Back in action… RMP / RRL / BOR / SLE

Hi everyone!

It’s been a while! Clearly the economic gloom has played its toll on AIM in general over the last year, particularly the tail end of 2011, this basically meant that in the most part I’d reduced or cleared any holdings and watched from the sidelines. Clearly given that I wasn’t active any more, I felt little reason to post!

Now I’m not going to pretend that the economic turmoil is behind us and that things will only get better from here. I’m certainly remaining cautious of the global circumstances.

However, as of the very end of last year, I started to get back in the game, and so I intend to start posting here again.

I’m currently going through an Administrative task on the blog itself, nothing anyone will notice, but it means that while I planned to have something useful up today, I won’t be able to. Hopefully within a week or two.

In the mean time, I will, however mention a few things I believe are worth keeping an eye on:

RMP / RRL (Red Emperor and Range Resources)

• Their current drills in Puntland. Spudded around 17th January (RNS). Claim it will take 90 days to complete the well, and then move on to second. This could be game changing for both companies. It will de-risk a massive area, where oil has previously been discovered (20 years ago). See my last updates on RMP and RRL which goes into Puntland a bit more. The SPs for both companies were significantly higher than today’s prices when I last wrote about them, which in my eyes says only one thing about the current price. First drill targeting 300MMb recoverable oil (60 net to RMP and RRL)… Even in these risk averse markets, say a valuation of $2 a barrel would add $120m to market cap of each company. Which for RMP with 190million shares in issue, is 40p a share (current SP 19p). Bear in mind $2 a barrel is pretty low given current oil price.
• It’s worth re-iterating that oil was discovered on this licence 20 years ago but political instability drove conoco out of the area.
• It’s also worth noting that Somalia and these oil drills are attracting a lot of media coverage, which brings investors with it. This was reflected in the pre-spud increase to 23p for RMP on high volume.  If the markets remain bullish, I expect some serious anticipation as we reach TD on this drill.
• Furthermore, it’s certainly worth mentioning that if this drill finds oil in any of the 3 target zones, it de-risks some of the other prospects in the area. We are talking Billions of barrels of Oil.
•  Looking to spud Georgia in the very near future (according to a recent RNS), this is targeting approx 100MMb Oil In Place, 20% to RMP and 40% to RRL. With a recoverability factor, these will add value, but less so than Puntland.

Just for fun, here’s a poll:

BOR (Borders and Southern)

• Borders and Southern Petroleum. Started drilling their Darwin prospect early last week (RNS)
• targeting 760MMB recoverable oil!
• Current market cap circa £300m
• Cash in bank circa £100m (enough to complete this drill and next Steebbing prospect, targeting 1280MMB recoverable resources!)
• Note: Rockhopper, with their Sea Lion discovery (and some other un-appraised oil shows) of around 500MMb has a Market Cap of £1billion.
• Lots of media attention surrounding the Falklands at the moment (good and bad), clearly the Argentinians are keen to own them, but I don’t think the UK has any intention of giving in, and we shouldn’t either, in my opinion.

SLE (San Leon Energy)

As previously highlighted (here) there’s loads going on for this company, and I simply cannot believe how cheap it is. The goings-on with the REALM acquisition have played a big part in depressing the SP in my opinion (RNS)

Recent news:

• Some technical hurdles crossed on their Tarfaya Oil Shale project – RNS (although clearly more hurdles to get through).
• Additional leads highlighted in Morocco as a result of the latest 2D seismic survey (RNS).
• A Prospective recoverable resource upgrade for Albania amounting to a total of over 1 billion barrels of potential recoverable oil
• A transfer of risk of the Barryroe license, in exchange for a 4.5% net profit interest of the whole field (RNS)

News to come soon:

• Barryroe update
• Siciny-2 well in Poland, spudded 11th November
• Rogity-1 well in Poland, spudded 13th December
• Further Morocco updates

And this doesn’t cover the half of it… On top of all the above, the SP is sat at around 11p, which is simply ludicrous. Rumours on the various BBs are that the big REALM sellers are now done, so hopefully the path should be clear for a rise over coming weeks. But we’ll see.

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.

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!

San Leon Energy – NAV Assessment

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.

Summary

I’m not actually in SLE at the moment, but it came second in the poll, and I had numerous requests, so I thought I’d do an assessment, and I’m glad I did!

I’ve had to approach this one quite differently, due to the utterly ridiculous NAVs I get if I apply $12 a barrel and $1.5 per mcf of gas to all of SLE’s risked prospects. I have the following charts for you:

• All of San Leon’s assets (Risked NAV at $12 per barrel, $1.50 per mcf gas)
• All of San Leon’s assets – adjusted to find a value per barrel that suits today’s Share Price.

• San Leon’s assets to be explored in 2011 (Risked NAV at $12 per barrel, $1.50 per mcf gas)
• San Leon’s assets to be explored in 2011 – adjusted to find a value per barrel that suits today’s Share Price.
• Perhaps a more sensible chart – % of priced in assets (possibility)

Overview

Clearly this is a company that’s very much in its exploration phase. While doing my research I thought it’s quite similar to Chariot Oil & Gas in that it has tonnes of potential, and literally billions of barrels of potential, but very few drills under its belt (Chariot has none).

It looks as though SLE has some big plans for 2011, it’s Moroccan Shale project looks particularly exciting. They’re piloting it at the moment, and targeting 10 billion barrels recoverable plus. The website states 50 billion, but I’ve stuck with the more conservative figure from their 2010 presentation. The oil was discovered there by Shell in the 1980s, but was uneconomical to extract.. The question now is, does the technology work and can this potential be unlocked?

Shale Oil / Gas

I’m not very familiar with shale oil extraction, but I’ve noted SLE state a $32 per barrel extraction cost. At today’s prices, I expect that still leaves behind an industry average profit per barrel.  I have therefore assumed the same per barrel for the shale prospects as any other, and I expect them to average out. But as I’ve said, these assumptions lead to ridiculous figures, so I have turned the spreadsheets around to find tha value per barrel the market has currently placed on SLE’s risked assets.

I believe there are higher risks associated with shale oil extraction remaining competitive, which is perhaps why the market doesn’t seem to be pricing these in.

Risked NAV for all of SLE’s assets

The bottom line is that when I apply $12 a barrel and $1.5 per mcf of gas to SLE’s assets, I get ludicrous figures for NAV, even when risked (Chance of Success factored in).  The below chart will give you an idea of what I’m talking about.

SLE Assets – Risked NAV

Hmm… So yes, you’ll see £15 a share, or £12 billion valuation. I have double checked the spreadsheet, and then checked again.

I realise that this is a silly way of valuing a company in its current phase, as if one of their big projects doesn’t come off, suddenly a big chunk of this potential can be wiped off. But the numbers are interesting nonetheless.

Adjusted for today’s Market Capital

So if I adjust the spreadsheet to try and find the valuation that the market is currently placing on each potential barrel of oil, and 1,000 cubic feet of gas, I get the following chart:

SLE All assets – Risked – Value_per_barrel

So this gives us around $0.25 per barrel and $0.025 per mcf of gas.  Each government has different taxes, each prospect has different associated drilling costs etc.. So different profits per barrel will apply, but I’m quite sure $0.25 is on the low side.

2011 Assets

Now clearly the market rarely prices in drills that aren’t going to happen for a number of years, so I’ve reduced the above to cover those assets that are planned for development in 2011.  The below chart is the equivalent of the first NAV chart but for 2011 assets (risked)

SLE’s 2011 Assets – Risked NAV

This gives £8.81 NAV per share, or £7billion total NAV.

2011 Assets – adjusted for today’s Market Capital

So again, if I adjust the spreadsheet to try and find the valuation that the market is currently placing on each potential barrel of oil, and 1,000 cubic feet of gas, I get the following chart:

SLE 2011 Assets – Risked_Value_per_barrel

So this gives us around $0.40 per barrel and $0.05 per mcf of gas. Again, each government has different taxes, each prospect has different associated drilling costs etc.. So different profits per barrel will apply, but I’m quite sure that even $0.40is on the low side.

Perhaps a more sensible way of looking at it:

I’ve done one final chart, which looks at the 2011 assets. I’ve adjusted the CoS to act as a ‘priced in’ factor. This leaves Nida priced in at 40%, The current Irish assets priced in, cash value (estimated) priced in, and then 0.5% of the Polish shale project and 0.2% of the Moroccan shale project.

SLE-Priced in Assets – One Option

So that gives us a NAV of 37p per share.  It’s just one of many ways of trying to get the NAV to match the current Market Cap.

Conclusion

To be perfectly honest,  I’m not quite sure what to make of this… I keep thinking I’ve done something wrong, and that I probably shouldn’t publish it (perhaps something to do with the Shale). Please feel free to let me know if I have.

I accept that the NAV valuations are unrealistic given the stage the company is at, but it is funded to drill, and well supported by various partnerships, so things are going to start happening with SLE in 2011 in my opinion. The company is very exposed and reliant on good drill results, as is any company in this phase of its life. It has some small producing assets, but the real story is in these large exploration assets that San Leon has large portions of.

It seems to me some of Nida, Poland is priced in, along with the current Irish prospects and the company’s cash position as a result of recent fundraising. Only a very small portion of the upcoming explorations seems to have been priced in at these levels, but that’s just my observation.

Lots of high impact, but high risk, prospects coming up, and aggressive but funded 18 month plan is now underway to try and realise some of the potential value.

I’ll make no further conclusions, I’ll leave those to your good selves!

 

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.