Sunday, 22 December 2013

Weekly Review 21st December

Monday saw Bowleven announce that their FD has resigned. He is moving on to be CFO of an oil services co in the UAE from the New Year. He will be replaced by Kerry Crawford, currently deputy FD. It’s reassuring to know there won’t be a period of disruption whilst we wait for a new FD, but I did sigh when I read that she has been head of investor relations since 2008. So not much change likely in that area unless there is a subsequent new Head of IR? Bowleven also held their AGM this week. Big thanks to the likes of Guernsey81 and TimKempster who made it there and took time and effort to post their notes and reflections on the meeting – thanks for your trouble. To see Guernsey81’s full notes made on ADVFN click here
It sounds like it was a very good meeting, in that investors got the chance to ask challenging questions and there were some real reflections by Kevin and the board. Whether the audience found Hart sincere & professional or on the ropes there seems to be mixed views but overall it seems clear that they do recognise mistakes have been made and that this had had a severe impact on investors. I remain bullish on Bowleven, more so now, as the valuation of oil and gas in the ground is so small that at the very least someone will take a sniff if Bowleven don’t develop it themselves. I believe environmental approval will come in the first quarter of 2014 and with that I would hope for some of our costs to be reimbursed by Petrofac. We know that Ian Suttie and ii’s were prepared to subscribe for shares at 45p and yet the market is currently valuing Bowleven at only 36p. There doesn't seem to be any reason for this unless there is more bad news to come. Considering the market didn't know there was a placing coming, I can’t see that it can know there is more bad news, so a price below 45p in my opinion is all just about sentiment and nothing else. I know that some believe that the FD moving on suggests there is more bad news to come, but the RNS is clear that he has another job in the UAE and maybe it’s really just the case of him moving on after 9 years or maybe he has even been given the push?

This week saw good news from Xcite energy in that they have refinanced their US$72m loan notes which were due early next year, removing another small piece of uncertainty and providing a clear path now to farm out and RBL. The new loan notes have a slightly lower rate of 12% and a term of 360 days, extendable by another 360 days with the consent of the holders. Xcite also issued the same investors 1m shares at 98p immediately, and further warrants for another 1m shares exercisable for up to 3 years at 98p. I don’t know about you but that struck me as a little golden handshake for the deal – a “take some loan notes from me and I’ll let you have a million shares in my company at today’s cheap price and then you know you’ll get 3 or 4 times that back in 3 years or when we’re taken over” type sweetener. But what do I know, I’m just happy to see another piece of the jigsaw fall into place. 

Range Resources announced two lots of news this week, both focusing on Trinidad. The first was that they had formally executed their farm in with Niko Resources giving them exposure to another 280,000 acres on Trinidad. Range will earn 50% of Niko's existing interests in the deep and shallow areas. They will drill two onshore wells to test c.22% of the 100MMbo prospective resource estimate. The first well is targeted to spud in early 2014. Range will fund the cost of the two onshore wells and one appraisal well (if successful), and will share costs equally with Niko thereafter, including the cost of drilling an initial offshore test.  The offshore well will target the 33MMboe best case prospective resource. The second piece of news was that Range has received environmental clearance for up to 40 wells on their Beach Marcelle license in Trinidad. Final project plans can now be submitted and operations are due to start in Q1 2014. The intention is to develop Range’s currently undeveloped 12.8m barrels of 1P reserves.

Is it only me that was left scratching their head when reading the following from Range’s RNS on Thursday..... “The Company is also evaluating the option to deepen up to 8 wells.....successful deepening of existing well bores is expected to recover up to 90MMbo per well at approximately 80 bopd per well of initial production, and at costs significantly lower than drilling and completing new wells". By my calculations 90MMbo of oil at initial rates of 80bopd will take over 3065 years to extract. It might be cheap but it’s very slow! Probably why Range takes so long to do things, they are working on a timescale beyond any of our lifetimes! And then there was the usual issue of shares to accompany the RNS. This time 10m shares and 2m options in lieu of finance fees.

St Peter Port Capital Ltd (SPPC) caught my attention on Tuesday. They released their half year report. A small AIM investment company, they have investments in 39 companies, many of them pre-listed resource stocks, including Oil, Gas, Mining, Uranium etc. According to their report their NAV is 100p per share, but they trade at 55p. They reportedly have several investments looking to deliver “liquidity events” in 2014 including potential IPO’s. The Chairman stated “There are good prospects for sizable transactions in 2014, which we expect generally to occur at a significant premium to our current carrying cost” whilst their investment adviser said  “We remained primarily focused on bringing forward the crystallization of value in the portfolio, particularly in our major holdings.  These offer the possibility of very large further gains if progress continues as it has recently." The liquidity is hopeless but at 55p there could be upside if one or two of their holdings manage to deliver some of these “liquidity events” in 2014. I’m not buying as I have enough on my plate but thought it was of interest.

Wednesday I noticed Edge Resources’ (EDG) drilling update. This oil and gas company focused on Canada has a number of 100% owned interests but had struggled with debt in the past and had to refinance in September. Shares were 22p not long ago but are currently just under 7p which gives a market cap of only £11m. They confirmed this week that they have successfully drilled and cased 4 wells in their Eye Hill license with all 4 wells expected to produce at commercial rates. Production testing should commence before Christmas. The wells should lead to increases in reserves and add significant cash flow and margin. Brad Nichol CEO, sounded very excited, even thanking “mother nature” for rewarding them with a couple of nice surprises! A new reserves report is due in the spring and 3 of the 4 should be producing before the year end. It seems like they could be another Nighthawk in terms of a turnaround story moving forwards in 2014 but DYOR as I have only skimmed across their details. Read the RNS here

Rockhopper (RKH) announced their interim results for 6 months to the end of September 2013. They have resolved their capital gains tax argument with the Falkland Government and continue to move the Sealion development forwards. Interestingly they reported that ongoing technical work has provided them an even more positive view of the scale of Sea Lion. The latest modelling has led the joint venture parties to increase the estimate of the field's 2C resources from 321 million barrels to 337 mmbbl, with a further 57 mmbbl contributed by the satellites. If there is no gas cap this could rise further by another 65mmbbls. They will be making decisions on concept selection in 2014 as well as moving towards the next round of exploration drilling across their licenses targeting almost 800m (net to Rockhopper) barrels of oil initially in place. Nothing like a bit of Falklands Fever for 2015 eh?

Berkeley Minerals (BMR) have been on a long journey. News of a step forward came this week in the shape of the construction being completed of the copper cementation plant at Kabwe in Zambia. A dry test has been run and they are now wet testing, in advance of copper, lead and zinc processing being on stream in 2014. Most investors seem to be stuck in BMR from years ago, sitting on losses and awaiting news of the various operational developments which have been sketchy for so long that it’s hard to believe that the journey will ever get to the destination. In fact investors actually see this lack of clarity as part of a determined cloak of secrecy from their Chairman Masoud Alikhani. Maybe there is a huge master plan about to unfold? Hmmmmm. Like Beacon Hill Resources 2014 should be the year when all the patience for investors in BMR is paid back. Let’s hope so.

In other news, there was a pretty solid corporate update from 3 Leg’s, and a disappointing update from Gulf Sands Petroleum (GPX) who announced that the first two wells in their first phase exploration in Morocco had found gas but in sub commercial quantities. This is part of a 9 well programme, 4 in phase 1 based on 2D seismic, and 5 in phase 2 based on newer 3D seismic. So the odds might suggest success at some point, albeit this week’s uncommercial gas news was met with a 15% drop in the share price. Victoria Oil and Gas released a video of the Cameroon president visiting Douala, Cameroon as he marked the inauguration of VOG’s gas plant in Douala. He commented on the importance of domestic energy to the development of Cameroon’s economy – take note Bowleven investors!

And finally we had “pointless RNS of the week” which this week I have awarded to Max Petroleum. who released an RNS containing nothing except to tell us they will release another RNS in 10 days which will contain their interim financial results and also an updated CPR, currently being prepared by Ryder Scott. I hold Max shares, and don’t look forward to what they will report. Good news has only ever seen a drop in the share price and bad news still more. In theory this end of year release should contain good news – news of production increased, an increase in 2P reserves, and an outline of positive cash flows in advance of debt repayments starting next year. If they stuff this RNS up then there is nothing left to hold for in my opinion. But unless something has gone seriously wrong this should be a positive update. They've confirmed there are only 10 days to wait, so pencil in 30th December for my early morning twitter whoop or yelp........

Have a very great Christmas everyone. I’m collating views on the best AIM prospects for 2014 so feel free to leave a comment below or tweet me your thoughts @timpronkster here and I’ll compile some sort of medley of top tips for an end of year blog........ 

Saturday, 14 December 2013

Weekly Review 13th December

It looks like the prospect of a recovery in any AIM oil companies before Christmas is about as likely as Thamsanqa Jantjie being asked to do the sign language for the Queen’s Christmas speech. I thought I’d share a few thoughts on this week’s news across a few shares I follow.  

First of all, I was mightily surprised to see Tom Winniforth go long on Range Resources. Reading his comment it seems he’s changed his mind about Pete Landau following a chat he had with him. Landau sounded contrite about overpromising and seems to have said he will take this on board from now on and will focus on delivering what he says. My only problem with this is that Pete sounded very contrite on a video about 18 months ago when he said he would focus on delivering what he said he would. At the time I think he was going to have drilled about 50 wells in Trinidad by the year end (was this 2011 or 2012?) and I think investors are still waiting..... So I’m not convinced. Can a leopard ever change its spots?

On the subject of leopards changing their spots, Nighthawk has done just that, and continues to make
progress on production and cash flow. This week they announced that two new drills were flowing at commercial rates and production was at 1497bbls/day for November. This is despite the Silverton and Snowbird wells being off line for a number of days. Nighthawk has been quite a turnaround story since the founder and MD quit under a shadow, and the share price crashed to just over 2p on finance and operator worries. Since then they have refinanced, ditched the operator Running Foxes, made several new discoveries, and turned cash flow positive. The share price has risen to over 10p and everything looks rosy with plenty more to come in 2014. So maybe all is not lost for those current lost oil companies out there.

The week saw Edison produce two highly insightful reports. One about Xcite Energy and the other about Gulf Keystone. Regarding Xcite Energy, they informed us that farm out discussions were delayed, but that value remains in their discoveries for the future. Regarding Gulf Keystone, they told us that production was going to ramp up more slowly, but that value remains in their discoveries for the future. Blow me over you don’t say! I do agree with them of course.

Nevertheless, the Xcite SP ebbed away all week - there is once again a period of time where people can’t be bothered waiting and move money out on the assumption that there is unlikely to be any further news before Christmas. I did consider temporarily selling up at £1.05 after the interims, but couldn’t be bothered / was nervous. “But what if news breaks when I’m out” I said to myself. Having waited a few years I couldn’t face missing out on a rise. Like playing the same lottery numbers every week and then missing the week they came up. Anyway, my personal free insightful research on Xcite goes like this: Assuming that a Farm Out will eventually materialise, the current valuation is completely disconnected to the future valuation. But with no “industry valuation” as yet we have to let the stupid market value the company and they can’t add up.

The other insightful Edison report was about Gulf Keystone, who received the news that Excaliber are not appealing in any form and have already paid an interim payment of £17.5m as security to the court.  Further payments are likely and that has got to be good news for the future. Presumably the move to the main listing will proceed quickly now and I would expect the SP to move up pretty consistently in the short term as PI’s buy in just for this move let alone other production news. The week saw the SP move back from 172p to 188p.

On Monday Trinity Oil announced they had discovered somewhere between 50 and 115 million barrels of
oil in the ground. It’s an extension to their producing Trintes field, and could eventually double their 36m 2P reserves. Pre the drill brokers valued a discovery at a 75p upside. The market cap of Trinity ended the week just £10m higher (12p) than it was before the announcement which proves that the market can’t add up. Heaven help us if Mondays’ announcement had been a duster as whilst the market can’t add up they can certainly add down! Meanwhile Trinity are drilling another exploration drill which could add another significant volume of oil if successful. One to watch for their 2013 production exit rates which should be moving in the right direction.

Bowleven were painful this week, ending at 37p and drip drip dripping away. They’ve been a nightmare recently. Poor Ian Suttie is already down 17% on his £8.7m investment in Bowleven. Makes you feel kind of better! I can’t believe that Petrofac will walk away neither can I believe the government won’t give them approval.  What we need is an Edison report! I believe it would say that the FID and environmental approval has been delayed, but that significant value remains in the oil and gas they have discovered. I’ll be buying some more if I can sell my kidney.

Ithaca looked good value slipping in the week to the low 140’s before finishing at 147p. Considering they announced in September that their first Stella development well flowed at over 10k boepd (limited by the test equipment), are aiming to increase production to 25k bopd next year, had revenues of $114m in Q3 (up from $41.6m LY) and cash flow per share of $0.25c (double last year), their future looks positive to me and could be a nice investment for 2014. Then again I thought that about Bowleven and Beacon Hill and look where that got me.

So, the Santa Rally is nearly upon us! Only this year it looks like Santa is heading south and hibernating with Momby Pemberton (Trinity) in sunny Trinidad and Tobago. Like the lovely John Lewis advert I think a few CEO’s need an alarm clock to wake them up from their hibernation.

All I want for Christmas is an alarm clock for Rupert Cole (XCITE), a claxon for Rowan Karstel (BHR), and bloody great big spud missile up the backside of Kevin Hart (Bowleven)

Here’s to a real Santa rally next week....

Thursday, 5 December 2013

#XEL #BLVN #BHR Three unwanted jumpers!

image courtesy of imagerymajestic.
So in the space of a few weeks I’ve had three early Christmas “presents”, all of which are the kind you’d happily give back if you weren’t so polite. Sort of like those nice jumpers you get from relatives that don’t quite fit and in any case aren’t the right styles. Too nice to throw away but rarely taken out and worn, they sit there in your wardrobe making you sad every time you see them because they weren’t what you expected or hoped for.

Ok so the analogy doesn’t quite work but I’m reflecting on the news from Beacon Hill Resources, Bowleven and Xcite Energy recently. Three massive small investor stocks, with massive short term trader followings, and all of which were expected to announce positive share-price-changing news over the last few weeks. What we got instead were some crappy unwanted jumpers and now all three are looking embarrassingly forlorn. It was indeed share price moving, only the wrong way.

Let’s take the unwanted jumpers one at a time......

Beacon Hill.
The share price was over 3p at the end of June and had been over 5p earlier in the year. In late June, news reports of local rebels threatening to blockade the main railway line in Mozambique knocked the price down to 2.3p, despite the fact that we aren’t even using the Sena railway line until 2014! Then, in September, an updated reserves report confirming an economic mine life of 15 years knocked the share price to under 2p. Logical no, but sentiment was damaged as investors were expecting higher reserve numbers based on previous resource numbers. At the beginning of October the news that BHR would issue unsecured convertible loan notes to Darwin and others then kicked the share price to 1.25p. Unexpected dilution of the most painful type. Finally, simultaneous legitimate shorting by Darwin (eh? conflict of interest surely?) killed the SP to 0.8p. 

Whilst all this value destroying negative sentiment has been going on, the fundamentals remain largely the same; in fact have continued to move forwards. Economically recoverable reserves are confirmed in place. Production is underway. Phase 2A wash plant is installed and being commissioned. Various operational issues are being resolved. Rail offloading site is being developed and the environmental report is due to be submitted any day. Port access plans are progressing, rolling stock will arrive imminently, a first test train has arrived, senior debt due diligence is under way. And finally we heard that we have entered into an agreement to acquire up to 70% of a licence with potential for Pig Iron mineralisation and magnetite supply, potentially improving margins and integrating the business “vertically”. Not earth shattering at this stage, but hardly the news you’d expect from a company going down the pan, which from the share price collapse you might expect to be the case. 

The market capitalisation is now under £18m. This compares to a potential takeover offer for Beacon Hill in 2011 which was reported to be at £120m, six times the current mcap and 2 years (of operational progress) ago. Unless BHR go bust, I can’t see how this £18m valuation can be sustained through 2014 and I would have thought that a return to a mcap of somewhere around £75m (over 4.5p on current share numbers) should be achievable if confirmation of Tier 1 FOB status comes next year. So a rotten jumper for Christmas but maybe wearable with pride next year?

I’m not going to repeat what has been said many times on the BB’s. Suffice to say investors were expecting confirmation of the major Etinde development’s FID (final investment decision), or perhaps environmental approval, or even just confirmation of a farm in Partner for the Bomono license. Turned out we got none of these and instead moderate dilution but at 20% below market price. Certainly a Christmas jumper you’d happily give back. 

Since then we've heard that 3 institutions have bought shares (including previous sellers Blackrock), have heard that Ian Suttie, one of Scotland’s richest men, has taken over 19m shares in the placing, and heard of another 3 (modest) Director purchases. We got a 30% increase in P50 resources to 263mmboe, and (as far as I am aware) we still have a substantial funding arrangement with Petrofac in place. Finally today we heard that Bowleven have been awarded 3 blocks in Zambia to explore, and that the geophysical survey is complete in Kenya. Now call me crazy but the 2013 IM5 well result was so successful that Bowleven have had to reconsider their production plans, we have significant upside potential for reserves upgrades, are already sitting on a major discovery, and yet the market cap at £124m is 6 times less than it was in 2011! Another sentiment destroyed share price. Another Christmas Jumper to stick at the back of the wardrobe, but next Christmas will we get it out with pride and tell everyone how little it cost and how much it is now worth?

Xcite Energy. 
And to complete the trio of festive crap jumpers, we have my favourite Xcite energy. No-one seriously expected news of a farm out, even less news of a takeover, yet the faithful were shocked to discover discussions were ongoing and MM’s took the opportunity to drop the price 20% before bouncing it back to near open prices. How many stop losses were hit goodness only knows. The market cap is now back under £300m. That’s only just over £1 per barrel of proven oil. (without accounting for anything else of value). Last month we heard that Statoil think the Xcite technology is so valuable that they have shelved their existing plans for their Bressay FDP. Read my comments here on how valuable I think this news is.

We’ve also had confirmation that the environmental statement for Bentley has been submitted to DECC, that we have a memorandum of understanding in place with Amec, that our 2P reserves have doubled to 250m barrels, that we have agreed refinancing of the outstanding unsecured loan notes and that we still have £22m in the bank. Long lead items have been identified and are being sourced through strategic alliances. A number of discussions on farm out are ongoing. “Significant interest” has been expressed by new and existing banking institutions to reassess and increase the existing RBL which “has progressed satisfactorily” (note the past tense here, not “is progressing satisfactorily”). I believe they probably already have confirmation of how much the increase is, which would likely be conditional on all the other factors coming together.

So I have 3 Christmas Jumpers now, none of which I can wear with pride. All of them are tucked away in the back of my wardrobe. I believe they are all 100% cashmere, but unfortunately are cunningly disguised as polyester V necks from Primark.

One day I'm sure they will all be taken out of the wardrobe and worn with pride. I expect everyone will want one and wonder how I managed to afford all 3. But by that time they will be very expensive to buy, if they are even still available in their current brands.

Here’s hoping for some more welcome Christmas presents.

Previous comment on BHR here
Previous comment on Xcite here
Previous comment on Bowleven here

Wednesday, 4 December 2013

#MXP Max Petroleum holdings

Three holdings RNS' in the space of three days and it looks like UBS have been buying again. This time they have been swapping debt for equity to the tune of 113m shares. That takes the overall number of shares in MXP held by ii's to around 85% assuming all are updated on time (unlikely) and it also includes some holdings which I assume are on behalf of private investors eg Halifax and TD Direct.

Meanwhile the share price still languishes at below 4p, not far off the lows when the very future of MXP was in question. Since then debt has been rearranged, the drill bits are turning, production is well up and should exit 2013 higher still. Although of course debt repayments start next year and due to low levels of communication around this we aren't sure how the finances are looking. The drilling campaign on the shallows is mid flow, and we eagerly await the results of an updated CPR to include recent well data up to the end of September, expected sometime in the new year.

I asked the question why ii's were still buying MXP in such volume here and a helpful investor tweeted me suggesting that maybe the whole company will be taken private at some point - PI's lose out of course - the deeps are then sorted and drilled, and then the company eventually successfully returns to the market making millions for whoever took it private. Oh joy. There's something to look forward to. I have no idea whether this is likely, I suppose it could be possible, and would be a good result for the ii's, but a disaster for all long term MXP investors.

I am waiting for the CPR and potential news on the deeps in 2014 before reassessing my position in MXP. For now I hold, but am not adding.

Updated ii holdings as of 4th December 2013: (click on image to expand)

Definition of a debt for equity swap courtesy of investopedia
"A debt/equity swap is a refinancing deal in which a debt holder gets an equity position in exchange for cancellation of the debt. The swap is generally done to help a company continue to operate (after all, an insolvent company can't pay its debts or improve its equity standing). However, sometimes a company may simply wish to take advantage of favorable market conditions."