It has been a tough three years for the oil and gas industry. It battened down the hatches in the downturn, but there are signs there could be light at the bottom of the barrel.
Brent crude, the international benchmark, rallied to more than $70 a barrel for the first time in three years this month. Two of the industry’s biggest London-listed explorers, Tullow Oil and Premier Oil, reported lower debt levels and promised rising production and Royal Dutch Shell announced its first major development in the North Sea in more than six years.
Immediate investor interest will be in those companies that were heavily leveraged during the downturn and should benefit most from the rising oil price. A sustained rally, however, could also rekindle interest in the smaller players on Aim. The number of oil and gas constituents on the junior exchange has retreated with the downturn. It had 105 producers in June 2014, when Brent peaked at $115 a barrel, by June 2015 there were 100 and at the end of 2017 there were just 81 companies listed.
“We need a catalyst to shake up interest in the small-caps,” said Al Stanton of RBC Capital Markets. “A lot of companies have survived . . . but capital is spread very thinly across the sector. Investors want bigger, better financed companies.”
In this kind of environment, investors need to look for exploration and production success and a handful of the larger ones will be in the spotlight this year.
The company may not be on Aim that much longer. It is planning a main market listing following an exploration success west of the Shetland Islands. An independent report showed the total volume of oil across its main discoveries and prospects is about 2.6bn barrels.
Hurricane’s focus is on the Lancaster Early Production System (EPS) development, which should be producing in the first half of next year. It raised $530m last summer to fund Lancaster. Robert Trice, chief executive, specialises in a certain kind of geology known as “fractured reservoirs”, which sit underneath the layers of sandstone from which oil has traditionally been produced in the North Sea.
Hurricane is looking for a new chairman after Rob Arnott, an oil industry veteran, resigned from the post last year, citing corporate governance concerns. Hurricane this week said that non-executive directors had relinquished previously granted awards under a share option plan.
Its shares traded at 38p this week. Arden Partners has a 70p target, noting that first oil from the EPS development is expected in the first half of 2019, “an important catalyst for the stock”.
Mediterranean gas is at the heart of Sound Energy’s story, in particular the acreage it has built up in Morocco. Sound has told investors it plans to sell its Italian assets to fellow Aim-listed Saffron Energy, which will combine with its major shareholder, Australia-listed Po Valley Energy, and re-emerge as Coro Energy. Sound’s shareholders will receive 33 per cent of the enlarged share capital of Coro.
For Sound, Morocco will now come to the fore. The company plans to drill three wells this year starting in the summer. It expects its portfolio in eastern Morocco, in particular, the Tendrara area, contains between 9tn cubic feet (tcf) and 31 tcf. Certification of its reserves should come in the next few weeks. Schlumberger, the oilfield services group, has a stake in the project and has helped fund the work to firm up its potential.
Analysts note that Sound has cash of £29m, down from £38.5m in December and debt remains unchanged at €28.8m in bonds. Shares in the company have dropped from their peak of more than 90p just over a year ago, falling back to between 45p and 55p amid an absence of material news. They were trading at 55.75p on Friday.
The South American explorer and producer has a market capitalization of about £252m. It has extensive acreage — just under 1m hectares — and it owns 100 per cent of most of its 12 blocks. It built up its position through the downturn and is focused on the Putumayo Basin in the south of Colombia.
At the end of 2017 Amerisur was producing just over 7,000 barrels of oil per day. It has announced a fully funded exploration programme for this year and plans to drill three wells on its Platanillo N sands.
The company’s share price peaked at more than 66p in August 2014 but it has traded lower since. Positive exploration news could underpin the shares, which have risen from 17p to 20.85p in the past month. Housebroker Stifel has a price target of 32p.
SOURCE: Financial Times
Compiled and Published by GIB KNIGHT
Gib Knight is a private oil and gas investor and consultant, providing clients advanced analytics and building innovative visual business intelligence solutions to visualize the results, across a broad spectrum of regulatory filings and production data in Oklahoma and Texas. He is the founder of OklahomaMinerals.com, an online resource designed for mineral owners in Oklahoma.