Faroe hit more oil zones with Brasse appraisal

Well done to Faroe team! The Brasse appraisal was drilled in super quick time based on my expectations. I had mid June pen’d in, so today’s news is a welcome surprise.

The company said, “The appraisal well successfully penetrated the oil-water contact on the flank of the Brasse field and encountered approximately 8.5 metres of gross oil-bearing Jurassic reservoir above the oil water contact. Preliminary results based on extensive coring, wireline logs and pressure data show that the well has encountered oil in a sand rich reservoir of very good quality.” END.

Full rns is below. The company will now perform a DST. This will hopefully provide the company and in due course, ‘the market’ with flow rates which will help define the commercial story for Brasse which is already…. very commercial! Assuming they gain decent flow rates, today’s data should move the resource figurs up a decent notch.

Faroe’s share price has fallen from 109p levels which was achieved this year with oil prices near $57pb. The fall to mid 80p levels looks a little overdone considering today’s news but more imprtantly the hedges at $54pb and the near 50:50 mix in the production of Gas/oil.

Faroe is not your typical ‘oil’ focused company and is very much an oil and gas business. The exploration tax credits that come via the Norwegian gov make wells like these very cheap indeed. Faroe is a bit of a freak E&P in today’s climate. They have cash in the bank, no debt and a massive folio of resource targets many of which are bordering on reserve status. And if that’s not compelling, throw in the circa 15kboepd production and the picture is complete.

On a side note; Delek (israel based business) bought Ithaca Energy out for 120p a share in 2017 after initially taking a 21%+ interest in the shares at a price of approx 54p. In Dec 2016, Delek bought Dana’s 13.8% stake in Faroe at a price of around 89p a share. Today, it is possible to buy in cheaper than Delek and that’s with Brasse news added in. That said, DST news still pending and data is only preliminary at the moment.

Faroe is part of thesharehub top ten for 2017.

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13th June 2017
Faroe Petroleum plc

Brasse appraisal well preliminary results and commitment to Drill Stem Test

Faroe Petroleum, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in Norway, the UK and Atlantic Margin, is pleased to announce the results of the Brasse appraisal well in the Norwegian North Sea (Faroe 50% and operator, Point Resources 50%).

The Faroe-operated Brasse appraisal well (31/7-2S) has been drilled to a total depth of 2,450 metres, targeting a seismic anomaly approximately two kilometres to the southeast of the main discovery well (31/7-1 announced July 2016). The appraisal well successfully penetrated the oil-water contact on the flank of the Brasse field and encountered approximately 8.5 metres of gross oil-bearing Jurassic reservoir above the oil water contact. Preliminary results based on extensive coring, wireline logs and pressure data show that the well has encountered oil in a sand rich reservoir of very good quality. Preliminary analysis confirms the same oil-water contact as in the 31/7-1 discovery well and side-track and indicates good pressure communication within the reservoir.

The joint venture has now committed to perform a Drill Stem Test (“DST”) for further confirmation of well productivity, investigation of reservoir distribution and to provide important additional information for development project planning. Advanced pressure gauges, which communicate with surface after the well has been plugged and abandoned, will be installed in the 31/7-2S appraisal well to provide long term pressure monitoring of the reservoir.

The joint venture will shortly decide on whether to drill a potential side-track to the current well (31/7-2S). The joint venture will also decide on whether to drill a potential second appraisal on the Brasse discovery later this year, dependent upon further analysis of the 31/7-2S well and DST results. Evaluation work on the recently awarded prospective Brasse Extension area (Faroe 50% and operator) also continues, ahead of a potential decision to drill in 2018. An update of the Brasse oil and gas resources estimates will be announced following completion of the ongoing Brasse appraisal drilling and testing operations.

The Brasse discovery is located within tie-back distance to existing infrastructure: 13 kilometres to the south of the Brage field platform, in which the Company holds a 14.3% working interest and 13 kilometres to the south east of the Oseberg Field Centre.

Graham Stewart, Chief Executive of Faroe Petroleum commented:

“We are very pleased to announce the results of this important appraisal well which firms up the southern extent of the Faroe-operated Brasse field. This well proves the presence of excellent hydrocarbon bearing reservoir to the south of the original discovery and data gathered and yet to be gathered from the forthcoming DST will provide key information as we continue to progress towards development sanction. Importantly, preliminary analysis of the well results confirms Brasse as a commercial discovery.

“Brasse is a significant project for Faroe and the region and it also highlights Faroe’s ability to continue to add significant value through low-cost drilling in our core areas.

“While continuing with an exciting ongoing exploration programme in Norway, Faroe is also actively investing in pre-development and development of several of our own discoveries, each of which has the potential to transform the value of the Company in the coming years.”

Sharehub Hotlist 2017 – Week 23

The weeks are flying by and thus far we’ve had a decent mix of the usual Russian spats mixed with a little North Korea woes, French elections, some Trumptastic events (on a daily basis so get used to it) and of course the big risk event of the year – the UK Elections.And no matter what the market has thrown at it, it just keeps on climbing with major indices are at all time highs. One thing is sure, it’s going to hurt quite a bit when that bubble bursts. Meanwhile, despite OPEC’s 9 month extension, PoO continues to struggle as the Saudi’s and Russian’s remain content with a ‘slow’ rebalance. Both have big events coming up towards the end of the year/early 2018, so as the months ticks by, if PoO isn’t heading where they want it ($60pb) then I expect deeper cuts to be delivered. For the moment, it’s a bit like watching paint dry across the commod sector with many equities just drifting in a typical summer daze.

However, there are some bright spots and Gold seems to be one of them. Every risk event thus far in last 8 months has seen Gold rise to 1290 range and on each occasion it has failed to break 1300 level. Gold presents a good hedge in these uncertain times. With equities looking a bit toppy on the major indices, Gold could be the go-to safe haven if or when a market correction occurs. Hummingbird Resources (part of thesharehub top ten) presents an early position into a soon to be, low cost gold producer. Should Gold edge above 1300 towards end of 2017, Hummingbird will be a stock very much in demand. For the moment, the stock is still a little under the radar despite the sharehub’s efforts in spreading the word. That should change as the moves closer towards Q3/Q4.

The summer may not be that dull for many of thesharehub top picks and here’s what to watch out for in the coming weeks. First up is Enquest. This stock has been choppy of late and traded inline with PoO. However, first oil from the huge Kraken development will refocus the markets mind on Enquest’s ability to generate serious cashflows even with PoO in the high $40’s. A rerate to the sp should occur once Kraken begins to flow oil and continues to build those flows over the coming months. Start up of production will be phased to protect integrity of wells and an initial flow of around 10kbopd should get the market excited especially if it arrives ahead of June 30th guide timeframe. Kraken should flow 50kbopd at full capacity and I would expect this to occur gradually building throughout 2017. This should provide decent news catalysts for the stock and keep momentum flowing.

Next up is Faroe. The main event is already under way and I would expect the Brasse well to TD around this time next week. Like Enquest, the stock has pulled back from highs based on PoO but I think many investors misunderstand Faroe’s mix of oil and gas assets. The company is less sensitive to oil movements than other oil focused players. Any success with brasse well and they should pen in another appraisal for Q3 adding another catalyst for the stock to look forward to. Next is Premier Oil. This stock has been a thorn in many sides. The debt renegotiations and process has hang over the stock like a dark cloud. The warrant deal at 42.75p has not helped much either as I believe this gives some of the larger shorters an easy get out. Once the debt is finalised in the coming 3 to 4 weeks, the warrants will be awarded and I expect the share price will be subject to the usual market machinations. This means some volatility ahead but with the debt cloud lifted, PMO should begin a more positive recovery path assuming PoO remains above $47pb or better.

The big summer blockbuster comes via Providence Resources. PVR was added to thesharehub top ten last week and replaces Ithaca which was sold to Delek and delisted from AIM.

Providence is set to drill the Druid well along with partner Cairn. The Stena IceMax rig is parked in Gran Canaria and should take no more than 4 to 5 days to reach the well location in the south irish sea. Thesharehub will update on when the rig moves. If successful, the resources are huge and PVR could be the first multibagger of 2017. Finally, keep an ear and eye open for Hurricane Energy. If the company is to remain on track for first oil in 2019, then a funding package/farm out deal has to be agreed within the next few weeks. It’s likely to involve some dilution in my opinion and it’s going to be a long period ahead for investors as the company moves to EPS development. The assets are great, but the shape and type of finance package is key to ensure shareholders are not heavily debted and over exposed to risks of further PoO corrections.

Sharehub results week 23.

It’s neck and neck between the Daily Mail and Telegraph picks. It’s going to be an interesting second half to the year for all picks. The sharehub top ten is way down on lower commodity prices but should see a turn around in H2 assuming PoO rebalances. A decent result for PVR could flip the top ten picks by itself, so fingers crossed Providence deliver a billion barrel discovery.

Thesharehub has been a little quiet of late, largely due to the benign and paint drying conditions of the commodity sector. With plenty of news due in the next few weeks and months, I would expect updates to be flowing thick and fast so stay tuned. And remember, always do your risk assessments and research on every stock you plan to invest in.

Goodbye Ithaca, Hello Providence Resources!

Ithaca Energy officially ended trading on AIM and has now been fully absorbed into the Delek empire. Well done to Delek for grabbing a very good quality company. Ithaca Energy are one of a very few stocks out there of late to be taken over. M&A has been missing in action for a few years now since Shell’s big move on BG. I would expect more M&A to kick in as we head into 2018. In the meantime, Ithaca’s sale leaves the sharehub top ten with only 9 entries which is not ideal. As mentioned in previous posts, rather than leave Ithaca in with a 20% gain (in at 99.5p and out at 119p) the decision is to reinvest the cash into a new stock thus giving some interest and growth opportunities for the second half of 2017.  It was not easy finding a worthy replacement for IAE, but thesarehub top ten is suffering from weaker PoO prices as a whole and needs some firepower to get it back into the race. If PoO advances back to mid $50’s in second half of 2017 or higher, then the top picks should perform well. One area that has done well over the last year or so is ‘high impact exploration’. It’s a very risky business but it tends to deliver high growth rates if successful regardless of PoO’s movements. Hurricane, Sound Energy, Pantheon are all examples of exploration stocks that have outperformed producers. So based on this, Providence Resources has been picked as IAE’s replacement. PVR has a portfolio of high impact prospects as well as proven discoveries in Barryroe/Spanish point. In a few weeks time, the company is about to drill what I believe to be a ‘monster sized’ resource opportunity. The Stena IceMax drill ship has been contracted to drill the Druid well and is currently undergoing final tests west of Morocco. When it sets sail, the expectation and excitement should begin to build towards what should be this summers big story. PVR is debt free but has no production and prefers to seek farm out deals to gain carry’s on costs. As per news yesterday, PVR has managed to bring on board partners such as Cairn and more recently the prospect of TOTAL. Farm outs are rare in this current market and yet PVR has delivered 3 (pending partner decisions etc). They have plenty more licences in the folio to progress so any dusters will not be the end of PVR by any means. However, disappointment will be met with the usual market sell off. So risks are large but the rewards are high. Not for the faint hearted – that’s for sure.

Providence Resources will be included in thesharehub folio as of today, and entered with a 20% discount to price replacing Ithaca’s previous 20% gain. This is to align the top picks on a 10k initial investment comparison.

More coverage to follow on PVR as and when news arrives.

OPEC deal – It’s all about trust

OPEC and ‘trust’ are not two words that I would put together too often. But that’s exactly what the Saudi’s and Russian’s are asking of their fellow members. Russia is not part of OPEC but the way they have been operating of late, you’d think they may as well be.

For the last 5 months, OPEC and NON OPEC members have delivered on 95% of the proposed cuts with the Saudi’s picking up the tab for those slow to reduce their production numbers. The compliance levels and trust within the group is higher than the market expected. History shows that members struggle to keep to cut quota’s. Many begin to producing more than they should. Others then follow. Hence, ‘trust’ amongst OPEC and NON OPEC is going to need to be high. All involved are going to have to believe that other players are towing the line. If a few blink and wobble, then others will likely follow.

The sell off in PoO post OPEC meeting was to be expected as the meeting delivered no ‘new’ news. The market needed deeper cuts to move to a mor ebullish $57pb range. Instead, traders departed expecting a slow drift as markets watch for supporting data over the coming weeks and months. DRAWS are now expected every week. You’d think that’s bullish, but in this market it’s already priced in. What is not priced in is huge DRAWS. The kind that makes the eyes widen. The market is in a delicate position at the moment and any ‘shock’ news on supply tightening could see PoO react very quickly. The Saudi’s in particular have shown some further intervention to prices by restricting production volumes to certain parts of the US. It’s a little trick that most are aware of but it can effect the headline numbers on EIA reports. The Saudi’s have also cut more than their share from time to time. With the Aramco IPO still very much planned for next year, they clearly have a keen interest to see PoO higher. Equally, the Russian’s are keen to see PoO support continue through to March 2018 or beyond. Putin has russian elections coming up in Mid march 2018 so it suits him perfectly. Crude will not be the only thing he’ll be reinforcing. I suspect the US will be keen to give him some of his own medicine come election time – best get your media firewalls sorted ahead of that one Mr Putin.

In summary, it’s Russia and the Saudi’s that can be trusted as they both have key interests coming up in early 2018. But as for the rest of the rabble… well, that’s anyones guess. So watch out for compliance level updates over the next few months, they are in theory just as important as the EIA reports. 5 months of 95% compliance is commendable, but 14 months of the same is hard to believe. And that’s going to keep plenty of traders guessing over the next few months and PoO is likely to bob around in the same pattern seen in the early part of the year.

Hummingbird Resources – Final Results

HUM issued final results this morning and whilst most was expected in these results, it is managements overview that is more telling and makes for a terrific read. Hummingbird Resources are refreshing in many ways. Their communication to investors is excellent. Their commitment to the Yanfolila Gold development is 110%.

Daniel Betts and team have made huge progress since gaining funding late last year. The company website has some great images and video’s showing the Gold development growing by the day. All is on budget and on time at present. There’s still some hurdles to leap but all the main long lead time materials have been ordered and are on site derisking the project further.

As Daniel states in this mornings results…

Based on this capital structure and looking forward to our first year of full scale production, this marks Hummingbird out as the standout gold developer trading in the public markets.  It is trading on 1.26 times projected free cash flow for the first full year of production against an industry average which can range anywhere from 15-25 times.   In the first full year of production, cash flow per share will be 20p.

This assessment of Hummingbird’s exceptional position in the market does not take our 4.2Moz Dugbe gold project in Liberia into account.  Broker Cantor Fitzgerald has suggested that this project could offer significant further upside and add a further 14p in value.

It is with this in mind that I firmly believe that Hummingbird is due a re-rating in the market as it evolves into a profitable mining company and delivers the significant free cash flow highlighted in our DFS.” END

I couldn’t agree more with him. Hummingbird should be in the mid 40’s by now especially with so many risky items in the development now completed and thus derisked.

Daniel also hints at a possible incease in reserves/mine life…

“Exploration has taken a back seat over the past year, for the reasons stated above.  However, as we approach the commencement of production, we are starting to now evaluate exploration targets (both brown and green fields) to extend the mine life at Yanfolila.  We are in an enviable position because we already have the resources to extend the mine life.  It is simply a question of prioritising the best ounces to convert to reserves and bringing these reserves into the mine plan first to improve the economics.  We are excited about our various expansion and exploration initiatives and I look forward to updating the market about these programmes in due course.” END.

There is certainly scope to improve on the resource at Yanfolila and I believe there is a not so subtle hint of what might be to come. As investors that follow the sharehub and HUM closely will know, the greater Yanfolila area (GYA) was recently signed over to Glenwick in a deal which will see Hummingbird shareholders retain approx 45.5% of the undeveloped area but through Glenwick shares. Glenwick have yet to relist and I suspect this will become clearer in the next few weeks. Thereafter, I suspect GYA will be explored via equity raising which will not come from HUM shareholders, but via Glenwick thus minimising risk and diluton. To date the market has not priced in very much for the Yanfolila development potential or GYA. This is something that I think the market will like when it finally arrives. If GYA delivers further resources then the cost to combine with the Yanfolila development is minor. The cost savings across the entire project should thus drop further. Quite remarkable considering costs are already extremely low at sub $700oz.

So what’s the plan going forwards? Dividends? Share buy backs? How is the cash flow going to be deployed once the gold begins pouring in late 2017?

Well, Hummingbird have two main licences. One in Mali (Yanfolila) and the other in Liberia (Dugbe). The latter is actually larger than Yanfolila and yes, the market has not priced anything in for this as it’s very much viewed as non core… at the moment. Cantor assigns 14p but I have no doubts that this will be worth 10 times that amount once fully operational, which of course will take time and capex.

So this is what I would do if I were Mr Betts and team…

  1. Relist Glenwick with funding deal to develop GYA in next few months – the sooner the better as it can be bolted into the developing mining site
  2. Deliver first Gold Pour at Yanfolila and generate cash flows
  3. In mid 2018, use cash flows to get Liberia/Dugbe moving
  4. Flog Yanfolila to Randgold or another larger player in 2019 for a handsome sum
  5. Deploy cash into Dugbe (subject to other acquisition opportunities)

Assuming the above works out, I would envisage a share price close to 500p+. Not bad for a stock currently priced at 25p a share. It might take a few years, but worth the wait assuming Gold remains firm. Should Gold rise above 1250 and towards 1600 levels, the numbers become astonishing! For now, best stick to a medium pricing expectation.

Hummingbird Resources is about as fresh as they come when it comes to growth stocks. As always with any stock risks shoud be noted. See risk warnings in column opposite.

HUM is part of thesharehub top ten for 2017.

Sharehub Hotlist 2017 Week 20

Week 20 turned out to be another ‘volatile’ one for wider markets. The DOW got Trump’d again. That’s not the first time and it wont be the last, so do not expect calm waters ahead. With major Indices at near all time highs, the froth is certainly there to be skimmed. Commodities bounced off support levels after a pretty torrid few weeks. It’s unclear whether this can be supported through the traditionally slower summer months, and in Oil’s case, thursday’s Vienna OPEC meeting will surely define the next ‘leg up or leg down’. Verbal banter has been kept to a minimum which was quite a gesture from the Saudi’s to the Iranian’s considering the latter had a very important election underway. With that now sorted, it will be interesting to see if Iran play ball on the cuts/extension plans. All involved agree broadly with the 6 month extension plans and even 9 month plans look pretty much priced in by the market. Ultimately it comes down to compliance levels. And reading between the lines and history books, most expect these compliance levels to drop fast. The last 5 months of near 95% compliance is well above what the market expected, but the frightening point to consider here is that even with these record breaking commitments, the rebalance still proves elusive. Yesterday’s announcement via President Trump on selling off half of US strategic oil reserves will worry many. It potentially sets up 2018 for another year of gluts and sub $60pb prices. I suspect this news has been ‘outted’ prior to OPEC’s meeting as a basis to secure a 9 month extension instead of just 6. Trump’s visit to Saudi Arabia looks to have been timed and planned with some precision. Another concern for 2018 is that many players who are ‘cutting’ are actually infact doing maintenance to wells and storing Oil. This means that when cuts are lifted next year, some will be faster out of the blocks than others and oil coming to market will be instant and higher than ever before. Clearly some kind of forward ‘ongoing’ management of PoO is going to be required for a good few years yet.

All eyes will be on May 25th’s meeting although for many the outcome looks odds on to extend. 9 months looks like the obvious choice to me.

Stocks to watch out for over the coming weeks… keep an eye on Providence Resources. The huge Druid prospect is due to be drilled in the next few weeks and it’s set to be this summers blockbuster event for smaller caps. Hummingbird resources continues to make good progress on their gold development and with volatility likely to rise in 2017, a gold focussed stock is not a bad idea if seeking some hedge to other commodities like PoO or just plain old market volatility. Finally, Faroe’s Brasse appraisal well is due to spud in a matter of days.

Week 20 results below: