Ophir hits all time lows – Bullish or Bearish?

The last heads up on Ophir Energy was issued back in Nov 2016 with the share price at around 77p. See post post here. 7 weeks later and the stock was testing 100p a share. The promise and attraction was largely all down to their EG asset Fortuna. This large scale project is likely to deliver around 16kboepd to Ophir in 2020. The majority of 2017 has been spent on delivering the key partners/services required to enable the FID to be agreed and signed. Ophir has to date achieved all the timeline agreements and with deals now in place all that is needed is the signing of a $1.2bln debt funding facility. That’s no shoe-in event so it is very likely that the share price drift to all time lows are due to this risk and possibly some pre-debt arbitrage perhaps albeit a tad presumptuous? Aside from Fortuna, Ophir’s current producing folio of circa 12kboepd looks just fine. Cash flows are significantly better after PoO’s recent rises and higher Gas prices. Debt pile is reducing, net cash still solid. What’s the problem? Well, the market does not like uncertainty. And as mentioned before, prefers to price ‘out’ opportunties or jam tomorrow news and instead discount the share price to project failure levels. To date, with all the necessary parts in place, Fortuna is almost ready to go. Assuming the debt deal is confirmed in the next few weeks (before end of Q4) then the market should wake up again (bit like last year) and a decent share price recovery back to 100p would not be unwarranted especially considering the improved sentiment across E&P’s and O&G sector over the last 12 months.

At 63.5p today, Ophir provides an excellent upside opportunity based on confirmation of Fortuna FID. 50% upside would see 95p levels which looks more than fair. Of course, there is always a chance that the debt deal does not complete and Ophir has to seek another way to finance the project, inclusive of partners and EG gov. That said, at today’s levels, it’s important not to forget Ophir’s other sizable assets. Tanzania assets alone are estimated to be worth approx double today’s market cap and that’s cheap. Tanzanian gov and Shell are not exactly best buddies at present so perhaps the market is writing down the Tanzania ‘sale opportunity’ as being something that’s not likely to happen within the next year or two. I’m not convinced myself. If Fortuna funding does not come in as planned, I do wonder if Ophir has interest lined up for their remaining 20% stake in Tanzania? Pavilion Energy (Indian) might be interested and I’m sure Shell would have something to say too. The current asset is not doing much for Ophir’s balance sheet and to monitise it would be transformational. Any spike in share price based on a sale would be enormous. It’s an event that might or could happen. It’s something that the market should not rule out.

For the moment, Fortuna is 2 years away before delivering gas sales and today’s market is very much about the ‘short term’. Looking forwards further than 6 months seems practically impossible for some analysts these days. But first things first… a debt deal is required before dreaming too far ahead. If/or when the Fortuna debt package is confirmed, then it becomes a little more exciting and of course believable. In 2020, assuming Fortuna is on time and on budget (and rest of folio is performing well) a share price of around 200p+ would not be unusual for a company producing 30k to 35kboepd and free of heavy debt. That said, I would expect 140p+ a share by early 2019 assuming all on track and no equity dilution along the way. Get Fortuna financed and moving and Ophir’s share price should take care of itself.

Broker ratings at present are all ‘in or around’ the 90p+ level.

Certainly one to watch closely over the next few weeks. Ophir Energy is part of TheShareHub top ten for 2017.

Current Share price 63.5p.