February 2020 Bucket List update
Once again in the bucket list end of term report the words ‘could do better’ should be in bold type, only 4 stocks were up since August even given the oil price was down 4% at $58.50. That even puts to bed some of my arguments that it is meant to be a risk equaliser, with some stocks performing badly for quite indeterminate reasons and others clinging on waiting for longer term value events, at the moment short term trading seems to be gaining. The league table below shows continued ‘push-back’ as I called it in August and indeed at best an indifference with fossil fuel stocks.
Without trying to make excuses, and there are many I assure you, the market has been particularly unforgiving when things not only go wrong but are perceived to have done so. This does not just apply to success or otherwise with the drill bit but also an overly cynical attitude towards companies that are actually producing at high, consistent levels, throwing off cash and reinvesting for the future. You have to be super-bearish on the oil price to see these companies coming a cropper and this has lead to a number of high quality plays joining the dividend lists, indeed there is a growing case for establishing one on these pages at some time in the future.
Changes to the list during the period included losing Amerisur to Geopark for 19.18p, another that proves that I remain over optimistic on value expectations as my sum of the parts valuation for the Colombian assets was always higher than the takeout value. Two stocks joined the list last time the first being RockRose and the second Chariot Oil & Gas. With a steady stream of ever value enhancing acquisitions, some of which were of a size that required suspension for long periods, I gave up trying to nuance Andrew Austen and added RRE as soon as it was possible after it returned to the market after the Marathon deal. RRE is genuinely worth its weight in cash on the balance sheet, will continue to do value enhancing deals and eventually one way or another will provide a massive capital gain for investors. Anchois-1 and the satellites could be very valuable and Chariot are moving to develop their Lixus acquisition and investors should look at my recent interview with Larry Bottomley.
The stock that went in directly was PetroTal Corp, which operating out of Peru had for many good reasons stayed under the investor radar until it raised money last summer in a heavily oversubscribed placing in which brought in some key new investors. When I was introduced to the company I was significantly impressed with not only the management but the asset portfolio which had the opportunity to swiftly rerate the company hence the swift insertion into the list, that confidence has already repaid by the company with plenty more to go. The list below is since August 30th except for PetroTal which is from inclusion.
- PetroTal Corp +28.6%
- SDX Energy +15.6%
- Aminex +12.5%
- Amerisur Resources+7.2%
- RockRose Energy -2.9%
- Serica Energy -5.9%
- Genel Energy -6.1%
- Rockhopper -16.3%
- Trinity Exploration -16.4%
- Chariot Oil & Gas -16.6%
- President Energy -20.4%
- Savannah Petroleum -39.9%
- Echo Energy -45.6%
- Far Limited -48.3%
- Jersey Oil & Gas -49.0%
- Reabold -53.5%
- Victoria Oil & Gas -59.9%
- Hurricane Energy -67.2%
- Eco (Atlantic) Oil & Gas -77.1%
- Sound Energy -82.6%
Having mentioned the stocks that went in during the period it is worth a quick look at the other stocks in the list for all the embarrassment this causes. SDX has done well after the shake out last summer and investors are happy with the company without the corporate ambitions, Aminex is quite the interesting stock in this list, up since August but imagine what it would look like if the snapshot had been taken say in October when it had doubled since August, from whence it has halved…
Serica to me remains an absolute blue chip UK stock with one of the finest managements in the sector. With its focus on gas and production increasing from Bruce, Keith and Rhum and significant cuts in operating costs the company has an incredibly strong balance sheet with no borrowings nor substantial decommissioning liabilities. Accordingly, you’ve guessed it, the company plans to announce a maiden dividend later this year. On the subject of dividends Genel Energy also has a powerful balance sheet and has recently been able to boast the ability to pay shareholders even after substantial capital investment in upgrading production from its huge, growing, reserve base in Kurdistan.
Rockhopper Exploration has been in the bucket list since inception as belief in the development in the Sea Lion field in the Falklands has never wavered despite many setbacks. With the recent farm-out to Navitas making the deal more likely the only remaining hurdle is the final agreement from the Export Credit Agencies submitted in July 2019 after which I believe the development goes ahead and RKH remains carried. Holders of Trinity Exploration should thank their lucky stars that they have in Bruce Dingwall one of the most experienced oil players around. The shares have looked a little friendless but I rate them highly as they continue to deliver high margin production and a continued commitment to cost cutting which makes production high margin indeed. With hi-tech procedures and partnerships TRIN should stay the distance and remember it has exploration upside into the bargain. President Energy shares have at least started to recover from the beating they took last year as the Argentina effect took its toll. I have always had confidence that Peter Levine would see it out so expect a rally but I think for now, outside the list.
Savannah Petroleum has eventually completed the Seven Energy deal which will, I’m sure open up lucrative business in Nigeria where we have already seen contracts giving SAVP further profitable and cash flow positive exposure. Having done that expect the company to return to Niger where it has successful wells to appraise and get production up and running. Echo Energy also suffered from some vicarious Argentinian woes but since signing the Santa Cruz Sur production are deemed to have a much more balanced portfolio. The recent Tapi Aike well, despite being a non-commercial gas discovery indicates a hydrocarbon system worthy of testing. The company has an interesting programme of testing and drilling and has plenty of upside.
Far Limited have over the last few weeks raised all the finance in equity and debt for their part of the Senegal development. I was impressed that the biggest support came from its own existing shareholders and the debt raise was enough to cover this phase which brings forward a project that Far started. They also have interesting acreage in Guinea Bissau where 3D seismic has identified numerous prospects and leads and expect drilling within 12-24 months. Perhaps more important are the A2 and A5 blocks in The Gambia which they subsequently farmed-down to Petronas and subsequently drilled the Samo-1 well in 2018. The Gambian prospectivity is in a continuation of the ‘shelf edge’ play that houses the giant Sangomar Field offshore Senegal which could potentially also add to Far’s value. Far lost their recent arbitration case in the International court so the shares look highly attractive from here given the backing from Senegal Phase 1 and the exploration upside.
Jersey Oil & Gas has spent a long time building a strong team to tackle what must be one of the greatest of potential hubs at the Greater Buchan Area. With the potential from Buchan itself, Verbier J2 and Glenn there is plenty of exploration upside into the bargain, JOG must have every chance of success. Reabold Resources with its model that takes low risk opportunities with the aim of appraising and potentially selling on has already had good successes in California in the USA, Parta in Romania, via Corallian Energy and West Newton in the UK. Whilst all these have been wise investments I personally feel that the market has yet to put a correct value on West Newton, when this happens Reabold will prove to be a big winner.
Victoria Oil & Gas has proved quite a handful in recent years and I genuinely thought that earlier this year the reconstruction etc would finally put it in the correct frame of mind. With recent slip-ups on what to tell the market etc it will drop out temporarily but new management could easily put this right in no time. Hurricane Energy has significant assets at the Greater Lancaster Area and the Greater Warwick Area in the West of Shetlands but suffered more than most from the market recently not understanding quite what it is up to. With first oil from the fractured basement at the Lancaster EPS last June leading to substantial and guidance beating production one might have thought that the market would be happy especially since the company needed 9-12 months of data and well analysis about which the market had been warned. Over at the Greater Warwick Area, now a 50/50 JV with Spirit Energy the company has drilled three wells with the results currently being assessed. Hurricane should be trading at a much higher level than at present and with the Capital Markets Day in March hopefully set to give further data across the portfolio I am convinced that the shares are wrongly priced.
Eco (Atlantic) Oil & Gas has certainly seen the ups and downs of the industry in the last 18 months. Top of the last table after successes in Guyana, a number of problems have beset them. With concern over the quality of the crude, where Tullow announced that it was thick and potentially unsaleable, to concerns about drilling this year Eco has had a hard time. The Tullow profit warnings, still coming, have shown that they are not quite the oil darling that they used to be and are causing contagion. However I believe that the recent CPR from Eco shows that the chances of success in aiming for the lighter crude evident in their Orinduik block are potentially substantial and could still be a company maker the market had expected and also worth remembering that they are fully funded for the drilling campaign.
Sound Energy has fallen way more than should have been the case after its process of identifying a partner for its gas discovery in Eastern Morocco has led to some confusion. A combination of cash, carry and royalty payments in the deal as announced didn’t impress the markets although if it were to go through I think it would be more than enough to prove up significant value. Recent announcements show that the deal is not complete yet so there is a worry that nothing will come of it. With the share price as it is I don’t see any real advantage in cutting and running now but I maybe should have done that some time ago, as it happens I did believe that finding more at T-10 was so critical. As it is the shares, and management across the board have taken way too much stick for what has always been a rank exploration play.
This performance has meant some changes led by Amerisur after its takeover. I am taking out President at this stage as although there has been some rally I will keep my Argentinian exposure to Echo but will depend on success with the drill bit this Spring and Summer. VOG goes, as I mentioned with uncertainty over the management and delivery of message it goes back on the bench. SDX also goes which sounds tough but I think that with limited acquisition ambitions and a predilection to fall after the Morocco campaign I will keep my exposure there elsewhere.
That just leaves any additions and at this stage with four stocks coming out I have the ammo to put a number in but will probably wait in the main until the summer as the list has been getting a bit weighty. The one stock I am determined to put in is Predator Oil & Gas who’s time is about to come in two distinctive areas. Perhaps most importantly it is to continue its important CO2 EOR development in Trinidad and should this prove to be successful and scale-able will, in my view change the basis for ‘green’ exploration, our first Greta stock you may say. PRD also recently announced a rig contract for its licence in Morocco which the management are very confident about which gives them a small piece of exploration excitement.