I mentioned on Wednesday the number of companies referring to being protected by hedges covering future production and, on the other side of these, the example of airlines who buy fuel forwards. They’re looking at paying out hundreds of millions now on these hedges, which wouldn’t be a problem if they actually were buying and using an equivalent amount of fuel bought at the new lower market price, since that hedged price was what they were basing all their forward pricing calculations upon. There was some interesting information last week regarding demand in Spain as pipeline CLH is publishing its data and offering a unique view on lockdown impact. Petrol is down 75%, diesel is down 55% and jet-fuel is down a massive 93%. You can see the size of the problem.
Another matter which I’m not sure everyone is aware of is that with massive oversupply and lack of storage, producers aren’t getting anything like the prices you see on your screen. That’s why so much production now is being shut in. If you’re at the end of a dirt road somewhere in the middle of the US with a few stripper wells, you’re maybe receiving a couple of dollars a barrel and without a disposal well, you could be paying even more to have the water hauled away. Back in the UK, you can see the benefits for the operators from the numbers in Friday’s IGas (IGAS) announcement: shutting-in 600 barrels of oil equivalent per day has a positive impact on their cash flow of £250,000 a month.
Moving on with the company news and I’ll focus on the more interesting announcements, good or bad, UK Oil & Gas (UKOG) announced a £1.275 million placing at 0.2p. There’s still £2.325 million outstanding on the convertible loan notes, so the share price could be going even lower yet. The oil price is a big damper, but the problem also now is investors not wanting to finance a CEO who they see as having his snout in the trough, taking three quarters of a million a year, enjoying large “bonuses” from a severely loss making company.
Rockhopper Exploration (RKH) issued a Sea Lion farm-in update. Despite the current oil price weakness, Navitas Petroleum (NVPT) (Tel Aviv market) remains committed to the finalisation of the definitive farm-in agreement. They’re targeting late Q3 or Q4 for the Falkland Islands Government to approve Navitas becoming a licencee and Premier Oil (PMO) will fund Rockhopper’s share of the remaining pre-effective date costs. There is no guarantee this will complete, but in the current climate, it’s all looking relatively positive.
Desperate times for those companies which don’t really have any assets. Zenith Energy (ZEN) is now trying to jump on the Coronavirus bandwagon and sell PPE to Africa. I said on Wednesday that it would just be another excuse for them to raise cash and lo-and-behold the very next day they announced a £540,000 placing. Ascent Resources (AST) must have given up on getting the £200,000 out of the disgruntled investor in the 5p placing. The litigation funding update didn’t work, so they tried a memorandum of understanding announcement and pulled in the necessary £200,000 at 2.75p per share instead. Rose Petroleum (ROSE) has suspended its acquisition of a 2% stake in a US shale gas unit, but has compensated by developing a series of proprietary tools for use in evaluating assets, “demonstrating the value Rose brings to potential investor and industry partnerships” they say. It’s quite pathetic really. Canadian Overseas Petroleum (COPL) announced a £2 million equity placing and equity sharing agreement on Thursday. It’s already trading substantially below the 0.07p placing price and I guess the RiverFort “Equity Sharing Facility” will bring the share price down further. I’ll also mention Eurasia Mining (EUA), which although not an oil company (none of these ones are either) fits well into this section. It’s suspended already, now has lost its NOMAD and will be delisted on the 29th unless it finds another. This is the regular fate of these types of companies and the result is that you lose all your money. I’d strongly suggest the special trading course for those who want to understand what’s really going on at these companies and how to actually take money out of these things. Link is https://www.oilnewslondon.com/trading
Back to the news, Aminex (AEX) and Solo Oil (SOLO) announced the extension of their Tanzania licence. AEX can now proceed with its farm-out and SOLO can continue to explore its value realisation options. Good news also for the shareholders of Union Jack Oil (UJO) and Reabold Resources (RBD), both of which announced a positive decision from the environment agency in respect of the testing of the West Newton A-2 well.
PetroTal (PTAL) appears to be in a bit of mess now and it would be interesting to see their most recent financial statements. Unfortunately, they are playing the Coronavirus card to postpone release. Absent a strong oil price recovery, I think we could be seeing a placing here. Meanwhile, Lekoil (LEK) has restructured its financial obligations to Optimum and lives to fight another day. They’ve agreed a more manageable payment schedule of $1.0 million on or before 15 July 2020, $2.0 million on or before 30 September 2020 and $4.6 million to be paid on or before 30 November 2020, but I think a fundraising is inevitable.
In contrast, San Leon Energy (SLE) actually is making money from its business, not just from selling shares, and is returning some of it to shareholders, this time in the form of a special dividend of 6p per share. You could have bought SLE for 11p just over a month ago. It will still have £59 million left though, with a lot more cash expected to come in, and they continue to pursue growth opportunities, which are prevalent in the current market.
88 Energy (88E) didn’t take too long to get going again after its recent duster. They’re making an offer for XCD Energy, an oil exploration company with operations on the North Slope, to create an Alaska-focused entity with three project areas. I mentioned 88E as a favourite in the blog several times last year around 0.7p and it gained over 100% in the run up to the drill. It’s a stock promotion, but one that you can make money from. It will get interesting again when it announces the next fully-funded new drill.
Bahamas Petroleum Company (BPC) could have been financed itself by now, but got greedy and now they’re converting part of a convertible loan note at 1.17p per share. Difficult to know whether they can pull this back together. I3 Energy (I3E) is in a similar boat, having lost focus, gone off at a (misguided) tangent and now is at the mercy of its noteholders.
Personally, I look for what I would call certainties. Those shares where I think a profit is as good as guaranteed. My trade ideas are in the private blog each week and the link for that is https://www.oilnewslondon.com/oilman-jim
If you’re not yet familiar with me, I’ve been involved in the markets for a long time. I bought my first shares in the 1970s and I’ve worked in the financial sector since the early 1980s. My particular knowledge is of the stock markets and I’ve been actively involved in these, both in the UK and the US for over 40 years from both sides of the fence. I’ve also had significant involvement in the oil and gas industry along the way, from drilling wells to negotiating farm-outs to majors, which enables me to see very quickly whether or not these companies I write about are telling the truth.
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The author may hold one or more investments in one or more of the companies mentioned so this post cannot be viewed as independent research. This post does not constitute investment advice or a recommendation to buy or sell and may be incorrect or outdated.