Oil Capital Conf. 31/10/19

By Robin Mayes

The Brewery

Oil capital Conference October 31, 2019. Venue, The brewery, Chiswell st.

Once again we visited one of the better forums to hear from a variety of O&G companies selling their wares around the city. Six companies today, a right old smorgasbord from across the industry.  Two ASX listed companies, Ansila Energy (ASX:ANA) and ADX Energy (ASX:ADX), another Aussie asset on the pre- IPO marketing rounds called Georgina Energy, a service company called Enteq Upstream (LON:NTQ), and a couple of hot retail favourites, Union Jack Oil (LON:UJO) and I3E Energy (LON:I3E). Proactive are well-practised at hosting these organised investor events. They attract both retail and institutional investors (the venue is in the heart of the city so handy for professionals to pop out and see the particular companies they are interested in) and various O&G industry service providers who are looking for business. First up, Union Jack Oil:

Union Jack Oil

What a ride this stock has been! Presenting today was Oil analyst, Zac Phillips with CEO, David Bramhill in the audience. Phillips has been brought on board a couple of days a week to help advise the company with part of his role as a presenter, which he does very well. They have thirteen blocks onshore UK, and decent percentage holdings in three, Biscathorpe, Wressle and West Newton, which were the focus of the presentation. 

  • Biscathorpe produced a confusing result from a recent drill and will have to be revisited to prove up. 
  • Wressle is a decent discovery that could be brought into production cheaply and quickly once planning is approved by the local council. This process has been interminable but with the appeal process starting again next week and the council withdrawing their objections/defence, resolution should be forthcoming before too long. If all goes according to plan, they could be in production in H1 2020, bringing in circa £2.5-3 million net to UJO per annum. 
  • West Newton is really the jewel in the portfolio. Investors’ eyes and sentiment seem to flick back and forth between UJO and its senior partner on the block, Reabold Resources (LON: RBD). RBD has recently raised £24 million to buy a bigger stake in the block and fund its share of the Extended Well Test (EWT) and two drills planned for next year. UJO has £2.5 million in the bank, has paid for its share of the EWT but will clearly have to raise finance at some stage to cover its share of the well costs. I believe this fact is hanging over the stock and holding it back. I suspect they are hoping for a few ‘kickers’ to help the share price higher before raising some money. One interesting tidbit I picked up – as the Christmas holidays are approaching fast, I suspect the EWT will not happen until January 2020.

http://unionjackoil.com/wp-content/uploads/2012/11/print-version.pdf

Ansila Energy (ASX)

The presentation came across well. Used to be Pura Vida, an African exploration company. Change of management, approach, and name. 

Farmed into two Polish assets from Gemini, taking a 35% stake. Paying £3.38 million to finance two well interventions: Siciny-c (gas) and Jany-C1(oil) and two lots of fracking. They raised $3.7million on ASX earlier in the year and the share price has doubled since then…sounds like they are struggling a bit in London. They have $8.7million on the balance sheet. Same reasoning for entering Romanian gas world as Reabold Resources and Serinus Energy…the government does not like being dependent on Russian gas, local prices are good and they want locally sourced gas. Siciny will be done by end of year, Jany in Q2 2020. Both the fields could have a lot of upside. This is a ‘Bakken style’ dolomite play. San Leon originally worked up the assets before moving on. So far A$45million has been spent on the fields. They have stepped in to ‘finish’ the work off. Monetising assets is no problem as existing infrastructure is in place. No anti-fracking movement yet in Poland to be wary of. 

As they have assets in Europe, they are looking at listing somewhere here, maybe AIM. They would only list if they were going to raise a lot of money, either for asset development or a new play. 

I have a couple of fundamental problems with this one. Both Exxon and Chevron spent a lot of money and time in Poland hoping it would turn into the new Bakken……it didn’t and they left. The assets that they have farmed into have passed through multiple hands over the years, which isn’t very encouraging. The upside, i.e. the extent of the field, will only be proved with more step-out drilling. However there is a lot of news flow due in the next 6 months so it might be worth a short term punt, however, you have extra costs and FX risk as it is ASX listed.

https://www.asx.com.au/asxpdf/20191031/pdf/44b30x8wcctcn0.pdf

I3Energy

Majid Shafik presenting; Hot footing it from the Serenity discovery RNS.

I3E is a more complicated story to follow than most O&G companies. The Liberator field is not a neat and simple accumulation. It’s all a bit spread out and connected through channels. Liberator oil effectively sits on top of water and the depth of oil seems to vary across the block depending on the height of the trap above. The re-mapped seismic seems to show this quite clearly and future wells are all targeted to hit the peaks in the accumulations. They are very confident of the next Liberator well being in the right place this time. They picked up some excellent data from the failed well and, together with the fresh, re-processed seismic, they can see clearly where they went wrong last time. 

I was told by Graham Heath that a successful A2 well, which will spud next week, will unlock the $100million reserve-based lending facility (RBL). They have been in talks with their potential lenders for years and the terms are more or less agreed.  Essentially, everything hinges on this A2 well and, with all the data they have gathered, the chance of success here is as good as it gets in the O&G industry. 

I3E has re-structured terms with its drilling contractor, Dolphin Drilling. Because of the failure of the first well and the subsequent additional work required, they do not have enough cash to complete the full drill programme. Payments have been deferred until next year, and Dolphin drilling get ‘first dibs’ on future drilling programmes. Graham Heath re-assured me that part of the RBL is set aside to pay for previously incurred costs so Dolphin Drilling debts will be covered. Phase 1 will still produce 20 000 bopd and provide the funding for phase 2.

 Some interesting detail on the Serenity discovery: it’s a huge field, stretching west to east. In the west, the sands are 150 feet thick. In the east, the sands are 5 feet thick and are part of the Tain field (Repsol and Rockrose). In a previous well, these flowed at 4000 bopd. Serenity hit ten feet of very clean, thick, tubidite sands. It really is an excellent discovery and means the company has two developments to progress. They will be talking to their neighbours, Repsol and Rockrose and, clearly, there will be synergies and unitisation discussions to be had. Graham Heath suggested that, as part of next year’s Liberator development well campaign, they would appraise Serenity as part of the same campaign. It would be the most logical and economic way forward. 

Whilst the I3E play looks totally dependent on the A2 well result, the COS is so high, I feel pretty confident it will come in. The management’s track record on gaining finance is excellent. If A2 comes in, the RBL will follow and then, next year, they will be very well set.

https://i3.energy/wp-content/uploads/2019/10/20191029-i3-LIBERATOR-UPDATE-vF.pdf

Enteq Upstream

This is an oil services company. It offers sophisticated software and technology to oil companies to help them measure and log whilst drilling, helping drillers with their accuracy and drilling efficiency.

I must confess I missed the presentation as I was busy networking, apologies. Having followed them from a distance for some years, and looked at their results over that time my thoughts are as follows. They got murdered by the oil price fall years ago when the amount of drilling in the USA collapsed. They have been in survival and then recovery mode ever since. They were able to weather this storm by having a very large cash bank balance. They really are a very smart bunch of people who have developed some innovative, cutting edge technology to aid and abet the drilling industry. However, as an investment, I struggle with it. They have slowly eaten into their cash balance. Their turnover hasn’t recovered to pre-oil price fall levels and they operate in a highly competitive space. To stay ahead of the game, they have to spend a lot of money on R&D. As a result, making a profit is really difficult. A bit of a ‘wait and see’, this one. 

ADX Energy (ASX; ADX)

The second ASX company to present on the programme. They have some legacy assets offshore Tunisia and Italy, which are somewhat moribund and peripheral. The company has re-invented itself with a share in some Romanian assets and a recent acquisition in Austria. 

The Romanian assets, Iecea Mica have recently been drilled and have found a decent amount of gas, which will be tested soon. Another well is due next year. Once proved up, they are close to pipelines so valorisation should be straight-forward. They have farmed the asset down to Reabold Resources a couple of times, who has funded the recent well campaign. In the course of time, it should provide them with some decent income, which they can then use to chase the significant upside across the block.

They recently raised money on the ASX to buy some Austrian assets from RAG Austria AG. They have some production assets pumping 350bopd with only 2% annual decline rates, 1.5 million BOE 2P . They paid 1 X annual cash flow, which seems very cheap. 

The upside case here is more interesting. They have exclusive access for 5 years over 3500 km2 of 3d data in Western Austria. It looks highly prospective, particularly as they have approvals and infrastructure already in place. How they have swung this and why the sellers relinquished, I do not know but I would need to find out before investing. It does look quite ‘juicy’! Yet again, there is FX risk here as it’s ASX listed. I suspect they will probably dual list on AIM one day, probably to progress those Austrian assets. It might be worth waiting for that event to happen. 

https://adx-energy.com/documents/oil-capital-conference-london-presentation.pdf

Georgina Energy

Proactive analyst Ed Stacey was presenting Helium play in Australia, Ed has done two video interviews and there are extensive reports available on the proactive website.

Traditionally Helium has been a by-product in O&G production. Now Helium prices have rocketed so Helium has become a target in itself. The play is to try and copycat the great discoveries of the Amadeus basin, which is to the southwest of their block. The company is in the midst of pre-IPO funding rounds around the city. 

https://www.proactiveinvestors.co.uk/companies/news/902294/georgina-energy—upcoming-ipo-902294.html/long

To finish the day, Zac Phillips gave an excellent talk about investing in the Oil and Gas space. I recommend watching the video that Proactive will release next week. It provides a pretty good basis to approach due diligence on any company you were considering investing in.

So, a right old mix of companies presented. There is so much to look at on the London markets I don’t feel the need to take on the additional FX risk of investing in foreign markets. I have done in the past and investments have moved as much as 25% in value just on exchange rates, then there are the exchange rate costs to incur, in and out of the currency. These facts mean the investment case has to be outstanding to even consider it. My ‘nap’ from the day is I3E. I think they look very cheap considering the Serenity discovery and RBL that will be forthcoming if the No. 2 well is successful. For the record, I own a small amount of I3E but none of the others. UJO is on my watch list.

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i3 Energy team joins Andrew Scott to discuss ‘transformational’ discovery at Serenity

This article/blog is not financial advice. Do your own research. The fee for this article was donated to http://www.theolivercurdtrust.org/

 

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Categories: Bulletin