Thursday, September 28th 2023

London Listed Opportunities?

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What goes down must come up? The UK-listed international oil & gas juniors potentially presenting a value opportunity

This week once again saw oil hit the headlines, with prices falling by 4pc after OPEC failed to offer details on its expected production cut. Indeed, the cost of WTI Crude prices dropped below $52/bbl while Brent Crude sat under $60/bbl after the Saudi energy minister said he was ‘not confident’ that the cartel will reach a deal at all.

Investors will now be hoping that an initial recovery in oil prices over recent weeks can continue in spite of these concerns. This grassroots recovery had seen prices rise to $53.25/bbl (WTI) and $62.08/bbl (Brent) after hitting lows of $50.29/bbl (WTI) and $59.02/bbl (Brent) at the end of November.

Prices had bottomed after a massive 30pc fall from multi-year highs of $76.41/bbl (WTI) and $86.29/bbl) throughout October. The collapse stemmed from concerns over rising global crude supply and the health of global economic growth.

With numerous junior oil & gas players failing to follow the oil price back up despite taking a significant hit when it fell, a continued rise following this week’s blip could create some exciting value opportunities. Here are some non-UK-focused stocks that may be worth keeping an eye on:

Prospex Oil & Gas (PXOG)

Prospex focuses on high impact onshore and shallow offshore European opportunities with short timelines to production. It acquires undervalued projects with multiple, tangible value trigger points that it can realise within a year of acquisition. It then applies low-cost re-evaluation techniques to identify and de-risk prospects.

The company has been on a downward trend since July, falling from 0.5p to its current 0.25p. But with the firm posting progress at its assets in Italy and Spain and enjoying first gas production in Romania as its CEO continues to build up his position, could its current £3.22m market cap soon look cheap?

Nostra Terra Oil & Gas (NTOG)

Nostra has fallen from highs of 5.5p this year to its current 2.35p despite delivering continuous production growth and establishing its position in the Permian Basin, one of the world’s hottest oil plays. With the firm recently announcing a considerable increase in its Permian position and a change in strategy that will see it use the potentially highly-effective technique of horizontal drilling, its prospects are looking bright.

It will be interesting to see how the market reacts when the company releases a field development plan for its newly acquired Mesquite prospect, as this could represent a real line in the sand. After all, the business expects the opportunity to increase its production by multiples.

Sirius Petroleum (SRSP)

After a massive leap from 0.6p to 0.8p in October, Sirius has suffered something of a rough patch as broader oil prices have fallen, now sitting at 0.7p. With the Nigeria-focused oil and gas development and production company having now sourced a drilling rig for its Ororo field, it will be interesting to see where it goes next.

The field was initially operated by Chevron in 1986 when it discovered hydrocarbons in seven sandstone reservoirs. With two of these producing oil at a combined rate of 2,800bopd when tested and two others producing gas condensates, Orio could end up being a real boon for Sirius.

Sound Energy (SOU)

Morocco-focused upstream gas company Sound’s recent decline to 13p cannot be put down to the oil price crash alone. Indeed, the business collapsed by 30.3pc in one day in November when it announced that the first of three exploration wells in its Tendrara area had been plugged and abandoned.

However, as we have stated before, this hit may have been so brutal because the stock looked quite over-valued in the first place. With a great deal of cash currently in the bank, funding doesn’t appear to be an immediate concern, either.

Moving forward, a lot is likely to depend on what happens at TE-10, the second well in its campaign that spudded this week. With the well targeting a TAGI structural-stratigraphic play with previously advised estimated volumes of 2.6Tcf mid case gross gas initially in place, it could provide Sound with a much-needed boost if successful.

Echo Energy

Echo has had a nightmare of a year, with the oil price crash and geopolitical issues in Argentina – its centre of operation – doing very little to help. Indeed, it has dropped from highs of 19p to its current 7p.

The company owns a 50pc stake in several producing Argentinean assets including two concessions called Fraccion C and Fraccion D.  Echo believes these could contain enough upside potential to hit production of more than 80MMscfe/d within five years. Work on increasing production here has been ongoing this year, with a mixed level of success. See our article here for more detail.

The really exciting prospect for Echo, however, is its Tapi Aike exploration permit. More than 40 leads have been identified here over three independent plays, each of which is thought to typically contain gross prospective resources of 50-600Bcf at the best estimate level. The largest two are estimated to hold 3.8Tcf and 2.6Tcf in the high case while three others are also thought to contain more than 1Tcf.

Obviously, it is still early days here, but if Echo can access even half of Tapi Aike’s estimated potential, then it may well be worth the wait. With the business recently confirming plans to begin an exploration drilling programme on the licence in the second half of 2019, expect further updates over coming months.

Earlier in the year, Deirdre Michie shared her Oil & Gas Outlook

The author was remunerated but does not hold shares in the companies