Another almost motionless week for TheShareHub picks. Commodities are stuck in the middle of a market reluctant to take on risk while easy pickings are available. Trump v China appears to be coming to a close, although one imagines that it will likely require 6 monthly or 12 monthly reviews. The outcome is almost baked in already with the DOW just 4% shy of all time highs. It wasn’t that long ago the index was trading at 22000, some 3500pts lower. Around the corner, Brexit fast approaches. It is tempting to ignore this debacle but unfortunately it is a headwind that needs addressing. Mrs May needs to get her skates on as she’s fast becoming known as Mrs Delay. We are at the sharp end now yet ask any politician what happens post 12am on March 29th and not many will be able to tell you. Of course there will be a transition period, a period of ripping up old rules/regs and a period of creating new ones. Based on Parliaments performance to date, one imagines that to be just as chaotic as Brexit itself. So get used it. Uncertainty will be around for much longer than many would like you to think. There is no quick solution. It’s going to take years. Moving on to the hall of shame… this week it’s Sergio and Tusk that take the headlines. Sergio sought out the devil in the greens and after hacking a few to bits with his shoe spikes, gave up on his hunt. He was later disqualified. Golf seems to be one of those sports that just turns a blind eye to such abuse, unless you’re a local club player and the penalty would be more than a few drop shots. Cancelled membership and booted out the door is the norm and quite right too. Perhaps a ‘ban’ for misbehaving professional golfers might be an idea? Mr Tusk may have stepped over the line with his headline catcher but as many have highighted… he has a point. When David Cameron delivered a referendum, the British Public assumed he and his party had done due diligence on how to exit and identified the main issues or hurdles ahead. The Irish border was, has always been and still is the elephant in the room. It’s now approaching 2.5 years and the solution has been left to the last 30 to 40 days? Of course, it takes two to tango and what Mr Tusk seems to be missing is that he and the EU are just as culpable. From day one, the EU made it clear that they would make any exit process feel like HELL. They would make it as difficult as possible. They had to. Why? Because they had to teach the UK a lesson. They had to set an example to other potential ‘leavers’ within the EU. They had to send a message. So in answer to Mr Tusk’s… ‘a place reserved in hell’… for certain individuals, that will be the seat next to yours then Mr Tusk?
Week 06 Review:
The Newspaper picks continue to do well as the FTSE focussed stocks ride the wave of US/China trade talk positivity. Brexit… what Brexit! Commodity stocks continue to tip toe around as global growth worries cancel out higher Oil/metals prices. A weaker dollar would help too but that seems artificially assisted these days. The Saudi’s appear to be keen in seeing WTI above $60pb and it would not take much to get the price there based on recent cuts and Venezuela issues. It should be just a matter of time before PoO rises back to 2018 ave levels circa $71pb for Brent. This bodes well for the likes of Tullow, Premier Oil and Enquest. These big producers have big debt too but the cash being thrown off at $70pb+ is huge. As debt reductions kick in, share prices should rise strongly assuming production levels and oil prices remain firm.
TheShareHub’s first heads up of the year – Echo Energy delivered the first duster of the year. Disappointing but the company has an active plan going forwards, solid production of circa 850bopd and around $20m in cash (assuming some spend over last 6 months). A poor result was already priced in at 8.6p (price down from 12p placing), so the fall to 4.3p yesterday looked utter madness, but that’s AIM for you. As many ShareHUB followers know, Amerisur Resources struck black gold with the Indico-1 well in CPO-5 block, Llanos basin Colombia last year. Early in Jan 2019, the well flowed at 5100bopd. This was put immediately on short term testing and will then go onto long testing with all production being sold at the well head. It’s quick payback and instantly delivers reserves. And the markets reward… about 1p to 2p a share at present based on 16.8p. That’s around £20m improvement in market cap. That values the added reserves (approx NET 6.2mmboe) at around £3m per 1mmboe. The industry standard is nearer £10pb or £12pb for light oil offshore with infrastructure. After all costs, AMER’s profit on a well like Indico-1 is around $10m per year. (Note: Other issues like security and development performance also come into play when valuing reserves.) Clearly undervalued and with another 5 to 6 wells due in the basin this year, Amerisur shares should be in hot demand. Of course, risks remain and success with the drill bit needs to translate into higher production and stronger cash flows. The latter is perhaps Amerisur’s weakness of late. Exit rates of 7000bopd seen in 2017 have slowly reduced to rates of around 5400bopd and that’s including the recent approx 1500bopd contribution from Indico-1. That said, assuming all goes well in 2019, Amerisur could be entering 2020 with over 10kbopd. Plenty of success required to get there but fully funded, debt free and cash generative even at oil prices below $25pb, Amerisur looks ready to finally rock and roll.
Elsewhere, PetroMatad looks odds on to become The ShareHUB’s first multibagger of the year. An active drill plan in 2019 should keep investors happy and the share price lively.
Wishbone and W Resources are both suffering from warrant overdoses. Get past these and the share prices should benefit if or when the good news flows in. Both are approaching key target operational milestones for their mines and the next stages should be a significant step up.
Columbus Energy is suffering from the traditional ‘no news’ AIM drift. Whilst management have already said that 2019 is the YEAR they have been waiting for, progress and communication to shareholders has been slow. As highlighted last week, news should be forthcoming as plans to drill in the SWP region likely requires lengthly planning, permits and rig acquisitions. With the share price drifting from 6p to 2.4p, the pain for long termers has been severe. Dilution has not helped through several placings but debt is now under control and almost reduced to zero. CERP are now in a strong position to push on which begs the question why the sp is at such lows. Management need to outline clearly the plans for 2019 and give shareholders some dates to look forward to. The share price should rerate back to 4p levels assuming all plans look good.
Upcoming news? Watch out for news from Premier Oil on Zama-2 DST results (est. next few days or week) and Amerisur Resources Calao-1x well est. to TD in about 2 weeks time.