a Canadian company producing around 1,000 barrels of oil equivalent per day. They say that the average breakeven price is $21.74 per barrel of oil equivalent, but what they don't disclose is that this oil sells for well below US prices. It's a dog of a deal and I3E now has squandered its cash buying Toscana's defaulted debt, while it’s own debt remains outstanding.
Petrel Resources (PET) updated on its projects. Good progress now appears to be being made with the issue of its Tamo 2A licence in Ghana. I highlighted Petrel Resources as a favourite several times in the blog last year around 1p and it’s now 6p, having been as high as 26p. More companies with this potential in the private blog at https://www.oilnewslondon.com/oilman-jim
The issue of convertible loan notes by the Bahamas Petroleum Company (BPC) board isn’t looking too clever now. Last conversion was at 1.28p. Yet the board was refusing finance at 2p + recently, when it got greedy again, as it does. I did warn about this.
Nostrum Oil & Gas (NOG) is finding itself in a difficult situation too. Per its announcement this week, they recognise the precarious liquidity position of the company and will therefore look to engage with their bondholders. They’ve also got a 272 million barrel of oil equivalent reserve downgrade, which will lead to a significant impairment being taken when they release their full year results.
Tullow Oil (TLW) reported that "strengthening the balance sheet continues to be a key priority with the Group seeking to raise proceeds in excess of $1 billion through portfolio management.” Things aren’t necessarily too bad here: "operating costs remain less than $12/bbl, with Ghana operating costs at c.$9/bbl.”
JKX Oil & Gas (JKX) was not so informative. It reported its 2019 financial results, but they’re academic now and unfortunately when it came to the outlook for 2020, rather than providing any hard information, they chose just to waffle.
Lekoil (LEK) meanwhile confirmed that the payment of $2 million in respect of OPL 310 has been received by the operator Optimum. LEK now is pursuing cost reduction measures, targeting an annual reduction of $8 million or at least 40% in G&A costs, which is inclusive of a reduction in staff numbers and these measures will be completed within the next four to six weeks. Just shows really how bloated most of these small public companies are.
UK Oil & Gas (UKOG) issued financial results. Cost reductions should enable Horse Hill to break even at low Brent prices, but I’m not sure how appropriate the £310,000 bonus for Stephen Sanderson is in the current environment. Tellurian have been issued with a further 255 million shares in respect of the final payment for their Horse Hill interest, another 47 million shares also were issued last week in relation to a loan note conversion, with a further £2.4 million worth still to be converted. None of this helps the share price and the CEO now appears to be more focussed on his personal remuneration unfortunately.
United Oil & Gas (UOG) announced an operational and corporate update. They say that "low operating costs at Abu Sennan of around $6.5/bbl provide solid operating margins even at low price levels.” They’re going to be prudent and are “stepping away” “where licences offer a more uncertain or marginal return.”
Union Jack Oil (UJO) and Egdon Resources (EDR) confirmed their Biscathorpe development offers commercial upside with break-even full-cycle economics estimated to be $18.07 per barrel of oil. Meanwhile, Europa Oil & Gas (EOG), also active onshore UK, has completed a comprehensive review and cost reduction programme and their existing cash reserves are expected to be sufficient to finance current and upcoming activity without the need for additional external funding. This of course is going to be rather harder now for small companies without a really exciting story.
Another in a similar category, Tlou Energy (TLOU), announced that an interim 2MW CBM Pilot Power Purchase Agreement has been agreed with the Botswana Power Corporation. They just need to produce some gas and generate some electricity to sell to them now.
Coro Energy (CORO) is more or less throwing in the towel. Whatever Parsons, Fumagalli and MacAulay do, it fails, so this approach makes sense from their point of view. Why waste the companies money on oil and gas projects when it can be used for their fees and expenses? Fortunately, there’s sufficient cash left to keep them all in comfort for a year or two. It’s best not to end up like their other company Echo Energy (ECHO) whose announcement last week made clear that it now is unable to pay its debts as they fall due.
Meanwhile, yet another of their companies, Sound Energy (SOU) issued an announcement of pure waffle regarding a still uncompleted gas sales agreement. In the same category, Zenith Energy (ZEN) announced a letter of intent for a "premium placing" at 2.5p. For those who want to fully understand these things (and learn how actually to profit from small caps) these type of tricks (and all the others) are explained in the Special Trading Course. Link for that is: https://www.oilnewslondon.com/trading
Tower Resources (TRP) finds itself delayed by the Coronavirus. They've notified the Ministry of a force majeure event to obtain more time, but overall the situation doesn't sound great. It's a project that's at the margin and I wouldn't be too confident that it will proceed. Directors took 0.2p warrants in lieu of fees, though, but why not, since it’s better than nothing.
The Predator Oil & Gas (PRD) Morocco drill isn’t happening either. Usual Coronavirus excuses and they’re now talking about using the funds for acquisitions. In the meantime, they confirmed that the Trinidad project economics (in partnership with Columbus Energy Resources (CERP)) are still attractive even at West Texas Intermediate $20 a barrel.
Eco (Atlantic) Oil & Gas (ECO) issued a market update. Usual COVID-19 stuff, but importantly the Board and management are taking pay cuts of up to 40% and with all work commitments for 2020 under the various petroleum agreements offshore Guyana and Namibia met, only minimal costs are expected to be incurred over the remainder of the year. As at 31 March 2020, the company has cash of $18.8 million and zero debt, remaining fully funded for its share of further appraisal and exploration drilling offshore Guyana up to $120 million (gross). It will start to look quite interesting if it drifts off under 10p.
Caspian Sunrise (CASP) announced the successful perforation of New Well 150, which is flowing at the rate of approximately 500 barrels of oil per day using a 7 mm choke. The infill drilling programme now is being suspended, as will work on the deep wells in a few weeks time. It's a company that has its followers, but now perhaps is the wrong time. PetroNeft Resources (PTR) also has made progress, announcing the completion of a 26 kilometre pipeline allowing year round production from their Licence 61.
Finances are getting tight for Empyrean Energy (EME). It currently has sufficient working capital to the end of April 2020, but will need additional funding to enable it to satisfy its share of final costs in relation to the drilling of the Tambak wells last year and to provide sufficient working capital beyond that date. The board is currently reviewing a number of funding alternatives, including (but not limited to) drawing a portion of the Longstate Facility, an equity placement or undertaking an Open Offer to existing shareholders. Doesn’t sound like one to buy now either.
Meanwhile, the boardroom row at Nostra Terra Oil & Gas (NTOG) has flared back up and a new requisition to convene a general meeting has been received with a new resolution to remove Matt Lofgran as a director of the company. All quite pointless really since the assets now must be more or less worthless and no matter how bad Lofgran may be, I don't see who they've got to propose that's any better. It's all really about someone else trying to nick his £250,000 a year salary. They'll never be anything in it for the shareholders here. Same applies to Mosman Oil & Gas (MSMN), which reported a loss from ordinary activities of $4.3 million. It’s an equally pointless company that exists only to profit its directors and connected parties, but it still looks like a “blue chip” compared to Anglo African Oil & Gas (AAOG) which now is being financed on the drip by its new control party, Forum Energy Services, who advanced them £50,000 to pay its most pressing debts. Chair, Sarah Cope also finds herself in the novel position of owning shares now, 100 of them (a full 20p’s worth) to enable a quorum at the upcoming general meeting. Such confidence in a company from which the directors took £395,000 for themselves in the last reported 6 months.
Back to more viable companies, 88 Energy (88E) issued an operations update. Total depth of 11,112 feet now has been reached in the Kuparuk Formation and logging while drilling results were largely consistent with Malguk-1. Wireline logging now is underway and is expected to take around seven days. Premier Oil (PMO) is the majority partner in this venture. Results this coming week.
Remember, normal fundamental and technical analysis doesn't work on AIM. Critical with these small caps which constantly require funding 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. I’ve 40 years experience in the markets from both sides of the fence.
My personal trading philosophy is based upon conviction, elimination of possible loss making trades and only going for those which are certainties. It takes 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 requires focus and accuracy, since I'm open to criticism if I don't get it right. Writing the main blog 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 link for that is https://www.oilnewslondon.com/oilman-jim
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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.