FoxDavies Daily Monitor - Max Petroleum, Fortune Oil and Cairn Energy

Monday, April 16, 2012

Max Petroleum (BUY, 50p) (MXP LN, 11.63p,? 2.11%)- A Thousand Mile March Begins with a (Series of) Single Step(s): While today's news isn't a "slam dunk," it does underline the progress, albeit slow, that the Company is making towards unlocking the potential of its Kazakh asset base. It is easy to forget how far the Company has progressed from the distasteful issues surrounding share based payments that it has faced in the past, and we believe that failing any further issues of a similar nature, this management team has successfully rid itself from the shadow of that period. We are reiterating our 50p price target and BUY recommendation.

  • Interpretation of 3D seismic data acquired in late 2011 has revealed a structure larger than previously identified;
  • Company estimates overall oil in place of 184mm bbl, comprised:
  • 58mm bbl in conventional Cretaceous Aptian and Jurassic reservoirs;
  • 126mm bbl in shallower, non-conventional Cretaceous Albian reservoirs;
  • Well tests have confirmed commercial productivity from the Aptian and Jurassic sandstone reservoirs
  • Phase One of an appraisal and development programme expected to include approximately 30 low-cost, shallow vertical wells;
  • Based on testing and core analysis, the Company is planning an enhanced oil recovery pilot project using steam injection to determine the commerciality of the Albian reservoirs.

Fortune Oil (FTO LN, 10.4p,? 1.22%) - Expanding base: The JV agreement with Tianjin Gas to procure and supply LNG for Tianjin City (China) adds another revenue stream to the Company's existing oil and natural gas projects across China. This agreement further establishes Fortune Oil in the rapidly growing LNG market in China whose LNG imports are projected to grow to over 30mm te of LNG imports by 2015. In this news:

  • New joint venture to procure, import and supply LNG to Tianjin Gas Group Company Ltd ("Tianjin Gas"), the largest gas supplier to the city of Tianjin
  • Fortune Oil will hold 60% and Tianjin Gas 40% of the equity interest in the joint venture company
  • Tianjin Gas supplies gas to 2mm customers, with 95% market share, and owns 9,000km of gas pipelines
  • Tianjin Gas is one of the main shareholders in the Tianjin LNG Import and Regasification terminal which is expected to start operations in 2013.
  • The terminal will initially import 2.2mm te of LNG per annum into China using a floating storage and regasification unit ("FSRU") with the plan to expand the LNG import terminal in Tianjin to a capacity of 6 mt from 2015.

Cairn Energy (CNE LN, 320p,? 2%)- Bang Zoom!: No sooner do we think that Cairn Energy's lustre may be waning, than their recent acquisition Agora reports success in its Skarfjell prospect. While this is offset to some extent by the news that the Cladhan South exploration well failed to encounter hydrocarbons, in reality the minimal contribution that both of these prospects made to the overall valuation, means that uplift in valuation following the success of Skarfjell has already most likely more than exceeded expectations. In this news:

  • Skarfjell Prospect recorded as a discovery
  • Estimated preliminary resource 60 - 160mm bbl recoverable oil
  • Discovery likely to be commercial
  • 3D seismic acquisition programme over the discovery already underway.
  • Focus on integrating the well and seismic data in order to plan the required appraisal programme for the discovery

AMEC (HOLD) (AMEC LN, 1079p,? 1.5%) AMEC's trading statement should overall be regarded as neutral. AMEC has performed in line with expectations in the first three months of the year. "We continue to see healthy demand for our services and investment in our end markets - underpinned by the positive industry trends, particularly in the oil and gas and mining sectors. We are confident that this will support double-digit underlying revenue growth in 2012.The acquisitions made in 2011 are integrating well and the pipeline of further acquisition opportunities remains strong." The group's guidance remains unchanged from that notified within the final results issued 21/02/12.

Kentz (BUY) (KENZ LN, 430p,? 0.6%) Kentz has announced that it has been awarded the Mechanical, Electrical and Instrumentation contract for Syncrude's Aurora North Mine Relocation (AMR) Project, in Fort McMurray, Alberta.Kentz's scope includes planning and executing all structural, mechanical, electrical, piping and instrumentation work associated with this project. Kentz's contract with Syncrude Canada is valued at approximately C$128m.

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 (13/04/12) still remained positive for the industry as a whole despite declines .The U.S. Rig Count stood at 1950 down 29 on the previous week and up 178 year over year with the number of land rigs at 1885, down 27. The number of oil rigs stood at 1,322, down 75 on the previous week. Gas rigs stood at 624, down 23 as US gas prices remain low with the directional/horizontal rig count at 1,382, down 14. The Canadian rig count was, due to seasonality effects, down 24 on the previous week.

Written by Steven Asfour, Sales Trader at Fox-Davies

Contribution 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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