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....