FoxDavies Daily Monitor - Borders and Southern, Falkland Oil and Gas and Aurelian Oil & Gas

Monday, April 23, 2012      

Borders and Southern (BOR LN, 100.5p, ▼ 23.3%) - Oil? Gas? Does it Matter: Today's news is a terrific technical success, and one that the Company should be proud of; they announce the arrival of a new hydrocarbon basin, the South Falklands Basin ("SFB") and given that it contains gas and condensate, these results suggest thermal maturity (thermo genic gas opposed to biogenic gas which tends to be drier). Now for the cloud with the silver lining. A technical discovery is a long way from a commercial discovery, and while the shares will be marked upwards, as they have been already, if predominantly gas the find will have a long wait for commercialisation, if it is commercial at all. On the back of this news, we are raising our price target from 150p to 220p and reiterating our BUY recommendation, but proffer a note of caution. A gas find will not be what the market is looking for, and there may well be weakness in the share price as a result. In this news:

  • Good hydrocarbon shows from 4,633m down to 4,810m
  • The main reservoir interval, comprising good quality massive sandstone, was found to be 84.5m thick with net pay of 67.8m.
  • Average porosity for this interval is 22%, with maximum values reaching 30%.
  • Fluid samples from the reservoir have been recovered and will be brought back to the UK for analysis.
  • Once the lab analysis is complete and the results integrated with other data collected from the well, the Company will be able to comment on the liquid content of the reservoir
  • Too early to give an accurate resource estimate, but this large simple structure
  • Seismic amplitude anomaly measuring 26sq km

Falklands Oil and Gas (FOGL LN, 91.25p, 2.7%) - Concept Proven: Today's BOR LN results will boost south Falkland's players, such as FOGL as it diminishes one of the key risks associated with the SFB- that it is a viable hydrocarbon basin with mature source rock. With this news, we are raising our target price from 250p to 275p and reiterating our BUY recommendation.Falklands - That Thick Silver Lining Still has a Cloud…: Today's news that there is a viable hydrocarbon province in the shape of the SFB benefits everybody, not just the players in that basin, but those in the North Falkland's Basin like Desire, Rockhopper and Argos. With the prospects of the SFB being a viable commercial discovery, there will soon be a claim to have critical mass, and the risks associated with the development of the regional as a whole will lift all the players in the region.

It will also raise the tempo in the fight for the Falklands between Argentina and the UK, which given the recent nationalisation of YPF was a shameless populist driven event, there will be little holding the government back from whipping up another fervour over the Falklands.

But here is the rub. YPF's nationalisation (the "Nationalisation") actually helps the Falklands. Prior to the Nationalisation, Argentina had been indulged in its claims for the Falklands by its LatAm peers, even in the wake of PetroBras' licence revocation, despite what we have been led to believe was its compliance with the terms of the licence. However, the Nationalisation has attracted international condemnation, such that Argentina's next "cab of the rank," i.e. the Falklands, shall be used to make an example of it, which is good for the Falklands.

Aurelian Oil & Gas (AUL LN, 20.25p, ▼ 6.9%) - Year end results - All eyes on Siekierki field now: Year 2011 was a challenging period for the Company as the initial production rates from all three appraisal wells on Siekierki tight gas project were significantly lower than forecast. However, this series of disappointing results have not dented the Company's exploration programme. It is planning to spud first oil well targeting a mid-case 35mmbbl gross STOIIP prospect in April 2012. Aurelian is looking for strategic partner for Siekierki project - which we believe is positive. It has a strong cash balance of €63.4 mm, sufficient to fully fund appraisal and exploration programme through end of 2013. In this news:

  • The reported loss of €10.1 mm for the period (2010: €16.9 mm).
  • The net outflow of cash of €53.0 mm included the following major items: €6.3 mm of operational expenses (2010: €8.3 mm), €54.4 mm of capital expenditure (2010: €20.3 mm).
  • Obtained the Prusice licence, a shale gas block adjacent to San Leon's acreage in the Fore-Sudetic Basin in central Poland.

GeoPark Holdings (GPK LN, 572.5p. ▲ 0.5%) - Encouraging 2011 results: The Company continues to strengthen its production base and expand exploration portfolio. Its 72% drilling success rate in 2011 is reminiscent of the Company's technical and execution capabilities. Acquisition of two oil and gas exploration and production companies in Colombia, with interests in ten hydrocarbon blocks provides platform for further growth. With the capex of US$220-240mm planned for the current year, we believe GeoPark should be on every investor's watch list. Against this, we must temper caution, especially with the populist fervor sweeping Argentina at present. In this news:

  • Revenues Up 40%: Total revenues increased to US$111.6 mm in 2011
  • Oil Production Up 27%: Crude oil production averaged 2,510bpd in 2011.
  • Natural gas production increased 2% to an average of 30.5mm scfpd in 2011 from an average of 29.8mm scfpd in 2010.
  • EBITDA Up 54%: EBITDA increased to US$63.4 mm.
  • Net Income Up 21%: Net Income increased to US$5.1 mm (2010:US$ 4.2 mm).
  • Capital Expenditures Up 70%, increased to US$98.7 mm in 2011.
  • Cash resources were US$201.9 Mm, including cash guarantees.
  • Debt was US$165.3 mm - resulting in a net cash position of US$36.6 mm.

Gulf Keystone (GKP LN, 218.5p, ▲ 3.6%) - Bang Zoom!: While an appraisal well on a known hydrocarbon accumulation, the fact that it has flowed 24m bpd (aggregate flows from all zones) is staggering, and indicative of how big Shaikan could be; we believe that there could be reserves / resources upgrades pending as a result of these tests. Given that the shares are at the bottom of their trading range, and there is an Analysts' Trip in May, we believe the shares will continue to trade upwards towards the middle of their trading range, and onwards to our target price of 320p. As a result of this news, we are reiterating our Buy recommendation and 320p target price. In this news:

  • Shaikan-4 well has tested all target formations in the Triassic (Kurre Chine-A, Kurre Chine-B and Kurre Chine-C), Jurassic (Butmah and Lower and Upper Sargelu) and Cretaceous (Chia Gara)
  • An acidization and retest of the Sargelu formation interval as part of the well completion process.
  • Did not to test portions of the well that appeared to be high quality oil reservoir on the electric logs, and proven commercial by testing previous wells
  • Most of the tests have been conducted in zones which looked marginal on the well logs, or not previously tested.
  • Achieved total maximum aggregate flow rates of 24,000bpd
  • 4,500 bopd have been achieved in a new zone in the Jurassic Upper Sargelu, previously untested by the Company, and producible oil has been established in the Cretaceous Chia Gara for the first time, albeit at relatively low rates (130 bopd).
  • The Discoverer-4 rig will move to the drilling location of the Sheikh Adi-2 exploration well, north of the Sheikh Adi-1 exploration well, which is expected to spud in June 2012.

Mediterranean Oil & Gas (MOG LN, 5.63p, ▲ 4.3%) - Upbeat Operations Update: The Company has made a good start in 2012, reporting gas production of 116mm cpd from the Guendalina gas field for the first quarter. Regular updates on the Guendalina gas production and release of Independent Competent Person for the Area 4 exploration licence, offshore Malta in 3Q'12, offers near term catalysts. With no leverage on the balance sheet and revenue flow from Guendalina gas field, the Company is ideally placed to raise new borrowings to expand its asset base and/or fund its exploration programme. In this news:

  • Production from the Guendalina gas field for the first quarter of 2012 achieved an average gross production (100% basis) of 580,000 scm/day.
  • It yielded revenue of €4.0 million for the 1st Quarter of 2012.
  • The processing by Fugro-Geoteam Pty Ltd of 1,012 square kilometers of the newly acquired 3D seismic survey data from exploration Area 4 offshore Malta is complete.
  • Interpretation of this data will be carried out by MOG and by ERC Equipoise Ltd, the selected Independent Competent Person, with the results expected early in the 3rd Quarter of 2012.

Oilfield Services News

Schlumberger (Monitored Coverage) (SLB US, $71.7, ▲ 2.7%) Q1 Results solid and outlook comments still favourable. Q1 results were ahead of market expectations with net income down 12% sequentially, but up 35% year on year. Underlying Q1 EPS was $0.98.

Schlumberger CEO Paal Kibsgaard commented, "While revenue fell as a result of the normal seasonal slowdown in product, software and multiclient sales, our first-quarter results showed good progress driven by global exploration and deepwater activity underpinned by strong execution and operational excellence"

The outlook comments were overall positive although the Company remained cautious about US dry gas drilling and pressure pumping pricing. Management commented as follows:

"While uncertainties linked to global financial markets and potential geopolitical events remain, the risk of a double-dip global recession has declined. Oil demand in 2012 appears to have stabilized, and supply continues to be limited by weak non-OPEC performance and narrow spare capacity margins. These effects should limit any oil-price decline. In the US, natural gas storage and abundant supply have led to weakening natural gas activity with little likelihood of short-term recovery. International gas prices however, remain solid, driven by strong demand.

We maintain our positive view on the international markets and expect the rig count to grow by more than 10% in 2012 through strength in exploration and deepwater activity as well as in key land markets. Strong execution, solid contracts and rich new technologies provide the foundation upon which we will capitalize. In North America, we remain more cautious until the uncertainties around the dry gas drilling and pressure pumping pricing outlook become clearer. However, with a balanced land portfolio and strong deepwater leverage, we remain favourably positioned to outperform even in this market."

Rig Count News. The Baker Hughes Rig Count is the key barometer for the oilfield services industry and in particular the drilling contractors. Last week's data (week ending (20/04/12) still remained positive for the industry as a whole despite declines. The U.S. Rig Count stood at 1972 up 22 on the previous week and up 172 year over yea rwith the number of land rigs at 1904, up 19. The number of oil rigs stood at 1,337, up 15 on the previous week. Gas rigs stood at 631, up 7 as US gas prices remain low with the directional/horizontal rig count at 1,401, up 19. The Canadian rig count was, due to seasonality effects, down 24 on the previous week.

Written by Steven Asfour, Sales Trader at Fox-Davies


Article Tags

Borders & Southern Falkland Oil and Gas Aurelian Oil & Gas Schlumberger Mediterranean Oil & Gas Plc GeoPark United Kingdom Worldwide AIM Operations Update Falklands Seismic Shale Gas Spud Watch Unconventionals

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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