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

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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”.

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.

W Resources – One to watch

W Resources. Current Price 0.38p.

This morning WRES.L confirmed a capital raise of approx £1m at 0.375p a share. The chairman dipped in his pocket (not for the first time) and took on £100k himself.

Mr Masterman is not the type of man to invest lightly and has an exceptional track record in establishing and financing new resources companies. He completed the US$1.15bn sale of a 31% interest in the Fortescue Metals Group’s majority – owned FMG Iron Bridge iron ore company to Formosa Plastics Group. Following 9 years at McKinsey, and 8 years as an Executive Director of Anaconda Nickel, he has been a founding shareholder at Fortescue Metals Group, Po Valley Energy and Atacama Metals.

Now, I will confess that I am no specialist when it comes to Tungsten (although I do confess to owning a very nice set of Tungsten darts) even a novice can see the rising demand in the metal up from US$190 / mtu (concentrate) in late Dec 16 to levels near $300 / mtu today. This is clearly significant to a small miner like WResources and surely increases their chances of raising the $30m required to advance the mine operations to 2,700 tonnes of tungsten concentrate and 500 tonnes of tin concentrate per annum.

The company reminds me a little of the early stages of Hummingbird Resources (a Gold miner). WRES small market cap reflects a company with a great asset but a low chance of being able to fund it. Hummingbird was in a similar position in Q3 2016 but were able to get that vital $60m loan agreed. WRES have calculated they need just $30m and that the project should breakeven in year 2 which suggests with prices where they are currently, it will be generating significant cash flows for a minnow miner.

Like Hummingbird Resources, the development is likely to take 12months+ from funding deal. Of course, sharehub readers will know that Hummingbird are now just under 3 months from first gold pour. The share price has almost doubled from Jan 2017 prices and looks like doubling again once the cash rolls in. All small miners carry huge risk and until they get funding in place are relatively cheap compared to the in-ground resource value. Hence, Mr Masterman (what a great name!) may well be sending a message to investors with this recent equity raise. The sum is not much in the grand scheme of things but it may well prove to be the precursor to offtake deals and the final $30m debt agreement. Finance companies have a habit of wanting to see some ‘skin’ in the game from management and Mr M has certainly shown that confidence. In this mornings RNS WRES hints at the staged progress to finance Eg; Sign customer contracts, then get funding…

W is also pleased to announce that it has identified two large investment grade customers for approximately 80% of its planned T2 production of 2,700 tonnes per annum of tungsten concentrate. A Letter of Intent (“LOI”) has been signed by one of the potential customers and a further LOI is expected to be signed by the second potential customer shortly. W’s intention would be to convert the LOI’s into formal contracts in Q4 to provide support for the proposed debt financing announced with the interim results.

Q4 is the company’s target for final debt deal. If they get formal contracts sorted, then I would hedge a guess the funding package will follow. According to the company this will not involve any equity dilution, although today’s small placing does go against that …. although it is minor. In fact, it looks a little like ‘nest feathering’ to me. Look no further than the Frontera Resources CEO (0.09p placing – price now 0.7p) for an example of how to ‘line ones pockets’ before the big events take place!

W Resources has plenty of potential and I would urge sharehub readers to spend sometime looking into the business, including usual risks etc.

If they do get funding secured, then 2018 could certainly be a year of multiple share price progress for this little minnow.

WRES.L is on the short list for TheShareHub’s 2018 top picks.

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