Heads up – I3 Energy

The following note was issued exclusively to ShareHUB subscribers on June 4th 2019. Now available to all ShareHUB readers.

I3E 2 year Chart

I3 Energy PLC is a newcomer to AIM having listed just under 2 years ago. Its taken them that long to get a summer drill funded and organised on their Liberator Field. On June 3rd 2019, the company closed the deal on a transformational Junior Loan Facility of £22mln. These funds together with the previously successful £16mln share placing (12th March 2019 at 37p a share), means the Company is now ready and loaded for an exciting Summer 2019 drilling programme.

Drilling operations on the Liberator Field are expected to commence as early as mid-July 2019, using the Borgland Dolphin semi-submersible drilling rig. The Company has also made good progress in its negotiations with RSRUK to finalise offtake terms for the Bleo Holm FPSO and continues to progress documentation with the OGA for the Liberator field development plan.

The Company has also executed a crude oil offtake and marketing agreement with BP Oil International Limited to market its crude production from the Liberator field. First oil from the Liberator field remains 2020 with flows expected at approximately 20,000 bopd, from two development wells.

I3 Energy Said:

“We are very pleased to announce the closing of this £24mm funding package. The Company is now funded for its upcoming 94-day, 3-well drilling campaign this summer on its 100% owned Liberator field and Serenity prospect, which is targeting a combined STOIIP of over 500 MMbbls. The Company is now fully focused on delivering a successful 2019 drilling programme and execution of the Liberator development to deliver first oil in 2020.”

Lombard Odier Asset Management (Europe) Limited have been a key shareholder and recently took on an extra £2m equity placing at 37p which looks to have sealed the deal in terms of the Funding package.

With a market cap just shy of £39m, i3E clearly has plenty of upside should they deliver success with the drill bit. The junior facility is expected to give way to a more significant £50m to £100m loan facility upon a successful summer campaign which will be required to see the company through FDP and 20,000 barrels of oil. The company has just under 95million shares in issue so it would be fair to say that shares in issue will rise as the project progresses. But should they succeed, it might be worth noting Hurricane Energy as an example of a explorer that has now turned producer with their EPS set to produce 17,000 to 20,000bopd albeit with sizable resources under their belt but as yet, limited proven commercial delivery… to date. Hurricane Energy’s market cap is £1.1bln.

A long way to go for I3E, but with the funding package sorted and the drill bit set to start spinning in just over 4 weeks time, the stock should be in high demand in a very tight market with just under 100m shares in issue (many of which are in Lombard’s hands).

Not without sizable risk, so please conduct your own full diligence/research and read all risk warnings (see side bar of website).

ShareHUB target for 2019, 120p. Assumes a successful 2019 drill campaign.

Price at time of note: 44p
Current price: 48.25p.

Heads Up – Echo Energy

The first HEADS UP of 2019 goes to ECHO ENERGY. (First published on Jan 30th 2019, exclusively to ShareHub subscribers).

Echo Energy, is a Latin American focused upstream oil and gas company, with an active operational programme in 2019.

On Jan 8th 2019, the company issued an update on operations

“Further to the Company’s announcement of 11 December 2018, the Company confirms that the equipment required for the stimulation of the EMS-1001 well, drilled in June 2018 on the Company’s Fracción C licence, onshore Argentina, has now arrived on site and that stimulation operations have commenced.” END.

Assuming progress has gone ahead as planned, results from the early stage work should be coming through shortly. Investors looking for high risk vs high reward but with a decent platform to fall back on such as core production streams and cash in the bank… look no further…

The company has a two well Stimulation Programme lined up meaning that if EMS-1001 disappoints, they have ELM-1004 to follow straight after.

During 2018, the Company drilled four wells across the Company’s onshore licences in Argentina (Fracción C licence).  The first (ELM 1004) and third (EMS-1001) of these wells were initially successful with the Company announcing on 21 June 2018 that the third well in the sequence was considered potentially material following interpretation from the wireline logs. 

Current Production

In 2018, the Company successfully completed four well interventions (CSo-96, CSo-104, CSo-21, and CSo-80) in the Cañadon Salto Field, onshore Argentina (Fracción D licence).  On 22 October 2018 the Company announced that these wells had achieved stable production levels. Production from these wells has contributed to a total Company average net production in the year to 12 November, of 876 barrels of oil equivalent per day.

Following the success of these workovers and the associated production uplift, the Company has identified a number of additional candidates for well interventions and expects these operations to commence this quarter (Q1). 

The Company is also evaluating the potential for gas development projects within the Fracción D licence, with a view to monetising existing undeveloped 2C resources.

Key Asset: Tapi Aike

The Company’s primary objective in acquiring its Argentinean business was to secure access to the high impact Tapi Aike exploration acreage.  

Tapi Aike – Seismic Acquisition.
3D seismic’s over 1200km2 on the Company’s high impact Tapi Aike exploration should be underway soon as per last years update and cited to take approximately 4 months.

The Company believes that the Tapi Aike licence offers a compelling multi Tcf exploration proposition and, following completion of the upcoming seismic acquisition programme and subsequent data interpretation, the Company currently expects to define an initial 4 well exploration drilling programme with each well estimated to cost between US$2 million and US$5 million net to Echo.

Cash: Cash balances of £26.1 million as at 30 June 2018
Debt: Approx £12m via Bond 8% per annum. Warrants attached exercise price of at 15.1875p. Bonds due May 2022.
Market cap: £41.3m
Current Share Price: 8.65p

The cash pile will have reduced from June 2018 but with ops running low for the last 6 months due to delays, the cash pile should not have reduced dramatically. With close to 1000bopd production, the Bond 8% interest should be comfortable to manage along with capex. Should well stimulation plans go to plan, production could rise significantly and potentially enhances plans for Tapi Aike.

The share price looks cheap based on cash balance and production levels. Throw in the active well plan and the risk vs reward is compelling. Not for the faint hearted and key risks remain. As with all stocks, research thoroughly and do not invest more than you can afford to lose. Please read the risk warnings in the sidebar.

Target Price: 25p (Multibagger potential)

PetroMatad – Raises £13.7m in placing

PetroMatad, part of TheShareHub ‘heads up’ picks for 2018 (tipped at 7.12p) raised £13.7m in what looks like a pre-planned capital raise despite the apparent 16hr turnaround. The placing comes as a bit of a surprise as PetroMatad was fully funded for the 4 x high impact exploration campaign in Mongolia. There was no obvious reason for this capital raise at 10p a share which represents a 17.7% discount to the average daily vwap for the 30 days up to 12 June 2018. With 4 x wells, the company would have had several opportunities to secure further funding even with a duster or two. However, when you look a bit closer at the takeup of the 10p placing offer, you will note the following:

Concert Party Holding
Following Admission and the issue of the New Ordinary Shares to Enkhmaa Davaanyam, the Petrovis Group (being Petrovis Matad Inc, its underlying shareholders and their family members) will hold 196,849,199 Ordinary Shares representing 29.73 per cent of the Company’s enlarged issued share capital.

Prior to the fund raiser, the Petrovis Group held approx 27.81% or 146m shares based on holdings from the company website. After this fund raiser, the ‘family’ now hold 197m shares. That’s a whopping increase of 51m shares (assuming Petrovis new shareholding) which accounts for almost 38% of the new shares.

This capital raise looks timely just ahead of the first drill. It reminds of when GKP did a capital raise at 9p a share of which the CEO and connected parties (family) took on the bulk of the issue. A few weeks later and the company announced a multi-billion barrel discovery.

PetroMatad have bolstered the drill plan of 4 wells to 6. The total resources targeted is closing in on 1 billion barrels. I’m not convinced that the extra 2 x wells is a good enough reason to justify this discounted ‘family’ rated placing. That said, there is always something to be said with regard cash balances and outright exploration companies. Having a solid cash balance can enhance the value of any future farm in deals and should the company achieve this on the 2 x new wells, the value generation will undoubtedly be evident to all. Equally, if drill 1 or 2 comes in with gusher style discoveries, this placing at 10p will look rather fortunate for all involved and quite unnecessary.

With 4 x wells in 2018, shareholders will not be disappointed to see another 2 x wells planned for 2019. Just a shame the company didn’t issue the other 62% of shares to their extended family… their existing shareholders. An open offer deal could have been sorted as there are no major timeframe concerns on the new cash required.

Roll on the first well in July. Even if that’s a duster, there are another 5 wells coming shortly after which should underpin the share price considerably. As with all exploration, there is a risk all 6 drills come up dry so don’t underestimate the risk involved with your investments on outright explorers.

PetroMatad cheap as chips

With royal wedding fever alive and kicking I thought it might be worth revisiting Kate & William’s more formal day. It was roughly 7 years ago (time flies doesn’t it?), in April 2011, when couple tied the knot. Around the same time, Chariot Oil & Gas raised a further £100m in cash from investors to fund an exploration drill in Namibia. Small change at the time? UBS thought so.

From 2009 through to 2011 (approx) Chariot Oil & Gas jumped from 16p to test 300p+. UBS at the time (2011) were giving out targets of 450p a share or roughly £800m market cap ahead of drilling.

Times have changed since then… or have they? Back in 2011 Brent averaged around $110 for the year. However, OPEX was nearer $75pb in those days giving $35pb or so towards profits. Today, Brent is shy of $80pb but OPEX on most producers is just below $40pb. Some have lower OPEX’s near $30pb. The profitable upside is actually higher now than it was in 2011.

So why is PetroMatad priced at £60m market cap when CHAR back in 2011 was priced at £400m?

A lot has to do with ‘market conditioning’ and ‘sentiment’. It’s been a while since we’ve had a mega discovery. Billion barrel discoveries are rare. The chances of success are low. So how does this compare to Premier Oil’s Mexico discovery? Or Hurricane Energy’s North Sea discoveries? Both are in the billions. Both have delivered the largest discoveries in the last decade yet the today’s market treats them like minnows. And as for ‘sentiment’. Well after a few dark years post OPEC’s Dec 2014 decision to flood the market, things are looking better again. Sentiment has improved although you wouldn’t know it looking at some minnows targeting big exploration.

Whilst I think many would agree that in the days of 2009 through to 2011 CHAR’s move from 16p to test 300p+ was a little premature, the point here is that UBS and other analysts at the time were comfortable with banging out broker notes with even higher targets.

Today, At 12p a share, PetroMatad is priced at just £61m. If it were to rise to the lofty heights of 50p a share, it would still be priced at half of what CHAR achieved 7 years ago when profit margins on oil production was indeed lower than they are today. As per usual, the market spins its own web of uncertainty but the truth is… billion dollar discoveries actually are possible as proven recently by PMO and HUR.

PetroMatad (MATD) are due to kick off a 4 x well exploration plan in the next 6 to 8 weeks. It is likely to be back to back drilling and assuming the summer fever is upon us, the usual non-stop AIM style excitement should run all the way through to October. It could be exhausting but with 4 x high impact drills lined up (100% owned), I reckon they stand a better chance of hitting the black stuff than CHAR ever did. If sentiment continues to improve, it might not be too long before PetroMatad’s share price improves too.

PetroMatad (MATD) is part of the ShareHub ‘heads up’ stocks for 2018. Usual risks apply. Please read the risk warnings in the sidebar.

Petra Diamonds – A Rough diamond that should polish up well

Petra Diamonds (PDL) has certainly been in the wars of late. Issues with ‘Sales Parcels’ being held up, tough challenges from labour strikes and the strengthening Rand are the main points of concern. Oh… and that $650m debt pile of course! But even taking the above into consideration, does a near 100p knocked off the share price over the last 12 months justify the fears? PDL’s core businesses/mines are performing very well. Record volumes and lower capex are hardly good news stories to ignore. The business and sales throughput is strong. Which just leaves the other niggles to worry about. Assuming the Rand begins to work in PDL’s favour (even marginally) and the ‘Sales Parcel’ issue gets resolved amicably – the debt situation should sort itself out. The company is expected to reduced debt to a range of $560 to $600m by end of H1. Further details on 2018 capex plans and potential operational savings are expected to be revealed when the company issues interims on Feb 19th. That’s just 5 days away, so not long to wait.

For investors that like a recovery story based on strong fundamentals rather than market casino algo bots… PDL might be your answer. The business looks robust but significant near term risks remain. Resolve those issues and the recovery to 100p+ should be fast. And remember, diamonds are forever.

The ShareHub initiates coverage on PDL (part of the ShareHub ‘Heads up’ calls for 2018) with a share price target of 130p.

Based on current share price of 68.3p, that’s within a hair of multibagger potential with a serious sparkle. No guarantees of course so please read the risk section in the side panel.

Petro Matad excites with high impact 2018 exploration schedule

Each year the small cap minnows take to the stage hoping to strike big. Funding is the first big barrier and with farm outs even eluding the likes of Hurricane Energy after making a number of huge discoveries, it’s not easy getting exploration (let alone development) underway in a market that to date has not needed to take much risk to make alot of money. But signs are there now that after 2 years of OPEC Oil glut management, and 6 years of free QE bluechip injected fluff, institutional investors are begining to look at riskier plays to kick start their high growth plans. PetroMatad’s RNS this morning reveals a fully funded 100% interest owned exploration plan for 2018 which offers investors a front seat at one of the most attractive high impact drilling campaigns on AIM this year. This is not a one drill wonder. There are 4 drills planned. Each one different and offering greater or lower risk/CoS (chance of success).

Investors have had to wait a few years for this campaign and it’s been far from straightforward. BG had initially agreed a farm out deal with MATD but later was forced to pull out after a root and branch cull of exploration by their new owner Shell. This is not uncommon and the likes of Ophir Energy are also feeling the brunt of Shell’s often slow and deliberate progress in Tanzania. BG and Ophir were going great guns until Shell came along. For MATD, it was now all about going it alone. Brave and not without dilution, the company raised $16.8m at 6.5p in January 2018. Funding now secured, it’s full steam ahead on 4 x exploration targets.

Today’s RNS hints that the earliest time any spud will occur on the first prospect ‘Wild Horse 1’ will be mid April 2018 and the latest possible would be circa June 2018. The drilling season closes down in Mongolia around end of November, so MATD will be keen to get on and drill the 4 targets swiftly. A second rig is being sourced for the 2 x drills planned for H2 on Block XX so it’s possible that they could have 2 drills underway at the same time subject to the timelines/drilling durations with the Sinopec Rig 4518.

Key catalysts near term are clearly the Seismics data which is due shortly and the environmental permits with the latter being the last barrier to spudding the first well.

In 2017, TheShareHub picked Providence Resources as a potential summer “heads up’ blockbuster after it revealed 2 x drills back to back in the Celtic basin. The share price was circa 9p and moved up to pre-TD levels of 20p notably some 4 months ahead of the planned Spud date. Unfortunately for PVR, the Seismics were off and nothing of significance was discovered. And that’s exploration for you. Mother nature has never made it easy for explorers. That said, with 4 x drill opportunities in 2018, MATD have essentially given share holders 4 lucky attempts to strike black gold. At today’s price of 7.125p, it might be worth getting the ‘early doors sleeping bag’ and ‘tent’ out if you want to secure a good seat – centre stage. Look out for upcoming Seismics and environmental permit news. Not for the faint hearted and clearly a punt, but at today’s share price levels, one or 2 drills look priced in for free.

The ShareHub initiates coverage on MATD (part of the ShareHub ‘Heads up’ calls for 2018) with a pre-TD share price target of 19p.

Current price 7.125p

………………………………………………………………………………….

RNS Number : 6423E
Petro Matad Limited
13 February 2018

Operational Update

Petro Matad, the AIM quoted Mongolian oil explorer, is pleased to provide an operational update for its planned 2018 work programme:

Highlights

  • Completed a US$16.8 million fundraising to execute a four well drilling programme on the Company’s acreage in 2018, with the first well, Wild Horse-1, planned to spud in Q2 2018 using the previously contracted and fully certified Sinopec Rig 4518
  • Making progress to source a rig to drill the two well programme in Block XX in H2 2018
  • Processing of the 2D and 3D seismic surveys acquired in Blocks IV and V respectively is ongoing. Data quality is very good and the work is progressing on schedule with final processed products expected by the end of Q1 2018

Blocks IV and V

The Company’s planned two well, back to back, exploration drilling programme will commence with the spudding of a well on the Wild Horse prospect in Block IV in the Baatsagaan Basin. The Wild Horse prospect is a prominent structural high well positioned to receive oil charge from two of the largest and deepest potential source kitchen areas in the Company’s western Mongolian acreage. The planned total depth (“TD”) of the well is 1,850 metres, penetrating a significant thickness of stratigraphy within closure. The Company’s mid-case estimate of prospective resources in the Wild Horse structure is 290MMbo recoverable, with significant upside potential (c.750MMbo recoverable) identified in 13 further prospects and leads in the same basin that would be partially de-risked by success in Wild Horse-1. The well is expected to take approximately 30-45 days to drill and log at a cost of approximately US$4 million.

Following Wild Horse-1, the rig will move to Block V and drill the Falcon prospect in the Tugrug Basin. The primary objective of the recently acquired 3D survey was to accurately delineate the cluster of prospects in the Falcon area to ensure the well is optimally located to penetrate the primary reservoir targets. Falcon-1 is planned to be drilled to a TD of circa 3,000 metres and it is expected that the well will take approximately 60 days to drill and log at a cost of approximately US$7 million. The Company’s mid-case prospective resource estimate for the Falcon prospect is 100MMbo recoverable with 180MMbo of follow up potential identified nearby.

The Falcon area has been high graded for early drilling as there is very good evidence, including live oil staining in reservoirs penetrated in a nearby deep core hole, that the petroleum system is working in the Tugrug Basin.  As a result of this high grading, Falcon has moved ahead of the Snow Leopard prospect in the Company’s preferred drilling order. The Snow Leopard prospect remains an attractive target for exploration in the Taats Basin of Block V and the Company looks forward to drilling the feature with the results from the 2018 drilling campaign in hand.

Efforts are now focused on securing the necessary environmental, chemical and land use permits that are required prior to the commencement of drilling. The Company is targeting the spud of the Wild Horse-1 well as early in the Mongolian drilling season (mid-April to mid-November) as possible to provide sufficient time to fully complete operations and evaluate the results of the 2018 drilling programme. The exact timing of the first well spud is dependent upon securing the necessary permits.  As a result of the ongoing engagement with the Ministry of Mining, the Ministry of Environment and the industry regulator MRPAM, the Company expects that Wild Horse-1 will spud in Q2 2018.

Sinopec Rig 4518, contracted for the 2018 drilling campaign in Blocks IV and V, has been stored for the winter in a Sinopec facility in southern Mongolia. Mobilisation will commence once the Company has secured the necessary drilling permits from the Mongolian authorities.

Block XX

The Company is in active discussions with drilling contractors operating in Mongolia to secure a rig for its 2018 work programme in Block XX, and the Company is confident that a suitable rig will be contracted to enable drilling in 2018, as planned. The Company’s current intention is to spud the Gazelle prospect in Q3 2018, with a second well to follow on immediately afterwards at a location still to be determined, based on ongoing technical work.

The prospectivity in the northern part of Block XX, neighbouring the producing fields in Block XIX, offers a good chance of success with the potential to put commercial discoveries on-stream quickly, utilising spare capacity in nearby facilities. The recently approved two-year extension to the exploration term of Block XX allows the Company sufficient time to explore these near field opportunities, with the 2018 two well programme being the first step in that campaign.

Mike Buck, CEO of Petro Matad said:

“This is a very exciting time for Petro Matad as we head into one of the highest impact drilling campaigns any independent has undertaken in Mongolia. We are now deep into the preparation phase to spud our first well at Wild Horse-1 in Q2 2018. We are pleased to see that rig availability for our planned drilling in Block XX looks good. I look forward to updating the market on our progress as our preparations for this highly active year continue”.