FoxDavies Daily Monitor - Afren, Sound Oil and Matra Petroleum

Wednesday, December 12, 2012

Afren (BUY, 250p) (AFR LN, 130p, ▼ 0.91%): Seychelles Exploration Underway - Today's announcement that Afren is starting its 3D seismic programme is a timely reminder that the Company's future isn't only just Nigeria, that it encompasses other jurisdictions. It is also a timely reminder that the Company continues to widen its portfolio of projects in its exploration hopper, essential to creating a sustainable, long term growth business. We take this opportunity to remind investors of the inherent value within its portfolio, and future growth potential of the Company. Core value alone supports the current share price (Core-121p), with the 44p development programme being ignored completely; our exploration programme contributes 84p to the 250p fair value.

Sound Oil (SOU LN, 1.05p, ▶ 0.00%): Merry Christmas! - The final exit from Indonesia provides Sound Oil with one less operational issue to deal with, and a nice Christmas present in the shape of $4.5mm - a Merry Christmas for everybody, especially investors, who now won't need to put their hands in their pocket just yet. What won't be welcome of course is a fall in the share price after the share consolidation. This will be little to do with management, and everything to do with the fact that every company that undertakes a share consolidation has some form of weakness in the share price. To some extent, we hope that the fact that the balance sheet will be further strengthened by additional cash flowing from the sale of Mitra, depending on performance, will offset this effect. Either way, the Company is well financed and should be facing 2013 with renewed vigour. Now it's all about the delivery.
In this news:

  • Mitra Energia Bangkanai disposal to Salamander
  • An initial cash payment of $4.5 million
  • A further $1.1 million cash payment conditional on both the commencement of gas production and the signature of a GSA for commercialisation of additional resources
  • A contingent payment of $1.5 million from revenues associated with production from a future discovery in the PSC
  • 10 for 1 share consolidation

Matra Petroleum (BUY, 3.9p) (MTA LN, 1.4p, ▶ 0.00%): A Sign of Things to Come… - The appointment of Matthias Brandl, while normally in and of itself would be nothing to shout about, the fact that he is coming in to Matra, with Maxim Barsky, is a portend of things to come. There is likely to be a significant acquisition in the horizon, and one in which precipitates a step change in the Company….watch this space. We are reiterating our BUY Recommendation and 3.9p Target Price.

Ophir Energy (OPH LN, 516p, ▼ 0.67%): Pointing the Way Forward - Today's announcement from Ophir underscores the East African potential, and should provide a fillip for both BG and Ophir investors. The other thing to note as part of this announcement is the convergence of the P50 and P10 reserves numbers (3.4tcf versus 3.7tcf respectively), which is an indication of the homogeneity and quality of the reservoir. Given the 3D seismic plans, we wouldn't rule out further discoveries as the team's understanding of the play increases and their regional geological is better refined.
In this news:

  • Demonstrated consistent, high-quality reservoir quality across the Jodari field
  • Reconfirmed the 3.4 TCF mean recoverable resource estimate
  • Confirmed the feasibility of high-angle (sub-horizontal) drilling thereby reducing development costs

Falklands Oil & Gas (HOLD, 55p) (FOGL LN, 29.8p, ▲ 2.59%): Please Santa, Can We Have a Liquids Field? - Now that FOGL has made a discovery, and its model of the regional geology can have some well control added, the next stage of the 3D programme has to be targeted so as developing the understanding to a point at which the probability of making a liquids rich discovery, if one exists, more likely; this in turn will make development of this basin more likely too. We remain excited about the potential of the South Basin, but it needs the Falklands Island Government ("FIG") to make a change to its approach. Here we are slightly more optimistic in that at a recent conference, the representatives of the FIG stated that "….there was plenty of room for an LNG development…" Very promising. It is easy to be critical when you look at FOGL's share price performance, but FOGL, along with Borders & Southern, have made significant strides forward, it just a shame that we have to now wait for FIG's change of heart before we start to see a real rerating in value. Today we reiterate our HOLD Recommendation on Falklands Oil and Gas.

Contribution by
from FoxDavies Capital

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This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. More

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