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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Premier Oil – The penny will drop.

It wasn’t that long ago that the market would price in a decent £500m cap ahead of a speculative and low CoS exploration well. Remember Chariot Oil and Falkland Island plays? Success was priced in weeks ahead of the drill bit even turning. Over the last year or so the opposite has been happening. Companies with proven resource / billions of barrels are priced at levels that suggests the resources will never make their way to commercial markets. That said there are a handful of companies out there whereby the market seems to be more willing to listen. Sound Energy is a good example. Not a bubble of gas or condensate produced, in a risky MENA region and Sales still some way off. Market cap £535m+. Another is SOLG, a miner drilling for resources in Ecuador. No sales and very much early stages – Market Cap £550m. The list goes on.

So what’s the problem with Premier Oil? When will the penny drop? Lets take a quick look at what’s under the bonnet.

1.  As at 31 December 2016 PMO had total 2P reserves and 2C resources of 835 mmboe (excludes ZAMA-1). The 700 mmboe represents our discovered but undeveloped 2P reserves and 2C resources (ie excludes reserves associated with producing assets) and relates to projects such as Catcher and Tolmount in the UK, Tuna in Indonesia and Sea Lion in the Falkland Islands.

2. In July, the company discovered the 5th biggest discovery anywhere in the world in the last five years… ZAMA-1. Tony Durrant, Premier Oil’s chief executive, said the discovery, which suggests the presence of more than one billion barrels of oil, “adds materially to Premier’s portfolio of assets worldwide”. Mark Wilson, an analyst at Jefferies, said the announcement about the discovery “appears about as material as we could possibly imagine at this early stage”. Stephane Foucaud, at GMP FirstEnergy, said the size of discovery was well ahead of estimates and there were several “very encouraging” signs, including that it is light oil and the reservoir is of good quality. Light oil is considered preferable to denser heavy oil as it is easier to process. However Mr Foucaud added: “There is no question that one needs to be cautious until the well has been tested.”

3. Production of circa 75,000 to 80,000 boepd.

4. After spending billions on Catcher, first oil is expected by year end boosting production further with numbers in 2018 expected to top 100kboepd.

5. Wytch Farm Sale circa £200m for PMO’s 15mmboe Reserves. (At last a valuation marker! … Take note and then look at the remaining 1 Billion+ in resources).

6. Net Debt of circa £2.5bln (after recent asset sales).

7. Convertible bond (circa 260million shares) set at 74.71p

8. Current share price 66.25p. Market cap of £340m.

They say if you drop a penny from a very tall building it can kill someone. Not a pleasant thought but the point is when the penny finally drops on investors, PMO will be in demand. A rerating is inevitable assuming PoO sustains levels of $55pb to $65pb range. The production and cash flows are vital to ensure debt is repaid but as proven by PMO of late, they are willing to sell off ageing assets to chop off wedges of debt in a faster and more accretive manner. There are many other assets in folio that can be sold off or farmed out. Sealion is one and of course, the recent ZAMA-1 success is another although a couple or more wells on that world class licence will be required to get a decent price. That’s planned for 2018. Exciting stuff.

In summary (and it is a quick review) PMO have assets in the folio which if in another listed companies hands would enjoy a £500m or £600m market cap per asset and that’s cheap. Perhaps PMO should spin them off? If only! Unfortunately, the debt pile is the cloud that hangs over this company. But assuming Catcher delivers production in late 2017 and ramps up in 2018, PMO’s debt will begin to drop fast with PoO in the mid to late $50’s. Perhaps the markets reluctance to rerate the stock is based on past failures like Solan? Perhaps the market just wants to see Catcher producing and debt reducing before it finally agrees the rerate is warranted? But lets get real here for a moment… the company has production levels higher than Tullow. It has prime assets like Sealion and Zama (not to mention Tolmount). It’s assets are by large in secure regions with no significant threats. The debt is reneg’d.

What’s not to like?

Key event remaining this year is the all important Catcher development. The Floating, Production, Storage and Offloading (FPSO) vessel for the Catcher field (“BW Catcher”) left deep water anchorage off the coast of Singapore and is on route to the North Sea. Expected arrival 14th October 2017. Good news on this development over the next few weeks/months should be greeted with a rise in the sp as key events become derisked.

Premier Oil is part of TheShareHub Top Ten picks for 2017. Current SP = 66.25p. Target price at 100p for 2017. TP of 160p for 2018.

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As with all stocks, please do thorough research and please read the risk warning section here.

Columbus Energy Resources rises from the ashes – One to watch

Relaunched, reborn or just refreshed?
The difference between the old company and the new is clear for all to see. After digging a little deeper into the all new CERP.L (having been a past investor to the former company LGO.L) the assets are just as good as they have ever been. The problem with LGO was confidence. This was lost due to poor management and an approach to treat shares/equity like confetti. The former owners, (inc Mr Lenigas) promised a lot and delivered very little. It is no surprise to see investors greet the reborn LGO… now called Columbus Energy Resources with a critical eye and for long term holders, plenty of distrust and disdain.
The new owners/management team look lean and mean. Issuing confetti shares seems the last thing on their minds although funding plans are without a doubt on the horizon further down the line. Management have issued a clear plan and have outlined targets. These all look doable and with minimal cash outlay and fast pay back. The target is 1000bopd. That’s a near 300% increase in current production. If achieved and more importantly… sustained, then the company will move to increase production further in 2018. It’s possible the company could exit 2018 with circa 1500bopd to 2000bopd. That would bring in considerable cash and still barely put a dent in the 12mmboe reserves. The company has plenty of other catalysts to drive the stock higher. Spanish assets are suspended at present and a conclusion to this licence issue should be sorted soon.
Whilst the business is cash generative and has the means to pay down the pre-arranged funding via LIND (previous /current convertible bond holder) cash is instead being focused on raising production volumes with debt payments/draw downs being paid in shares. Today’s announcement of 20.3m shares being issued to LIND comes with a caveat / lock in of 6 months. That should be enough time for the company to deliver sizable production increases and cash flows which in turn should bring in new investors and increase liquidity. Hence, perfect time for LIND to exercise/profit from their new shares.
The assets are plentiful and mainly focus on Trinidad although there are added interests in South America (Colombia) which may see progress in 2018. For the moment, it’s all about boosting the productivity of each well via an infill drilling programme. It’s low cost and pays back swiftly. If you forget about the current production of circa 350bopd and instead look at the 2p reserves of circa 12mmboe and cost per barrel at circa $5pb, you soon realise that there is a large disconnect between the £21m market cap and the company’s full potential.
Should the company boost production to levels near 1000bopd or 1500bopd in next 6 months, the cash generation alone (using $55pb) could be $50pb+. Compared to most other operators, cost per barrel is close to $25pb (and that’s the good ones!). Profit points are closer to $10pb to $20pb at best. Hence, 1000bopd net to CERP, is a bit like 3000bopd to a higher cost per barrel player. Of course, that’s a rough comparison and tax /decom costs should be considered too. As should WTI / Brent pricing with $5pb difference at present.
For the here and now… CERP is doing around 350bopd. The new management team will know all too well how dangerous it is to over promise and under deliver. Hence, when the Exec Chairman Mr Leo Koot says he thinks production can boosted considerably, you have to take the man at his word. Should the company succeed, the cash flow funds coming in may go towards drilling a deep prospect on the Icacos Oilfield (Columbus, 50%) located in the extreme southwest of Trinidad. Resources are estimated in the ‘billions’ and any success there would be talked about for decades to come. Seismics are limited to date so there’s a bit of work to do before the deep prospects get explored. Currently, the licence is producing 25bopd from shallows with plenty of room to improve on that level on a low capex basis.
In summary, CERP’s assets were never the problem. It was past management that was the problem. The new team, new company name and new funding arrangement all points to a very new company. At 3.9p per share, it has all the potential to multibag on production success. Certainly one to watch over the next few months.
As always, important to read about risks and warnings in the sidebar to the right.

Pantheon Resources – Ready to launch again

It’s been a while since PANR last caught my eye. Having plugged the stock 2 years ago at 17p, the subsequent rise to 180p was astonishing and justified. Drilling success was soon replaced with reality. Mother nature has a habit of making the extraction of Oil and Gas as hard as possible. Throwing up fractures, faults and rock formations that act like steel.

Pantheon have acknowledged that mistakes were made with the planning and drilling of horizontal wells. Lessons have been learned and a new strategy prepared.

Last week the company completed a quick fund raise at 43p for $12.5m. The funds will be used to see the company through the next drilling phases and to cash flow positive gas/oil sales. The latter has been boosted by the recently signed Gas agreement with Kinder Morgan, the US’s largest energy infrastructure company, to build and operate a 15mmcf/d dedicated gas processing facility for Polk County operations.

It’s been a tough 9 months for current PANR investors and particularly for the II’s that took on the March 2016 placing at 115p. The promise and potential remains the same today as it did back then. Hence, looking at the typical share price drift post 115p placing, the stock found a decent footing at 70p/80p levels. The drift from 70p down to 45p looks entirely driven by funding concerns and lack of news catalysts. That’s quite a hefty slice but with ‘interested parties’ now fully lined up with 43p priced shares, I would expect the stock to get a jog on north without too much delay. Of course, there is probably some fluff and post placing confetti to clear first but I doubt that’s going to take too much longer. It would not surprise me one bit to see the stock move back into the 50’s in the next week or two. From there on, the stock and share price will move with positive or negative news and at last investors can begin to look forward to the type of drill catalysts that saw the sp move from 17p to 180p.

It might take a few months yet before the cash flows come in but 2018 could be a very strong year for PANR.L. For a full insight into what’s lined up in the coming days and weeks, see Pantheon’s website and do some thorough research. I’m not going to make it easy for you…and always prefer investors do some leg work themselves. This is purely a ‘heads up’ post.

TheShareHub is initiating coverage on PANR at 45.5p with a 2017 target of 96p which assumes ‘some’ level of success with upcoming operations. Targets will be revised up or down as and when news flows. And yes… I am a holder of PANR.

Strap yourselves in… Pantheon looks ready for launch again!

Usual Risk caveats apply. See column on right hand side for more info.

Imagination Technologies – One to watch

Prior to yesterday’s ‘up for sale’ announcement, Imagination Technologies was seeing a great deal of shorters interest via various hedge fund / basement style offices.

As seen below, (2 to 3 days old) positions were being added in the 100p to 110p range.

I doubt very much these ‘shorters’ were banking on IMG putting up the forsale sign and should apple or a large player step forward and swoop the entire business, my guess is that these shorters will be fried.

IMG is not a stock that has a huge amount of float. Apple own a large stake as do many II’s. Getting hold of stock is not easy when dealing in large orders.

Hence, it will be interesting to see the below shorts wind down or wind up as they seek to manage their exposure.

Arm Holdings went for £24bln and was seen very much the daddy of the chip world. Whilst IMG is some distance from ARM’s chip domination, the company does have IP which many Apple competitors would love to get their hands on.

Apple may just decide that taking IMG out and off the market is the best way to secure their product advantages/IP. May the game commence…

Based on previous valuations of the IMG business, an approach close to 250p to 300p might be acceptable. That’s double the current sp and potentially double or triple trouble ahead for the casino style shorters.

Not without risk of course, but with a short squeeze likely, I suspect this one will continue to soar higher. The question everyone should be asking is just how much does Apple really care about their IMG’s IP which their business has used for years?

Is a bidding war  inevitable or does Apple say enough is enough and nips this in a bud with an offer that cannot be trumped?

Current IMG share price 146.5p

0.5% short positions or above… (3 days old)

Algert Global LLC 0.71% ↑ 0.08% 2017-04-28
Caxton International Limited 0.53% ↓ -0.17% 2017-05-05
GSA Capital Partners LLP 1.58% ↓ -0.03% 2017-06-20
Garelick Capital Partners, LP 1.62% 2017-04-11
Marshall Wace LLP 0.74% ↑ 0.12% 2017-06-16
Numeric Investors LLC 0.74% ↑ 0.24% 2017-06-20