Reabold Resources dips on Gaelic acquisition – buying opportunity?
Shares in Reabold Resources (LSE:RBD) softened following the news that the firm has acquired options to participate in several US oil and gas leases – could it be worth taking advantage of this weakness?
Reabold, an oil and gas investment company, has acquired 100pc of the issued share capital of Gaelic Resources by issuing 420m new shares worth c.£3m. Following the acquisition, Reabold, through Gaelic, will have the right to earn-in to 50pc of the leases, based in California, by drilling up to five wells by the end of 2019 at an estimated cost of $7m.
The leases included Monroe Swell, where work is currently being completed by Gaelic to redevelop four production wells with oil in place of 1MMbbls and an estimated potential value to Reabold of $10m. Reabold, through Gaelic, is also planning a two-well drilling programme at Monroe Swell to access a potential resource of more than 4MMbbls oil, expected to have a net value of $100m. The first well will be drilled this year and the second by mid-2019.
The second lease – called West Brentwood – is an oil field with significant historic production, 1-2MMbbls of oils in place, and a value of $25m net to Reabold. The company expects to drill its first well at site in Q3 this year. The final lease is Grizzly Island, which contains gas prospects with 50-90bcf recoverable and a potential value net to Reabold of $50-100m. The firm is planning a two-well programme at the site. If the drilling programme is successful, then the wells will be put onto production to provide cashflow for further drilling activity.
Stephen Williams, co-chief executive at Reabold, said: ‘We are extremely excited to be drilling these high-impact opportunities in California. These considerably de-risked wells with low drilling costs and a fast path to monetisation are a perfect fit with the Reabold strategy. Using Reabold shares to fund the acquisition of Gaelic allows us to preserve cash that can be used for drilling activity, which enhances near-term value-creation.’
Sachin Oza, also co-chief executive, added: ‘The Gaelic acquisition provides Reabold shareholders with another series of high-impact, near-term drilling events that have the potential to be transformative for the company. We aim to take advantage of the fast pathway to monetisation of these assets by utilising that cash flow to partly fund later wells in the earn-in programme. We continue to assess a number of further potential investment opportunities in line with our strategy of delivering shareholder value.’
Gaelic is the third acquisition Reabold has made as part of its new strategy, introduced late last year alongside the appointment of Willians and Oza. The business now invests solely in oil and gas projects, and has only focused on Europe so far.
Alongside Gaelic, the company has invested £2.5m for a 32.9pc stake in UK oil and gas firm Corallian Energy, the operator of the UK’s Colter oil discovery. Estimates put Colter’s gross mean prospective resources at 30MMbbls recoverable oil with a success case NPV of £255m. A drill is expected imminently.
Reabold has also invested £1.5m for a 29pc stake in Danube Petroleum, a subsidiary of ADX Energy. Danube is 50pc owner of the Parta Licence in Romania, where it has scheduled a $5m appraisal campaign later this year with the hope of identifying 33BCF of prospective and contingent resources with a gross success case NPV of $86m.
Reabold’s share presumably dropped off a little today in response to the dilution that the acquisition of Gaelic will create for shareholders. But it is also worth considering the many positive forces that remain in place.
Firstly, the acquisition of Gaelic adds a number of de-risked wells with a fast path to monetisation. This both improves the business’s potential and shows evidence of Oza and Williams delivering on their stated strategy of acquiring assets at the appraisal stage of development.
Secondly, although funding the acquisition by issuing shares will no doubt dilute shareholders’ positions – Gaelic will now have a 12.9pc stake in Reabold – it also leaves the business with cash at this crucial stage of development. This could be better in the long-term as it allows more working capital for drilling and – potentially – more acquisitions. With Reabold still having yet to deploy the cash it raised in February to fund any acquisitions, it seems likely that it still has a lot of cash.
Thirdly, it is worth considering that Corallian and Danube are also on the verge of a period of intensive news flow that could increase the value of Reabold’s stake, assuming success. Indeed, Corallian is scheduled to drill a well at Colter in H1 2018 and Danube will start re-drilling two historic gas discoveries at Parta in H2 2018.
Of course, nothing is guaranteed. Reabold’s principal strategy, which sees it invest in operators rather than becoming a JV partner itself, is clearly unique and many will require further proof of concept before handing over their cash. However, today’s acquisition shows promise and Reabold continues to generate a significant buzz on AIM. For many, Thursday’s drop will provide a good opportunity to grab shares at a cheap price.
Click here to view the recent oil capital presentation by Reabold Resources
You can watch the recent interview with BRR media by clicking here.