The bucket list, 2016 results.
The final shake-up for the 2016 bucket list shows a very commendable result, of the 2016 squad of 14 the top three companies rose by over 400%, to get into the top 6 you needed to be up by 187% and only two stocks ended up down on the year. Indeed a difficult squad to get into and even the bottom 2 retain their places for this year.
- Ithaca Energy +525%
- Hurricane Energy +505%
- Sound Energy +425%
- Premier Oil +290%
- Tullow Oil +203%
- Faroe Petroleum +187%
- Cairn Energy +63%
- Bowleven +44%
- Amerisur +19%
- Parkmead +18%
- Victoria Oil and Gas +11%
- Pantheon Resources +2%
- Rockhopper Exploration -3%
- Far Limited -12%
So, many congratulations to all these companies this performance takes some doing. I wont go into detail as the 2017 list covers all the ins and outs…
The 2017 Bucket List
A few words about the bucket list for those who weren’t here this time last year. The bucket list was set up during the oil price crash at the request of a leading light in the Fund Management industry who isn’t by his own admission an oil expert. As an investment trust expert he wanted a basket of stocks that would protect him from penury but might bring some winners whilst accepting some losers. The 2016 list did include two shares that were down but both were special situations and I am running with them both again.
The shares in the list have to have either a good broad portfolio of assets or one or two game changing ones, this list is not entirely defensive and builds in some risk. All the companies have to have very strong management capable of making difficult calls and reacting swiftly to opportunities as they arise. These companies need to be in strong financial positions, I know that sounds simplistic but its pretty key and particularly so when dealing with partners or operators to whom they are at the mercy of. The last two years have shown the need for efficiency, the industry has a reputation for ‘gold taps’ in the good times, we now know that the business can run on a much leaner mixture than ever was thought. Part of this is a need for realistic asset values which can be stress tested at a wide range of oil prices including downside, worst case scenarios. Flexibility is also important, with drilling timetables able to be pushed back if conditions look like they might justify a pause in a programme.
The oil sector in the last two years has been very much the ‘haves’ and the ‘have nots’ with the successful players making hay as the list shows, in some cases spectacularly. This doesnt hide the fact that in this time there have been a number of companies that have fallen by the wayside, proving that investors must identify the ‘torpedo’ stocks. (Credit Mike Geering)
So, thanks to Adrian Collins who started this process off and I hope has become considerably richer as a result, readers should know that I do not buy or sell any shares that I recommend in the blog.
Changes to the list are by their very nature fairly limited, this year the performance has been exceptional but one is always trying to tweak it a bit. The chances of another year like last year are slim, the oil price bottomed in February and gave a strong, fair wind to those efficient companies ready to take advantage of the situation. It is interesting to note that of the 14 stocks, only two had what can be described as being game-changing discoveries, others made do with sticking to the knitting. During the last year I made no changes at all to the list, it isn’t always like that but there were no exceptionally bad performances nor ones that required top-slicing. This year I think that will be different, I have swapped out three for three new stocks but have a very interesting bench of subs who I am sure will be deployed before long. There are one or two big management changes in the wind and I am aware of one or two exciting relaunches that might force themselves into contention before long.
Staying in the list…
The stocks that stay in the list have mostly good reasons to do so. Ithaca has fine management and with Stella about to come onstream the financial side looks increasingly good. For Hurricane the party has only just started but at what a pace! I expect further good news from the Lancaster ‘hub’ this year and while they will need to finance the development i’m sure there are plenty of opportunities on that front. It will be an important year for Sound as they move ahead on the huge Tendrara find in Morocco but dont forget Badile and the management here do not let the grass grow under their feet. Premier was the highest risk last year by a mile and broke my rule about funding but it has done well operationally since then. I expect the funding to be sorted and then Tolmount and Sea Lion to move ahead. For Faroe I expect more of the same, highly successful exploration in Norway and hopefully in the UK adding to a really good portfolio of assets. Bowleven I have written about a lot recently, I think that I expected too much last year but the prospect at Etinde remains as valuable as before. With plenty of cash and solid management Bowleven is under-rated in my view. Amerisur is also too cheap, with many prospects in the OBA hub area giving high value added potential this should be a very good year. Victoria Oil & Gas is arguably one of the most undervalued assets I have looked at, the management are determined to create a utility scenario from the gas to the customer. Gas found by them at Logbaba and through their own pipes to clients in Douala is a very exciting prospect and the demand is almost limitless. Pantheon was top in 2015 and evens last year but I still believe that Jay and his partners have ‘cracked the code’ and so I give them another year to find substantial quantities of hydrocarbons in East Texas. For Rockhopper it has been immensely frustrating this year as developments at Sea Lion are restricted as Premier sorts out its finances. I still believe that this world class asset will get the go ahead and in the meantime the company is being proved right about the way it is moving forward in the Greater Mediterranean. Finally Far which has had a proper mare as it has a long tussle over its pre-empt rights in Senegal. The shares have not yet taken into account any of the success which I think could be worth three or more times its current value. 2017 should surely sort this out and reward shareholders for their patience.
Out of the list-Tullow, Cairn, Parkmead.
All three stocks I am taking out have performed extremely well, indeed they are making way for other stocks having done well. Tullow was one of the most difficult calls last year, indeed I felt quite brave as it wasnt a favourite in many lists but it has done well and management deserve credit for the important decisions they made. I have had no contact from the company in the last twelve months and feel that with a near £3bn market cap it is time for a breather. Cairn shares some of the same characteristics, up 63% on the year with a market cap of £1.3bn, I didnt get to hear the analysts briefing recently for whatever reason but am happy to play Senegal through the admittedly higher risk investment in Far. Finally Parkmead, where I suppose I had been hoping for more exciting things this year, and another company that is almost totally incommunicado has done well but at the moment I see upside scope being limited.
In the new list-SDX Energy-Jersey Oil & Gas-Aminex.
SDX has done much since it came to London and nearly stepped into the list recently with its acquisition and raise. Paul Welch has done very well and has an exciting, high margin portfolio in Egypt with plenty of exploration upside. Added to that is extra added value from the Circle deal in both Egypt and Morocco. Jersey Oil & Gas has come from nowhere to be a genuine North Sea player with a most exciting portfolio of prospects in the North Sea. There is no doubt that JOG will capture the imagination of investors this summer as they prepare to drill their Verbier prospect, made more exciting by the farm-in of Statoil no less. Although this will be the immediate focus JOG should not be considered a one block play and I know that the very strong team are working up a number of potential projects in a number of areas. Finally Aminex which I have been following for some time, now is the time for it to pay back the shareholders who have always believed in it. The last few months have changed much, Kiliwani North is up and running and will produce more than it is at the moment bringing over $1m per month into the company. Appraisal at the Ruvuma PSC continues and there is the Nyuni exploration prospect to bear in mind on the upside. Finally the bringing on-board of a supportive strategic investor last year created the confidence that was needed to bring it all together.
The 2017 Bucket list
Ithaca Energy, Hurricane Energy, Sound Energy, Premier Oil, Faroe Petroleum, Bowleven, Amerisur Resources, Victoria Oil & Gas, Pantheon Resources, Rockhopper Exploration, Far Limited, SDX Energy, Jersey Oil & Gas, Aminex.
So, that’s where we are starting from this year, as I said I think that changes are more likely as my oil price expectations are reasonably modest and the second half of the year might be a very different game to play. E&OE, Be lucky…