Sunday Blog, 12 September 2021
CHAR DELT I3E ITE HUR HRCXF UJO RBD BLOE ADV LBE AEX IOG 88E EEENF PRD TRP PVR LOGP PPC BOIL EME
The Sunday blog has been transferred to Substack. The private blog, containing my actual trading ideas, now also is being made available here. I look for what I would call certainties. Click “Subscribe now” to find out more.
On to the Sunday blog:
Chariot (CHAR) announced it has signed a contract with Stena Drilling for the planned Anchois gas appraisal well, offshore Morocco. Drilling operations are anticipated to commence in December and are expected to take up to 40 days. Objectives are to unlock the development of the discovered sands by confirming the gas resource volumes, reservoir quality and well productivity, provide a future production well for the development of the field and potentially deepen the well into additional low-risk prospective sands. It’s targeting a total remaining recoverable resource in excess of one trillion cubic feet of gas and, per the company, the gas development's 2C base case resource has an NPV10 of approximately $500 million with an internal rate of return in excess of 30%, yielding expected annual revenues of up to $200 million. Market capitalisation is £39 million.
Deltic Energy (DELT) announced that following the recent farm out with Cairn Energy, the acquisition of 3D seismic data over Licence P2428 and surrounding areas has commenced. Approximately 700km2 of 3D seismic data, focussed on the Plymouth Zechstein Reef Prospect, is being acquired and will take approximately six to seven weeks to complete with processed data due to be delivered mid-2022. Cairn is responsible for 100% of the costs of the associated work programme (including seismic acquisition and processing) up to the point at which a well investment decision is made. Meanwhile, Deltic’s Pensacola North Sea well, being drilled in a joint venture with Shell, is expected to spud in May next year.
i3 Energy (I3E ITE) announced an operational update. The Marten Hills Clearwater wells have now cleaned-up and are flowing sales volumes, with aggregate average production for the period 23 August to 31 August of 238 bopd. Production from the Wapiti assets has more than doubled, averaging 471 boepd during August and the second well in the new drilling programme is said to have contacted excellent reservoir with strong gas shows. Following the North Sea debacle, investors now have high hopes.
Hurricane Energy (HUR HRCXF) announced results of the tender offer for its 7.5% 2022 convertible bonds. The final acceptance amount was $77,984,000 in aggregate principal amount and the purchase price is 78% of that. $152,016,000 in aggregate principal amount remains outstanding, but the company has saved approximately $22 million of future obligations to bondholders in capital and interest. The initial proposal was to buy the bonds back for 68% to 72% of the principal amount, but bondholders who (like the major shareholders) appear to have a more positive view of the company than its own management didn’t tender in size, resulting in the offer having to be increased. I have been calling HUR down since the low 30s, but following last week’s news, at around 3p it could now be looking cheap.
My comments last weekend regarding Union Jack Oil (UJO) and Reabold Resources (RBD) upset some, but it's perhaps worth remembering for just how long the West Newton flow-test saga has been ongoing. Here's what I wrote back in November 2019.
First, Union Jack Oil (UJO), which I know many people are interested in. There's no news regarding the placing yet, which indicates difficulties. Many are trying to excuse the company, but it was actually the company itself that ramped the share price on Monday 11 November with the announcement of "upgraded operator volumetrics" for the West Newton Kirkham Abbey Reservoir in anticipation of a placing it must have been planning at the time. The less informed piled in and got spiked on a rise to nearly 0.3p; not unsurprisingly, the more knowledgeable sold into it. News of a placing was then leaked and it's now down below its last placing price of 0.17p, following the company's confirmation that a placing is underway.
On the positive side, if they can get the placing away, the majority of the proceeds will be used to fund further drilling activity at West Newton, including one vertical well and one horizontal well. I don't think they've any other choice than to proceed this way, because I believe they weren't able to get West Newton A-2 to flow, hence the suspension of the extended well test.
Nevertheless, UJO has a large investor audience and post-placing will be funded for further drills. There may be an opportunity to take advantage of share price weakness and I shall let private blog subscribers know my further thoughts as soon as the situation starts to become more clear.
Subsequently, it was traded from under 0.1p to over 0.2p. Companies like this are for buying and selling, not for holding; for perspective, even after all the claimed drilling success at West Newton and even with production commencing at Wressle, the UJO share price adjusted back for the 200:1 consolidation currently stands at just 0.1325p. That’s a relatively modest fall, of course, compared to its partner Reabold, which is down since November 2019 from over 1p to under 0.3p, but as regular blog readers know, I've been warning about RBD all the way. One of the biggest causes of losses on AIM is tribal loyalty, where fans (investors) support companies as they would a football team. Understand with shares, that when one becomes a religion, it’s time to lose the faith.
Block Energy (BLOE) announced a well update. Drilling operations on well WR-B1a have been completed and preparations are underway for Block's second 2021 drill. But be careful with this one. Here’s what I wrote about it in July 2019.
As expected (see previous blog posts), reality hit Block Energy (BLOE) hard when the company announced the resumption of production at West Rustavi. For the first time production was stated in bopd (barrels of oil per day) rather than bbl/d (barrels per day) as previously. In fact, the well is only producing 295 bopd and the previous 1,100 bbl/d rate appears to have been mainly water. The company's paid PR was aggressively touting a thousand barrels of oil per day production to investors, who bought the shares up to 17.5p. Did BLOE never think they should correct that?
The share price is down since then from 17.5p to 2.6p and the company only very recently defeated an attempt by investors to conduct a forensic examination of its affairs.
In the private blog this evening, ADV LBE CHAR DELT AEX IOG 88E EEENF PRD TRP PVR LOGP PPC BOIL and EME (although please note that commentary on all of these is not necessarily positive). Click “Subscribe now” to find out more.