inmemoryWTI $107.29 – 2.23, Brent $111.31 -1.98 , B/WTI Diff – $4.02 -32c , Natural Gas $3.58 -2c

Good morning

Oil Price

Another sharp fall in the oil price last night after further peace initiatives in Syria were put into place. Accordingly the President has stepped back from his war-like rhetoric and has said that a peaceful solution would be better all round.

The API inventory stats came out last night and showed a fall in crude of 2.9m barrels against a consensus forecast of 1.5m. In gasoline someone forgot to tell the analysts that the driving season had ended as there was a build of 195,000 barrels versus consensus of a build of 1.5m barrels.

Alkane Energy

You will know that I have been enormously bullish on Alkane for ages and today they have reported another fantastic set of figures. I still think that there is significant upside in the shares so please don’t sell them and please do still buy them. Below is our note by Joe Stokeld on today’s results.

Alkane has reported record interim results: Revenues have more than doubled YoY to £11.1m (H1 2012: 5.3m) and EBITDA has risen more than 50% to £3.3m (H1 2012: £2.1m). Excluding exceptionals, PBT has increased to £1.4m (H1 2012: £1m) and EPS are up to 1.43p (H1 2012: 1.06p). Cash on the balance sheet is c£3m (H1 2012 £0.56m).

The record revenues are partly driven by the company’s seven Design, Build and Operate (DBO) projects, however management caution that this has caused “an unusually large rise in revenue this half year which is not expected to recur in 2014”. Revenue from this division totalled £4.7m, including £2.9m from the Three Nooks Farm refurbishment in Staffordshire.

Elsewhere in the portfolio, the acquired Maltby CMM assets achieved first production five weeks ahead of schedule and it is expected that half of the site’s 11MW engine capacity could be redeployed to power response next summer once the colliery is closed and abandoned. The potential Coal Bed Methane joint venture with Aberdeen Drilling Management will not be progressed, but the company remains committed to early stage evaluation of its shale gas resources.

Overall this as an excellent set of results that corroborates July’s trading update and the reported 44% increase in H1 output to 94GWh. DBO is a lower margin part of Alkane’s business so the increase in revenues is not reflected in earnings to the same degree, but this is nonetheless an encouraging performance. There is also an emphasis on controlling costs in today’s announcement which should be well received, with G&A accounting for 17% of total revenues, vs 24% in H1 2012. No interim dividend is declared, but management intends to have a “progressive dividend policy over the coming years”.

We expect to maintain our FY 2013 EPS forecast of 2.54p/share and anticipate a positive response from the market today. We continue coverage with a BUY and 48p target price.


Alkane Energy 1 Year chart

Alkane Energy 1 Year chart

Enteq Upstream

We had Martin Perry, CEO and Ian Leaman, CFO in for a presentation yesterday afternoon and after a bit of a rough time in which we all got a bit burned, things appear to be looking up. Longer term readers will know that Enteq was founded by Martin Perry and Raymond Garcia after they had left Sondex when it got taken over by GE. With a blue chip list of institutional shareholders they set about using Enteq to acquire business that would sell quality products and specialist technologies to oilfield service companies. At present primarily in the US but with an ability to move internationally, they made their first acquisition of XXT in California in May 2012 for $42m in cash plus Enteq shares and earn-out. After that they acquired KMS and Pro-Flow in Houston in July 2012 for $13m and an earn-out.

In the process of these acquisitions they raised money from mainly appreciative shareholders and going into 2H all seemed fine but the fall in the rig count and subsequent draw down from stocks left the suppliers uncomfortably long of stock with a distinct lack of buyers. Twinned with that a couple of the founder shareholders decided to part company with their shares which in a very thin market were sold at knock down prices.

After a quiet 1H 2013 things are beginning to look up and having taken the opportunity to invest in the businesses capacity significantly, as well as by enhancing sales, marketing and support we expect the company to be ready to take advantage of what they consider to be showing good signs of recovery.

Whilst it has been a disappointing twelve months for the company I feel that with the excellent history of its founders, its strong position in a still growing market, it can show organic growth and I expect acquisitions as well given support from that blue chip shareholder base.

I remain positive and consider that it is very much worth looking at Enteq again after a difficult time.

Enteq Upstream 1 Year chart

Enteq Upstream 1 Year chart

Ithaca Energy

Having had a presentation from Iain McKendrick, CEO a little while ago, Dougie and I are both converts to the Ithaca story and today’s news is extremely welcome. I copy Dougie’s comments below but we feel that despite the recent strength is only a starter and that there is massive potential at the company. In its space, market cap-wise it is difficult to see another stock with quite so much potential upside.

From DFT – D/Y

The company has successfully completed its first development well at its Stella development in the UK North Sea. The well flowed at 10,835boe/d (oil: 6499 and gas: 26mmcfd), the oil quality was 42o API. The rig will now move on to drill the second development well.

The company is now a mid-sized producer (12-14,000boe/d) in the North Sea, following its acquisition of Valiant Petroleum, and will see production increase to more than 25,000boe/d in mid-2014. The portfolio also includes significant exploration potential, which could yield more upside.

Ithaca will have US$500m of debt and the company expects to repay this within 12 months. Ithaca will at that point be highly cash generative and the free cash flow could be used to make more acquisitions or it could pay a substantial dividend which the management has guided could begin in 2015.

The share price has strengthened considerably over the past few weeks in anticipation of this news so it is good to get confirmation that the project guidance is unchanged. This is a stock we very much like and we feel that the company is extremely undervalued on many levels.

Ithaca Energy 1 Year chart

Ithaca Energy 1 Year chart

And finally…

…I watched the England football match last night, two hours of my life I will never get back……………..I know it was the result we needed and maybe 7 of our first choice players were ‘unavailable’ but some of it was truly dire……….. A good result for Scotland ( opposition goalkeeper missed the start of the second half-bizarre) but the rest of the home countries had miserable nights and Wales, for whom at least one player refused to join the squad and are at the bottom of their league actually offered the manager an extended contract, what on earth is going on???

As predicted Kimi Raikkonen has agreed to join Ferrari next year.

Crucial match in League One of County cricket as Surrey take on Somerset.

Must dash, mad day, if I’ve missed something from today I will round up tomorrow and a catch up on GKP too.