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Oilman Jim's Private Blog


Oilman Jim - TXP 88E AAOG EDR LEK + some questions & answers

A few interesting pieces of news so far this week.  Touchstone Exploration (TXP) issued a strong announcement regarding their Cascadura-1ST1 well, onshore Trinidad.  They encountered significant pressures and natural gas volumes while evaluating a potential oil zone, as a result of which they suspended testing to bring in the appropriate equipment to measure high volumes of both natural gas and liquids.  Meanwhile, they're surveying the pipeline route for the previously announced Coho-1 natural gas discovery and have commenced civil work on the access roads to the next two planned exploration prospects.

88 Energy (88E) issued its quarterly report.  Charlie-1 is proceeding as planned ahead of the scheduled February 2020 spud date, permitting of the Yukon acreage is underway ahead of potential drilling in 2021, subject to farm-out, and the JV partners plan to conduct a formal farm-out process to fund further appraisal of Project Icewine Unconventional.  It's come off this morning on news of a potential capital raising, but remains substantially above the 0.7p placing price around which I mentioned it as a favourite several times towards the end of last year.

Anglo African Oil & Gas (AAOG) continued to issue news, but from a corporate governance point of view, it's an absolute disgrace.  The board voted and has now directed the sale of a control block, issued for no cash and de facto at below the nominal share price, to what appears to be a friendly party at less than another competing third party offer.  Who is really in change at Anglo African is not clear, but covering up appears to be the main priority.  As I've said before, everything can change with one RNS though and what's important about their latest news is that the ISA shares are gone at a fixed price, rather than being sold down to virtually zero by Riverfort, plus they may no longer need the convertible loan note financing.  This is important, because now it is at least possible for the shares to move up.  This is an absolute dog (and I doubt the real control parties have actually changed) but with a new deal in, which seems a strong possibility, it could be back in business.  The market remains unimpressed for the meantime, with the shares trading at 0.4p, 20% below the 0.5p price paid by the "new" people.

Meanwhile, Egdon Resources (EDR) issued a more serious announcement.  They've signed a farm-in agreement with Shell UK is relation to their offshore licences containing the Resolution and Endeavour discoveries.  Shell will acquire a 70% interest and pay 85% of seismic costs up to $5 million plus 100% of all studies and manpower costs up to a well investment decision.  It's not the best of terms for EDR, but they were over a barrel and from personal experience I know Shell negotiate hard.  Nevertheless, Egdon bring in a serious partner and validate the merits of the licences. Now attempting to drag itself out of the mire, Lekoil (LEK) appear to have managed a temporary reprieve.  Obligations to Optimum Petroleum have been deferred, so that $2 million now is to be paid on or before 20 March 2020, $7.6 million is to be paid on or before 2 May 2020 and evidence of their ability to fund 42.86% of the costs and expenses for drilling the first OPL 310 appraisal well is to be provided by July 2020. So it's back to raising finance again. The challenge they have though is that financing deals like the supposed Qatari one don't exist in the real world.

Moving on, I'm also going to start answering in the blog and podcast some of the questions I receive, since I think others might also be interested in the answers, so here's a few to start.

First question, and I get asked this one a lot, is "why are you negative on certain companies, which appear to have good assets?"

Very simply, because I think their share prices will decline.  It's not just a question of whether the assets are good or bad, even more important is how are they going to finance them.  Endless dilution with placings at lower prices achieves nothing for shareholders regardless of the merits of the assets.

The next one I receive and it's common is "I can't maintain focus and buy too many shares resulting in overall losses."

What I'll say to that is anyone who takes this activity seriously and maintains focus has a huge advantage, because 90%+ view the market as an online gambling machine and, since cash in and out is a zero sum game, their losses can go into your pocket quite easily (no inside information needed) if you adopt the right approach.  Much more about this in the private blog.

Another one I get asked often is "when's the best time to buy shares in a company?"

That's straightforward from my point of view: when the company's fully financed with a potentially transformational event coming up.  Don't throw darts at a board; bet on sure things.

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.

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