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The Bucket List 2021
Welcome to the totally new, 2021 Bucket List. I did not update the old list in August as so much had changed last summer and I wanted to wait for the market to show signs of life and I think now that time has arrived.
A recap for those new to the list, started in 2015/16 on the advice of senior FM Adrian Collins who wanted a way to play the dramatic fall in the commodity price at the time. It was envisioned that it could be a fund with some of the sector beta being reduced by playing a number of stocks.
The companies are a rich and varied bunch, a common theme is good quality, experienced managements and right now trending towards a low carbon future with a firm grip on ESG. These portfolios are all different and in different geographies, they may have exploration or production or both, hopefully they all stand out from the crowd.
The list below is in no particular order but is divided into four sections but some stocks could easily be in more than one group. For the first time I have done a covering Podcast with Doc Holiday of TMS which is linked to at the bottom of the text. I hope that you enjoy the selection and remember it is all E&OE…
Section 1 – UK
In the UK I have four stocks, starting with Jersey Oil & Gas who have built a substantial position in the Greater Buchan Area (GBA) where the makings of a Hub is being formed from the former BP field. Expect a lot of news next year as JOG has been busy picking up the final pieces of the jigsaw and expect to launch a farm-out process with the prize of several drill-ready prospects near the infrastructure. The next is Serica with its now totally UK, predominately gas (80%) portfolio from the Bruce Hub, put together by a high quality management team. With significant upside and a strong balance sheet SQZ also paid a dividend for the first time this year.
Next is IOG who are building their Core Project which with its high quality partner CalEnergy in the Southern North Sea with first gas expected in Q3 2021. The project will return significant cash flow and its Hub strategy should offer potential growth in the area. With its gas assets it hits the spot on low carbon ratings and it owns its assets and infrastructure and I expect growth in the area. Finally I am including Union Jack Energy which has in a very canny way built up a significant onshore UK portfolio which includes the potentially huge West Newton, currently testing as well as Wressle and Biscathorpe. A good mix in due course of exploration, appraisal, development and production these shares are way too cheap.
Section 2 – International
Starting with Jadestone who are involved offshore Australia, Vietnam and with deals in New Zealand and Indonesia. Excellent management here who have managed the business this year and kept spending down whilst keeping the upside potential intact. Another company with very strong finances, also paying a dividend and masses of upside. Next up is PetroTal which I have liked from the start but it has had a difficult year, its main asset, the Bretana field in Peru suffered from a price delay which hit hard at the early stage of the oil price fall. The pandemic also hit hard with local unrest, this company has absolutely first rate management and there is surely plenty of upside.
Readers know that I have been a huge fan of Touchstone ever since Paul Baay showed me the maps of the Ortoire block some time ago. The rest is history and the company has an unbeaten run of big discoveries with, in my view, much more to come. Another long standing favourite is Savannah who took an inordinately long time to complete the Seven Energy acquisition but it is already paying back big time. With the Nigerian economy desperate for power SAVE has already become the biggest power supplier in the country and its most reliable power source. This is already churning off cash and is undervalued by a factor.
Another stock I am refusing to let go of is President which has a historically good operational performance in Argentina which has now kicked in with some 4,000 boe/d about half and half. Very strong management with a big stake in the company and Trafigura also holds a chunk of the equity. There are companies out there that have nothing like this inherent value at way higher valuations, President is far too cheap.
Predator is also in an incredibly strong position, its C02 EOR project in Trinidad goes from strength to strength and is the base for the company being the model for a low carbon energy play. In Morocco at the Guercif the company has what looks like a huge gas opportunity in a country that is desperate for gas for power and arguably the best fiscal regime in international oil & gas. It also has an interesting FSRU play offshore Ireland with a number of global players.
Scirocco is going to be my way to play not just Ruvuma in Tanzania but also with Lithium 1 and a board that is looking at ways to maximise value for shareholders. With Aminex not drilling until 2022 I have decided that after all these years SCIR is the better way to play its 25% stake, not carried but also not in the price I believe.. Finally in this section I have Chariot which has been a major player for me this year but where I believe that there is much more to go for. The success at Lixus with its Anchois gas play gives huge scope and they have recently announced the Rissana license also with ONHYM. This needs very little in commitment work, some seismic at around $1m tops I understand and could be another winner. The new management team has done very well and I expect a number of interesting new ventures through 2021.
Section 3 -Yield
Whilst all these companies share a significant dividend yield they all attract me as they are well run companies that justify inclusion in their own right and more importantly should provide a well above average total rate of return. Diversified Gas & Oil has been at the top of my list ever since it came to London, its revolutionary model was not initially understood by the market, some probably still don’t. But it has a fantastic Appalachian portfolio which throws off significant cash that services debt and more than covers a dividend that offers on its own a 10% yield. With partners queuing up to join with them in buying assets from distressed sellers, a market that isn’t going away anytime soon the upside is substantial from this excellently managed company.
Genel has ticked all the boxes recently and has shown the market how it is possible to sustain a model that includes upgrading and investing in existing assets, adding by funding an aggressive drilling programme as well as making neat acquisitions that are already coming to fruition. This comes with a 9% yield and next year also looks full of potential with a plan for 3 wells at Sarta to boost reserves and exit rate production through 2022. With Qara Dagh and a possible repayment of KRG receivables that might be $140m things look very good at Genel.
Wentworth is in a remarkably strong position that has not been realised by the market this year. When the oil price crashed you might have thought that having the Mnazi Bay gas project which has long term prices linked not to oil but to retail prices in the USA would see outperformance but so far it is only modest. WRL has no debt, a strong management team with plans to expand the business and pays a dividend that yields 8%+. Finally it is worth looking at San Leon where its own model in Nigeria has been remarkably successful and where management has promised to pay out 50% of free cash flow. This could be some $104m+ next year which should mean bumper pay-outs and therefore holders might get a 20% yield on SLE.
Section 4 – Higher Beta
This sector covers a number of companies that exhibit higher beta and shareholders can expect more risk, except that given who you see below might just provide a higher return. Again no order but starting this list is Kistos which is a new entrant to the London market and is the vehicle for Andrew Austin, former Chairman of RockRose, an investment that turned some £9m into £300m there and thereabouts. Expect deals from AA, not so much in black oil but in gas, energy transition and carbon capture maybe even as soon as 1Q 21.
I am also still looking out at Longboat which is the vehicle for the former management team at Faroe Petroleum who are looking to build a significant North Sea focused E&P business. Whilst I might have expected something by now I am aware that they are not overpaying and will wait for the right deal to come along. Next up is Zephyr Energy which some may remember as Rose Petroleum. Colin Harrington and his truly excellent team are currently developing the Paradox Basin with an imminent well part funded by the Government. With a number of exciting plans I expect Zephyr to grow strongly next year and with innovative funding and big plans investors should look at this company again.
Two to go and Bahamas Petroleum has been waiting to drill here for many years, now is the time as Perseverance#1 is due to spud anytime soon. With its billion barrel++ opportunity it is still going to be one of the biggest wildcat wells for many a year but things have changed at BPC as since the acquisition of Columbus the company is no longer a one trick pony. Whatever happens at P#1 the company has onshore Trinidad with exploration upside at Saffron plus acreage in Suriname and more to look at.
Last but not least is Eco (Atlantic) which has been held back by the problems at Tullow, I would have expected that at least some drilling would have happened in Guyana by now but it has not gone away. I would expect that TLW has a few months to decide to drill or not and I’m sure that Total and QP at least would buy them out of some of their stake. After Exxon’s success Guyana is still very hot and Eco will sooner rather than later participate in it and the share are a multi-bagger.
Total Market Solutions
I have made a Podcast of this with Doc Holiday and the link is below.