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.

 

 

Serica Energy – Overview

Hi all,

Don’t worry, you won’t be getting loads of posts from me every day. But I won’t be able to post anything for at least a few days, so I thought I’d get this up here.

Overview

I’ve been in Serica Energy (albeit in a smaller way than Encore and Caza), since late last year. They’ve had a bad run of luck in the last few months with drills. A number of ‘dusters’ in a row. I’ve quoted ‘dusters’ because actually, the Indonesian drills had Hydrocarbons, just not thought to be commercially significant as stand-alone wells. However, Serica are currently undertaking a strategic review w.r.t their Indonesian assets, so perhaps these finds (collectively) have some value to someone.

I’ve done a NAV assessment in ‘Spandy’ format, which can be found by clicking below:

Serica Energy Assets

Share Price currently 40p, NAV assessment 56p

You’ll notice this is a little more blank than the ones for Encore and Caza, and that’s largely because Serica has sold on a number of assets over the past years, and also because of the dusters I mentioned, meaning there’s no attributable value to some of the prospects. There are some key notes on the right hand side.

Production

Serica have a 25% interest in 3 producing wells out of the Glagah Kambuna prospect, which in Q3 2010 generated a $5.4million profit for Serica. This is one of their Indonesian assets, which may form part of the strategic review.

The Columbus field in the North Sea is a discovery, and is expected to go into production into 2013, but clearly carries in-ground value.

Exploration

Serica have a number of potentially exciting exploration opportunities approaching. One of which is the Spaniards prospect that I have mentioned in my Encore Oil post today. Serica have 30% interest in this license, while Encore have 40% and are operator, and Nautical have the other 30 %. It is in Block 15/21g, which is directly north of a discovery well (15-21/38), which found oil in the Jurassic formations, medium gravity API of 25, and flowed at around 2660bopd. From the diagrams given on Serica’s site, it looks as if they expect this to be part of the same field as the discovery well. Further to this, as mentioned in today’s Encore post, Nautical have published a presentation that states there are plans to drill Spaniards. This can be seen in this NPE presentation.

In addition, Serica have stated (in their Q3 2010 RNS) that they plan to drill East Seruway in Indonesia in 2011, which is adjacent to their current producing asset in Indonesia mentioned above (Kambuna).

In Ireland, there’s the 3 blocks on the Slyne basin and 5 blocks on the Rockall basin, which the company owns 50% and 100% respectively. These have shown significant anomalies on seismic data that could indicate accumulations of up to 1Tcf gas each.

In Spain, Serica are searching for Farm-in agreements for 4 prospects, as shown in the Serica Energy Assets chart.

And in Morocco, a large chunk of new 3D seismic data is being re-processed by Serica.

Summary

Thanks to a number of recent drill failures (which didn’t cost the company significantly thanks to savvy partner arrangements), Serica’s share price has been knocked to the floor. The bottom it has seen is around the 38p mark, and is currently sitting at 40p. The company has stated they will be making a statement about their Indonesian assets at the start of 2011. It’s 2010 end of year results are due in March (released 16th March last year, but could clearly be later this year).

The company is presently priced under its NAV, it is generating significant profit for its current market capital. It does have  a debt facility, which Serica has been actively reducing, was set up for exploration activities, and is not unusual, as I understand it.

Significant exploration activity potential, particularly with Spaniards (a lot of trust if Encore drill this one, as Encore’s track record is impeccable).  And potential sale of some existing assets will add value.

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.

Encore Oil – NAV Calcs (Now and Near term upside)

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.

Update (5/3/11):

All, I have updated / improved the chart (early learning)… It’s now a PDF, so better quality image. I’ve also added some extra info on other assets, and a caveat for the Carnaby prospect. I have updated the CoS for Burgman at the Tay interval, as I believe it has increased since success at Varadero. I have chosen 70% from reading around and gathering a general idea, this is not a stated CoS from anywhere official.

Original Post (with updated chart):

Anyone who knows anything about this company, knows that we’re in very interesting times for Encore Oil. They have just spudded two drills, the Burgman prospect on Block 28/9 (same as the Catcher block) and the Cladhan appraisal well on Block 210/30a (both in the North Sea).

The current Share Price is around the 124p mark.

The link below is a print of a spreadsheet I put together which outlines Encore’s assets as things stand on 4th March 2011. This includes existing proven assets from recent drills, and other tangible assets, but also risked values for current and near-term future drills and the Upside potential they all offer.

Encore Oil – NAV – Now (4/3/11) and Near Term Upside

I think you’ll all agree, the upside is quite exciting! And please bear in mind that this doesn’t include a number of things, such as Tudor Rose, new blocks from 26th Licensing round, Gas quantities in the Catcher prospect etc. I have used $15 a barrel, as I believe this is reasonable given the direction of the Oil price at present, the location of these finds, and the quality of oil (light crude).

I’ve also used 60mmb for Catcher in total (or 120mmb OIP @50% recoverability), which is what Premier have estimates. I have a distinct and strong feeling that they’ve under-stated Catcher at 40-80mmb recoverable, perhaps because they’ll want to purchase it at some point!

The bottom line is that this price is underwritten, and there is significant upside from the near term assets alone. Further upside down the line with the possibility of takeover, and other prospects in their portfolio.

The next few weeks are going to be very interesting.

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.