It's been an interesting week and some of the shares I mentioned last weekend performed strongly. RockRose Energy (RRE) traded at nearly £23 a share, up from just under £20 the previous Friday and Tower Resources (TRP) traded at nearly 0.8p on Tuesday up from just over 0.5p. I said a couple of times towards the end of last year that Tower was a good buying opportunity under 0.4p.
Both issued news. RockRose announced the change of operatorship of the Brae Area, although they point out it is of no strategic or financial consequence. An alternative take is expressed in Saturday’s Energy Voice article. Tower Resources announced a Cameroon operational update, they’ve been granted a further extension of the production sharing contract until 19 September this year. All now hinges on whether they can negotiate a farm out.
On that subject, United Oil & Gas (UOG) has no takers for its Jamaica farm-out of what they describe as a "super wildcat area.” They’ve managed to get a short licence extension until 31 July for the final "drill-or-drop" decision, but the reality here is that when Tullow Oil (TLW) gave UOG 20% of this for free they were simply binning a work programme liability.
This was confirmed by Tullow’s trading statement and operational update last week, which stated “exploration costs written off…include Jethro, Joe and Carapa well costs in Guyana as a result of drilling results and…Jamaica licence costs due to the levels of planned future activity or licence exits.”
Tullow’s statement also includes Eco Atlantic (Oil & Gas) (ECO)’s assets, so if I was an investor, I’d be asking them some very hard questions now. ECO is one that I highlighted as a favourite last year and which then more than doubled. I did say that the price rise had run out of steam before the collapse on the heavy oil revelation, but it underscores what I say about always taking the profit while it’s there. Never get greedy with these things.
I’ll move back to the positive news shortly, but first let’s get some of the others out of the way. The Anglo African Oil & Gas (AAOG) general meeting was held on Monday morning and, as expected, the Zenith Energy (ZEN) deal was approved. Now they need a new licence, but the signature bonus is not agreed and, equally important, they need SNPC to pay up, although why SNPC will pay ZEN when they would not pay AAOG remains a mystery. It’s now also been revealed that the claim against Anglo African, relating to the abortive acquisition of the Tunisian assets, is for £1.7 million, so the financial situation looks terminal.
Putting them into the shade was Lekoil (LEK) which announced that its Qatari financing was false, resulting in the share price collapsing from 9.5p to 2.5p. LEK want to present themselves as the victim of an advance fee fraud, but this “victim” saw its share price double and do more than £10 million volume at the higher level before anything was said. A TR-1 appears to show large buying at the time of the initial financing announcement, but check it out and the previous holding has been omitted to make it look like they’re buying, when in fact they’re selling. Strange the NOMAD didn’t spot that. Also troubling is a post by a well known influencer that he had met with LEK the previous working day to the false finance admission and bought a further 1%+ stake in the company. There’s no reason to doubt the accuracy of this, but it means that while the company was spinning its story to him, other directors in the next room were consulting with professional advisors regarding what then must have been known was a bogus financing and preparing the explosive RNS.
Moving forward, the big commercial problem for LEK is they are required to pay Optimum Petroleum sunk costs and consent fees by February 2020 - a payment estimated at around $10 million. LEK is also required to show its ability by February 2020 to raise 42.86 per cent. of the drilling costs for one appraisal well, which is estimated to be about $28 million. LEK needs real financing fast - by February means the end of this month.
Nostra Terra Oil & Gas (NTOG), who coincidentally has the same NOMAD as LEK, announced a requisition to convene a general meeting and remove the CEO, Matt Lofgran. The only surprise here is that it took so long. This is another long running saga and investors should seriously ask themselves why they invest in companies like NTOG, Mosman Oil & Gas (MSMN), Attis Oil & Gas (AOGL), etc. Low impact wells in mature areas are simply never likely to generate sufficient operating profits to cover the costs of running a London listed company.
This is just “lifestyle” for the directors, but if drilling the occasional well in the US is something you like the sound of, you can just go straight to the source and buy non-operated working-interests in wells from the same type of operators/promoters these companies deal with and receive the revenue checks yourself each month, rather than let the directors spend the money. You don’t need the public company with its directors’ salaries and bloated overheads in between. You can get the same terms as the companies do and operators generally will allow you to participate for as little as 1/32nd or even 1/64th, that’s 3.125% or 1.5625% of the well, it’s always expressed in fractions. It might be interesting for some who have a few thousand spare and would like to start to learn how it all really works in practice. In the worst case, I doubt losses would exceed those of an investment in NTOG.
To have a chance with small stock market oil companies, best is to be in those with a big, high impact drill coming up, so back to shares and some better ones, starting with 88 Energy (88E) which announced a Charlie-1 appraisal well update. Ice road construction is underway, the permit to drill application is submitted, approval is expected this month, and operational activity is progressing to plan for a February 2020 spud. This is is now up around 100% from when I mentioned it as a favourite towards the end of last year.
Finally, and at long last for Egdon Resources (EDR), Europa Oil & Gas (EOG) and Union Jack Oil (UJO), their Wressle development was granted planning consent on appeal. Icing on the cake for them is that North Lincolnshire Council has to pay their costs. Regulatory issues probably will be easier now for onshore UK oil companies following the election.
I'll be back mid-week with the next blog and podcast and if you’re interested in knowing all my trading ideas now and more about what I think of the various companies, then subscribe to the private blog at http://oilnewslondon.com/subscribe I think you’ll find it’s worth it.
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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.