Break the Silence! – Upcoming Bits and Pieces

Hi all,

Apologies for taking so long to post anything new. Life has been getting in the way somewhat, so I’ve not been able to do any further work on the blog recently. This is just a quick post this morning to let you know what I’m planning and provide a couple of summary points of news items on blogged companies since my last update.

News (well, not that new):

• RRL – Acquisition of 100% Trinidad producing oil fields (and share placement at 17p to fund acquisition)
• RRL – Positive Texas drilling update
• Encore – Successful Cladhan Appraisal (Still no OWC)
• Encore – currently around 18 days through a 20-25 day Cladhan sidetrack.
• Encore – flotation of new company (XEO Exploration) – This has been expected, as previously announced as Encore’s intention.
• Caza – No news released. SP has been drifting down. I believe Caza need to offer a firm plan for new exploration before this starts to regain some of its lost ground. My previous NAV update for Caza indicated that there were numerous changes to resource estimations given by NSAI. The most significant being due to Thunder Stud prospect, at a Caza presentation, investors were told this was due to a suffering partner company on the prospect putting its development at risk.
• San Leon Energy – Operational Update – This update was before my last post, but very interesting nonetheless.
• Serica – No major updates

Plans for upcoming Posts / Investigations:

• Enegi Oil (ENEG) NAV Assessment & What-if scenarios – Currently underway, hope to have this done soon.
• Red Emperor Resources (RMP) NAV Assessment – This company is only floated on ASX at the moment, but appears to be quite under-the-radar. It’s partnered with RRL in Georgia and Puntland, and appears to have quite a low Market Cap. Apparently they plan to float on LSE in the near future.
• Updates to RRL NAV after their recent acquisition, and perhaps after Texas flow rates established
• Updates to Encore NAV after Cladhan Sidetrack completion.
• NAV vs SP comparison for a variety of companies.

Generally AIM seems to have remained quite subdued, most likely due to general jitters and investors staying safe at the moment. Lots of examples of companies trading well below their NAV around at the moment. Price of oil remains high posing a risk to general global economic recovery, but at the same time offering higher value to these O&G company reserves, particularly those producing.  North Sea Oil tax seems to have had an impact on North Sea exploration & production companies, remains to be solved (come on Mr Osborne, what’s better, 20% of something or 32% of nothing?)….Fingers crossed that things start picking up sooner or later.

Hope to get ENEG and RMP out to you soon!

Encore Oil NAV Update post-Burgman

Note to all:

The below figures are NAV valuations and NAV projections, not Share Price projections. NAV is not always reflected in the SP, for an endless list of reasons, and clearly any upside from any future assets carries associated risk.  Please also read ‘The Small Print’ at the bottom of each post.

Recent Share Price activity

Firstly, I don’t think I’m alone in thinking the recent Share Price activity for Encore has been somewhat disappointing. I think it’s generally a bad time to be invested in AIM oilies, but Encore (along with many other AIM stocks) has been battered on a number of fronts, those that I can think of are listed below, in chronological order:

• Catcher N ‘disappointment’ (more oil, but not as much as we’d hoped)
• CMC markets stopping Spread Bets on AIM stocks
• Libyan conflict
• Japanese crisis
• Mr Osborne’s ‘brilliant’ idea – North Sea windfall tax
• End of tax year causing a general exodus so people can cash in their tax allowances

Given all of the above, it’s no wonder the Share price is currently lower than it was before the last 3 discoveies.

Frustrating nonetheless!

Burgman

As most of you are probably aware, Encore recently updated us on the success of its Burgman well. The side track revealed ‘net oil pay of 135 feet over a gross reservoir interval of 135 feet (M.D.), equivalent to 64 feet of net vertical oil pay over gross vertical interval of 64 feet True Vertical Thickness. Preliminary log analysis indicates an average porosity of 38%’. The full RNS can be read here.

The last Encore NAV post I did covered the potential for Block 28/9 and the Cladhan prospect.

Charts:

I have updated the NAV projections as a result of the data that came from this well.

Given the present situation, I have done 2 charts, one for $10 a barrel, and one for $15 a barrel. Personally, I believe that with Oil priced over $110 a barrel, even $15 a barrel is a conservative estimate for the price of the oil in the ground, particularly if in the form of an asset sale that includes operatorship (in the case of Block 28/9). But it seems the market is pricing in a much lower asset value these days for whatever reason, so I thought I’d offer the option.

Neither chart includes the value of the larger (in terms of Encore’s stake) upcoming prospects (Spaniards, Tudor Rose etc) and the new 100% blocks in the 26th licensing round. So it’s worth bearing those in mind as additional near-term future potential.  And for both charts, I have assumed we have about £25m cash left to play with based on previous updates and some expenditure since. Furthermore, Burgman is put in as the middle of the RNS assumption (100mmb STOOIP @ 45% recoverability).

So the first chart is for $15 a barrel…

Encore NAV & Projections – $15 a barrel – Post Burgman

As you can see, at $15 a barrel, Block 28/9 (without Carnaby) is worth about 79p a share to Encore. Cladhan could be worth a further 89p a share (P50), to 161p per share (P10). I would say that around 56p of Cladhan is already priced in (P90 reserves plus some risked P50, P10). All detailed in the chart.

So with cash etc, that gives a potential total NAV for Encore of 182-255p (Cladhan P50 – Cladhan P10).

However, bear in mind that these figures ($15 a barrel) give a current NAV of 155p, but we’re only trading at around the 110p mark.

Hence I decided to do the $10 a barrel, as that gives a present NAV of around 109p, which appears to be what the market is valuing Encore at, at the moment.

Encore NAV & Projections – $10 a barrel – Post Burgman

At $10 a barrel, the equivalent summary values are 52p NAV for Bock 28/9 and 59p for P50 Cladhan, 107p for P10 Cladhan (in total). With about 37p priced in @ $10 per barrel (but most of that is for the very likely P90)

So with cash etc, that gives a potential total NAV for Encore of 127-176p (Cladhan P50 – Cladhan P10).

All ‘total NAVs exclude the up-coming larger prospects.

Cladhan

In the latest news release, Encore said they were expecting results from the current Cladhan appraisal within 10 days. That was on 28th March. So we should be expecting results early to mid next week, in theory. There are two sidetracks planned subsequent to this appraisal well, as they go on the hunt for the Oil Water Contact, and try to establish how big the find is. Some stakeholders have quoted rather exciting values of 600mmb and above (beyond the P10 values used in my spreadsheets). But let’s not get our hopes up too high… It will be interesting to see if they find the OWC in this drill. I do hope not (but it won’t be bad if they do, just means the size is still open-ended without it.. At least that’s how I understand it).

Encore’s current drill schedule

NAV  – $10 or $15?

Well, it’s anyone’s guess what the assets will achieve if sold. But like I said, with the oil price at $110 a barrel, I think $10 is very understated, and believe that $15 is closer to the mark, if not more. The trouble is that as I say in all of my notes at the top of each NAV post, NAV and Market Capital aren’t one and the same. Market nerves, along with various other factors won’t mean that NAV of $15 a barrel gets reflected in the SP unfortunately. Perhaps after the tax year has ended and money starts coming back into AIM we’ll start seeing true value, who knows. Will be good if Osborne reverses his decision, that certainly hasn’t helped matters. And of course, for everyone’s sake, it would be great if the Libya conflict gets resolved.

Plenty of crystal ball reading required here… Good luck to all 🙂

The Small Print

Please note that I am not a financial adviser or even employed in the financial sector and am not providing financial advice. The contents of this blog are from my own research of publicly available data, and any opinions expressed are my own. I trust that you enjoy reading them but you must do your own research or obtain financial advice before making any investment. Naturally, I do everything I can to ensure that the information posted by me is entirely accurate, however, any information provided is subject to the possibility of error, both in fact and interpretation, on my part and for that I can not be held accountable.

 

 

Encore Strike, Caza doesn’t

Encore Strike

Good news for Encore holders yesterday (21/3/11) in that the Burgman prospect was successful in the Tay sandstone. The sands were quite thin there, but that’s because the well was placed to be able to drill through Carnaby and Jurassic formations, which were both unsuccessful (which was quite likely). Encore are now drilling a sidetrack to hopefully thicker Tay sands. This will be the last drill of the current campaign on Block 28/9.  The Share Price didn’t react too violently, but closed up yesterday.

This has provided a good platform for the upcoming sidetrack expected to take 10 days, and the Cladhan drill that’s currently around 2-3 weeks from completion.

Good news, particularly given the rumours that were circulating of a duster. Thankfully, I don’t ever listen to rumours, even if they’re good rumours.

Caza doesn’t

The odds were against us Caza holders from the start. As stated in my original Caza post, the Chance of Success at the Arran prospect was 35%.  The attraction was the significant upside it offered. Unfortunately today Caza announced that the well was not commercial, although certain sands were wet, which they believe will support investigations into potential further exploration on their owned assets.

It looks as though the market has reacted (initially) at the lower end of my expectations. I anticipated a 20-30% drop on bad news (stated in first post). We’ve seen around a 30% drop so far.

As previously illustrated (Caza’s Drilled assets), the company’s NAV is at around 55p per share, even without Arran.

Clearly the NAV is for from priced in right now, with the SP hovering around 36-37p.

Caza stated in the RNS that we can expect some financial results and an operational update on other prospects in the next few days.  This will hopefully include intent on the other large prospects. I’ll update NAV projections based on Caza’s info at this point.

As always with any energy share, they carry risk. This is a good example (albeit a very sad one) of when it doesn’t go to plan. Still a solid company, but with some bad news.

Caza’s SP, as a result, is now well under its NAV. It will be interesting to see what further news comes this week from them.

 

The Small Print

Please note that I am not a financial adviser or even employed in the financial sector and am not providing financial advice. The contents of this blog are from my own research of publicly available data, and any opinions expressed are my own. I trust that you enjoy reading them but you must do your own research or obtain financial advice before making any investment. Naturally, I do everything I can to ensure that the information posted by me is entirely accurate, however, any information provided is subject to the possibility of error, both in fact and interpretation, on my part and for that I can not be held accountable.

 

Brief Update – Caza, Encore & the markets generally.

Caza Oil & Gas

The ASX partners in the current Arran drill released an RNS today (here) stating that drilling is now progressing and they expect to hit targets in 7-10 days (targets are below 14,000ft). This means that the issues outlined in this week’s Sonris report (here) have been resolved and drilling is continuing, which is great news. But as with the last 60 days, it’s given investors an idea of timescales, so the ‘hot’ money can know exactly when to move in.

Pretty much every share on my watch-list was in the red for the last couple of days, thanks to the impact of the on-going conflict in Libya. Not helped today by the saddening disaster in Japan.

So Caza’s SP has drifted a bit, and ended the week at 52.75-53.00p. Technically, the share has a lot of support at this level thanks to consolidation over previous weeks. It has bounced off the 52p mark a number of times.

As previously highlighted (here), the Arran drill offers significant potential additional NAV to Caza, and at this price, none of it is priced in, In my opinion, based on the calcs in the aforementioned post.

Essentially, the bottom line is that the drill has had some quite standard complications and we should be within the pay zones late next week. ‘Exciting Times’ still applies, it’s just been held back by external international issues and drill delays.

Encore Oil

Encore released their Interim results for 6 months to Dec 2010 (here) on Wednesday.

As mentioned in my previous post, Nautical Petroleum had stated intent to drill Spaniards and Tudor Rose (which Encore are operator for), but Encore hadn’t at the time. In these interim results, Encore state their plans to do so, which is re-assuring. They have been granted license extensions. The question on everyone’s mind has been how Encore will fund these drills. Encore have plenty of funding for the Cladhan and Catcher appraisals, but not enough to see these prospects through. They have always stated that they want to offer great value for their shareholders, and that they were researching innovative funding models. (They had £31 million cash at end of 2010, and no debt!)

In these results, they stated that they are considering floating a second company, which they will retain a significant shareholding in and transfer the exploration assets to, so they can raise funding that way, without diluting Encore shareholders’ holdings. I think this is a great idea, as Encore will retain Catcher and Cladhan, which they can finish appraising and sell on, and the new company with fresh funding can continue to explore and add value, which will transfer to Encore as a significant shareholder.

I will be wanting some shares in the new company as well as in Encore!

There have been a number of articles related to Encore’s RNS, and they’ve been generally very positive.

Again, the SP has been depressed, and in my opinion, this is down to the external market influences. The whole stock market is down generally.

The Markets Generally

Clearly the on-going conflict in Libya is having an adverse impact on the global economy in general. I’ve seen a lot of people wondering why Oil companys’ SPs aren’t going up, as the price of oil is going up. But it’s not as simple as that. These global events have a big impact on investor confidence and generally cause them to seek safe haven for their cash, and clearly increased sales = downward pressure on prices.

I hope, more for those in Libya than for my own investments, that these issues get resolved. Likewise I hope Japan’s disaster doesn’t reek too much havoc and misery.

I think these factors will continue to have an impact on the markets, which is bound to have a negative impact on the SP of most companies across the globe. It’s important to remember the fundamentals of the companies you’re invested in during these times. Unless, of course, you’re talking about companies directly exposed to these issues.

Blog Updates

I’ve made a number of updates to the blog layout, the menus at the top, a contact page etc. I hope it’s becoming increasing useful and user-friendly. Thank you to those of you who have provided feedback and comments, I appreciate it.

What next?

I’m still deciding what company to do a full assessment of next.. I’ve had a number of suggestions, so thank you for those, and feel free to fire some more in… Otherwise, watch this space, I hope to have something in the very near future.

 

The Small Print

Please note that I am not a financial adviser or even employed in the financial sector and am not providing financial advice. The contents of this blog are from my own research of publicly available data, and any opinions expressed are my own. I trust that you enjoy reading them but you must do your own research or obtain financial advice before making any investment. Naturally, I do everything I can to ensure that the information posted by me is entirely accurate, however, any information provided is subject to the possibility of error, both in fact and interpretation, on my part and for that I can not be held accountable.

 

A bit more on Encore Oil

Summary of today’s update:

• A Market Capital graph with significant RNS’s plotted & some observations (since May 2010)
• An update concerning Cladhan
• An update concerning Spaniards and Tudor Rose prospect
• A chart of upcoming drill result date expectations

Market Capital History & RNS’s

I’ve put a really rough chart of Encore’s market capital against time (share prices used to generate market cap from www.shareprice.co.uk). The significant RNS’s are marked on the chart, so you can see what impact they had on the market cap. The numbers I’ve put on for impact are best estimates.. Clearly the SP fluctuates a lot before and after news, so I’ve done my best to choose reasonable prices before and after to assess the RNS actual impact on company value.

Encore Market Cap vs RNS

If we do use these numbers, you’ll see that about £124m was priced in for Catcher (not the whole block, just Catcher E & N (North being risked)).. Then around £70m was wiped off with the Catcher N result. That leaves around £54m for Catcher priced in, whereas it should be more like £80m (as per my previous Encore post).

Clearly this is no exact science, but I thought that it was interesting.

Cladhan

Valiant Petroleum released an RNS (here) this morning saying they’re farming out 70% of their interest in the ‘Cladhan South’ blocks [Block 210/29c and 210/30b] to Sterling Resources and Wintershall. This is great news… as it demonstrates Sterling (who are operator on Cladhan) have some real confidence in the geology of the block, and its adjacent block. Possibly good things for current Cladhan drill, as they’re still searching for the OWC.

Spaniards & Tudor Rose

Nautical Petroleum, who are partnered with Encore on the Spaniards and Tudor Rose prospect, put together a presentation (found here). In it, they state that there are plans to drill both the Spaniards and Tudor Rose prospect. The decision on whether these drills would take place or not has not been made public by Encore. But I wouldn’t imagine Nautical could publicise this intent if it weren’t true. Both of these are big prospects for Encore. Encore has 40%, and is operator on both prospects. Spaniards appears to be part of a large accumulation, which was discovered in the block beneath. All info contained within the NPE presentation.

The implications of this, in my opinion only, are that Encore are perhaps not at the finish line yet (company sale), as if they plan on drilling these prospects, there’s some legs left in this share before they sell up. Perhaps an asset sale on the cards instead.. We’ll see.

Chart of Upcoming drills

Dates given on these charts are as per Encore’s RNS estimates for drill times. Clearly drills could take more or less time than stated.

Encore’s current drill schedule

The Small Print

Please note that I am not a financial adviser or even employed in the financial sector and am not providing financial advice. The contents of this blog are from my own research of publicly available data, and any opinions expressed are my own. I trust that you enjoy reading them but you must do your own research or obtain financial advice before making any investment. Naturally, I do everything I can to ensure that the information posted by me is entirely accurate, however, any information provided is subject to the possibility of error, both in fact and interpretation, on my part and for that I can not be held accountable.