Interim bucket list
The bucket list has been going now for just under three years, it started when a leading Fund Manager asked me to put together a selection of stocks that would make a decent return when the oil price recovered as he said ‘as cyclical commodities always do’. The first few months were a bit mixed but 2016 did indeed show spectacular gains as you might expect when oil had been $27 in February of that year.
Whilst some people try to pick and choose from the list it is not meant to be quite like that, the spread of stocks in the list are meant to offer a range of risk but I know that’s not always how it is seen! The list includes some which are dependent on exploration success whilst others are reaping the benefit, all should be well managed, not dependent on partners and in control of their destiny.2017 was disappointing as the inevitable happened, the oil price rose but the sector lagged, that has been unwinding this year so far but there is still a lot of value in there. Previous bucket lists and raison d’être can all be found at www.malcysblog.com
The bucket list published six months ago has performed quite well but then why wouldn’t it; the oil sector has faced an almost perfect storm of high oil prices and a continued and successful drive down of costs. In fact when you say it like that the performance is somewhat less impressive with only 11 of the 18 stocks recording a positive return since February. But the ones that have done well are conspicuously good with the top three all up over 50%.
From the top down, Rockhopper is in the lead up 73.6% after the market has really taken on board the positive vibes for Sea Lion which should get sanctioned later this year. RKH has been in the bucket list for just this moment, at long last you say. Second up and by a matter of a few pence is Premier Oil, up 71.6% and conveniently sharing the Sea Lion story although the successful delivery of Catcher, success in Mexico and the imminent approval of Tolmount have helped the story, along with of course, 90/- odd b/d at $75…
In third place is Hurricane Energy, up 57.7% where last year’s record breaking raise held it back but now with first oil at Lancaster on the horizon and all the big ticket items on time for the development, investors can see a potentially big payday looming. The company say that it will be judged after 6-12 months of production from Lancaster, the market will, I suspect go earlier. In fourth place is another stock that I have kept patience with and that is Far, up 46.7% the ASX quoted player that has played such a leading part in the Cairn operated world class discovery offshore Senegal. With that value yet to come through in Far, as well as arbitration with no downside, there is significant upside on the exploration front as well in The Gambia. The two blocks that Far has offshore Gambia are located on trend with and adjacent to the Senegal blocks which encompass the giant SNE field and give the company huge upside potential when drilling starts on the Samo prospect later this year. It actually gets better for Far as they have done a very smart farm-out deal with Petronas, the Malaysian National Oil Company to carry a significant portion of their costs.
Old favourite Faroe Petroleum, up 41.7% comes in in fifth position with a combination of regular successful drilling news, crafty dealings in the asset market and good awards in the licence rounds. This time we can add interest from DNO who announced recently a share purchase from Delek plus a tender in the market and subsequent market purchases giving the company a 28.23% stake in Faroe. This inevitably boosted shares that were already market darlings with their long term record of exploration success. In sixth place comes the first of the newcomers as Echo Energy, up 32.4% only joined the bucket list in February, indeed was a marginal choice but I decided that should Argentina go well it might be before now, phew….Early success has meant that Echo is already thinking about developments and gas installations and pipelines and this is just the tip of the exploration iceberg.
SDX Energy, up 28.5% is in seventh position after a fantastic time with the drill bit in both Egypt and Morocco which has led to a significant increase in revenues and reserves are up 122% as a result. Netbacks have increased fourfold and particularly in Morocco the margins are incredibly high as domestic customers grow and in-country gas prices are increasing regularly. Production will have grown substantially in Egypt by the end of the year as successes at South Disouq are brought on production. With such drilling and commercial success who would say that SDX can’t climb even higher as it remains cheap on at least a 50% discount to NAV.
Reabold Resources, up 20.5% is also new to the list and has done well including a small raise just after entry to the bucket list. The company have been busy assembling the portfolio and will be even busier in the second half of this year. Through Corallian they will have an interest in Colter and Wick plus some other potential, through Danube they will see the Parta appraisal in Romania where the operator has just confirmed upside with a CPR. They have also bought into Gaelic Resources giving exciting exposure and very fast payback in California, exciting times. Jersey Oil & Gas, up 15.5% has performed well but like last year will probably be a stock for the second half. So far this year it has been mainly preparation and of course that extensive 3D seismic over the Verbier licence, not to mention the appraisal well on Verbier itself towards end of 3Q or early 4Q. I am sure that the market has way undervalued the potential upside in this portfolio which should be found with both seismic and the drill bit this year.
Although Savannah Petroleum, up 7.4% has done well I feel that there is still much upwards scope for the share price. The Seven Energy deal which took up a lot of time last year is nearing completion and will be worth all the hard work. Giving the company substantial production in Nigeria with upside and protected costs it will fund not only a dividend but also drilling elsewhere in the portfolio. Included in Seven is 20% of Accugas which is carried by AIIM and which I am very excited about. Of course the drilling campaign in Niger has been what a lot of investors have been waiting for and they have not been disappointed with three discoveries on the bounce and already one more option for a well has been taken up. With talk already about an EPS SAVP should be making money in Niger a lot quicker than many had thought.
I also added Trinity Exploration, up 5.5% in February as I am confident that their model is most efficient and will provide increased production growth and with more investment a chance to size up whilst maintaining its high margin business. Trinity has recently raised around $20m which will pay back its debts and refinance the convertible that would have been uncomfortable next January. It will also provide working capital to build production and to take forward the East coast Galeota asset which has the potential to be a company maker. All in all, once indigestion following the deal is removed Trinity has significant upside potential.
Now we come to those stocks that have under-performed since February but with one exception I am remaining confident that they will more than make up for this short term weakness. Amerisur Resources, down 2.6% is working hard on upgrading existing production but the market has concerns about when it will meet its ambitious production targets. However at around 5/- b/d the company is racking up the cash and with targets ranging from 7/- b/d in the short term to 12/- and even 20/- in the long term any success on that front would see substantial growth in the company. But Amerisur is also an exploration story with at least three potentially game changing wells coming up in the next few months. At Pintadillo-1 it will drill the ‘N’ Sand anomaly, at Indico-1 it will drill another well on CPO-5 and on the PUT 8 block it will drill the Miraparriba-1 well. Any or all of these coming in would be very good news indeed.
President Energy, down 4.7% has been a victim of the market’s perception of the problems within the Argentine economy as much as anything else. On an operational basis things could hardly be going better, particularly in the Neuquén Basin where the company has profitable barrels and free cash flow. 2,500 b/d of production is growing all the time and expected to double in three years on existing assets and all capex programmes are fully funded. The company has a very busy time this year and next with new wells and workovers adding to what are already high margin barrels, the share price, around what it was at the raise last year simply does not take into account this highly profitable growth.
Eco Atlantic, down 8.0% went into the list in February just to make sure that I did not miss what will undoubtedly be a firecracker sometime this year. With acreage in Guyana adjacent to the repeated success of Exxon and with a new 3D seismic which I am hoping will be most exciting and probably force Total’s hand in terms of the farm-in. In Namibia the company has extensive opportunities and two wells to be drilled by Tullow and then Chariot may give them a ‘free look’ at their own acreage, either way I fancy Eco is going to get more expensive. Sound Energy, down 15.2% has been unusually quiet in the first half of the year as it has been doing much work on its Moroccan assets technically. (See interview with Exploration Director Brian Mitchener on www.malcysblog.com) With a number of wells to drill looking at all sorts of potential and very sizeable targets towards the end of this year and next Sound still has exceptional claims in the list.
Victoria Oil & Gas, down 17.4% had a poor start to the year when ENEO, the Government funded power generator and a 53% client of the company lost its funding. It would have been too easy to drop the stock but it has such a powerful position in Douala and elsewhere that in due course it will build the higher margin corporate customers and of course ENEO will I am sure return, after all it has just had its licence extended for another ten years. VOG has had a substantial increase in reserves lately and of course albeit at an early stage the JV with Naturelgaz should mean that they can supply the ever growing CNG market in all its forms. Aminex, down 20.7% has had few friends as the process regarding the farm-out of Ruvuma in Tanzania ground on and only this week has been announced. Up nearly 50% on the news the stock has since fallen back to where it started which is rather peculiar. It seems that some holders feel that a significant part of the value has been given away, a view I do not share as I feel that to be carried in the project by a trusted in-country expert is about the best way for Aminex to crystallise its investment. Time will tell who is right, AEX stays in right now but under strict observation but I fancy that Jay may have more up his sleeve.
Finally we come to Pantheon Resources, down 61.2% since February and will likely never make the sort of money I thought that it would in Texas. I have been rightly castigated for staying too long with this stock when operationally; if nothing else it was proving to be a nightmare. Although I still have a feeling that we have not had the wool pulled over our eyes and that hydrocarbons are there in sizeable numbers there is no way that I can stay with it, I have to put my hands up and admit that I should have cut this a long time ago as advised.
Moving Pantheon out of the bucket list leaves a vacancy and I have decided that it should be filled by Genel Energy who has an exciting drilling programme with near-term production upside. The company is generating over $10m of free cash flow every month and is drilling ahead on its existing Peshkabir field programme with significant success already recorded. Elsewhere I am impressed with what might be a double whammy; the gas fields at Bina Bawi and Miran also have potential for shorter term development of high value light oil at the former. Strongly funded and under new management I think that there is plenty of upside for Genel in the short and medium term.
So that concludes the process for the time being, there are at least a couple of companies waiting on the subs bench, a couple of which I am waiting to meet with new management, if things change then I can make changes very quickly…
2018 Bucket list – Interim numbers Feb-July
- Rockhopper Exploration +73.6%
- Premier Oil +71.6%
- Hurricane Energy +57.7%
- Far +46.7%
- Faroe Petroleum +41.7%
- Echo Energy +32.4%
- SDX Energy +28.5%
- Reabold Resources +20.5%
- Jersey Oil & Gas +15.5%
- Savannah Petroleum +7.4%
- Trinity Exploration & Production +5.5%
- Amerisur Resources -2.6%
- President Energy -4.7%
- Eco (Atlantic) Oil & Gas -8.0%
- Sound Energy -15.2%
- Victoria Oil & Gas -17.4%
- Aminex -20.7%
- Pantheon Resources -61.2%