FoxDavies Daily Monitor - Max Petroleum, Xcite Energy and Matra Petroleum

Monday, October 15, 2012

Max Petroleum (MXP LN, 4.10p, ▼ 12.77%): Where and What Next? - It seems that Max's Management just can't catch a break at the moment. In what was supposed to be a return to the well understood shallower targets in its Kazakh acreage, the first well has failed to encounter hydrocarbons. There will come a time where the exploration has to stop and the sweating of the assets they do have, has to start. That time is now. The Company has to cut its cloth to suit its resources. Given the way that Michael Young piloted the Company through a difficult period after the option scandal, he has the calibre, but does he have the appetite? We believe that the Company has the requisite ingredients to make this is a powerhouse (reserves and resources potential), the Company needs to just scale back its ambition for a year or two to place it back on an upward trajectory. If nothing happens, this Company will be lost to the bondholders and creditors, if they elect to take a positive step, they will emerge stronger and better suited to tackle the future.

Bridge Energy (BRDG LN, 129p, ▼ 6.18%): Welcome to the Market - It is a shame that the Company's first announcement as a public company is one of a dry hole, and none more disappointed I would imagine than the management team; it is a shame, but that's exploration risk for you. While it is disappointing, it is important to remember that the Company has a number of different plays and concepts in its portfolio, and given that the 18 month working capital requirements have just recently been covered (you would hope), we hope that the Company will be able to learn the lessons from this exploration well that they can learn, so that they can be in a better placed to leverage off of the position it has in the future.

Bayfield Energy (BEH LN, 20.75p, ▶ 0.0%) & Trinity Exploration & Production : Trinidad Keeps Getting More Interesting…- The management teams that brought you Venture Production (Bruce Dingwall) and Burren Energy (Finian O'Sullivan), have combined to bring a new offering that will focus on Trinidad. Given the expertise on offer in the new venture, it is hard not to back management to make significant progress as a combined entity. This is also good news for Range Resources, as it is further confirmation of the prospectivity of Trinidad. The only dark cloud on the horizon (albeit manageable and a small in size), is the fact that Trinidad operates via service type contracts.
In this news:

  • The Boards of Bayfield and Trinity are pleased to announce that they have reached agreement on the terms of a conditional merger of Bayfield and Trinity (the "Merger").
  • The enlarged group will be named Trinity Exploration & Production plc ("New Trinity" or the "Enlarged Group") and be led by Bruce Dingwall CBE as Executive Chairman and Joel "Monty" Pemberton as Chief Executive Officer (currently Executive Chairman and Chief Executive Officer of Trinity respectively).
  • Trinity is a leading private independent oil and gas company with onshore and offshore assets in Trinidad, headquartered in San Fernando, Trinidad.
  • The Merger will create the largest Trinidad-focused independent E&P company, with 11 operated fields, gross production of approximately 4,650 bbl/d and net production of approximately 3,800 bbl/d based on current production rates.
  • New Trinity will have a diversified portfolio of onshore, West and East coast production, significant near-term production growth opportunities from low risk developments and multiple exploration prospects with the potential to deliver meaningful reserves/resource growth through an active drilling programme.
  • In order to accelerate delivery of the significant upside that exists in the combined portfolios, the Enlarged Group intends to raise additional debt and/or equity capital in conjunction with the Merger.
  • Under the terms of the Merger, which will be effected by the acquisition of Trinity by Bayfield, Trinity Shareholders will own 55 per cent. of New Trinity and Bayfield Shareholders will own 45%. (on a fully diluted basis, assuming Bayfield acquires 100 per cent. of the Trinity Shares and prior to raising any additional equity capital).
  • The Merger constitutes a reverse takeover of Bayfield under the AIM Rules and is conditional, inter alia, upon Bayfield Shareholder approval, the approval by the Takeover Panel of the Rule 9 Waiver, and the consent of the Ministry and Petrotrin. Accordingly, trading in the Company's shares has been suspended pending publication of an Admission Document.
  • Bayfield has received irrevocable undertakings to vote in favour of the Resolutions to, inter alia, approve the Merger at the Bayfield General Meeting from Bayfield Shareholders holding, in aggregate, 109,415,867 Bayfield Shares, representing approximately 50.54 per cent. of the issued share capital of Bayfield.
  • An Admission Document containing details of the Merger and New Trinity will be sent to Bayfield Shareholders in due course.
  • The Boards of Bayfield and Trinity having reached agreement on the Merger, Bayfield has terminated discussions with all other parties regarding a potential offer for the Company and, consequently, the Company is no longer in an offer period.

Xcite Energy (XEL LN, 103.25p, ▼ 4.84%): Bentley Phase 1A successful, But Questions Remain - Successful completion of Bentley field pre-production well test programme materially de-risks the Bentley development project. Pre-production wells successfully tested full field development drilling, completion, production and export techniques. The 9/3b-7 and 7Z wells have been suspended for future use as producer wells during Phase 1B. Betley's 2P reserves are estimated at 116mm bbl. Phase 1B development expected to commence in 2013. While news that any North Sea operation has been completed successfully and safely is good news, in the longer-term it still leaves the question of operating costs unanswered. We have always maintained that this field will produce commercially in the first phase, we remain concerned the opex costs, both in absolute terms as a well as measured on a per barrel of oil produced basis, will rise to levels that make the operations non-commercial.

Tullow Oil (TLW LN, 1415p, ▲ 0.78%): Enters Greenland - Tullow has picked up 40% non-operated interest in in Block 9 (Tooq license), Baffin Bay, NW Greenland. The license covers an area of 11,802 sq/km and 2014-2014 and the work programme includes the acquisition and processing of 3D seismic data; the fiscal terms of the transaction have not been disclosed.

Serica Energy (SQZ LN, 30.875p, ▶ 0.0%), Premier Oil (PMO LN, 365.10p, ▲ 0.94%), Faroe Petroleum (FPM LN, 150p, ▲ 1.18%), Cairn Energy (CNE LN, 288.20p, ▲ 1.12%): Ole! Drilling commences on Spaniards East -Commencement of drilling in North Sea block 15/21a to appraise Spaniard discovery is positive development. Spaniards lies close to the producing Scott field in the Central North Sea. The Spaniards discovery was made in 1989 by well 15/21a-38z which flowed at a rate of 2,660 barrels per day of 25 API oil on test.

Matra Petroleum (BUY, 3.9p) (MTA LN, 1.525p, ▲ 1.67%): An Amuse Bouche, But the Main Meal is Yet to Come -The Company has successfully completed acquisition of 100km of 2D seismic and 60sq km of 3D seismic survey on the Sokolovskoe field. We now wait for further updates on oil production from A-13 well on the Sokolovskoe field as the Company has planned to raise its output to 9,000 bbl in 2H'2012 from 2,892 bbl in 1H'12. With cash and equivalents of €5.8 mm as at 30 June 2012, the Company is fully funded for 2012 exploration and production program. The introduction of Maxim Barsky as a strategic investor is expected to bring considerable new project acquisition opportunities to the Company and will mean the Board can now consider a wider range of growth opportunities than those that were previously available to it. We remain positive on the stock and its outlook in the medium term and look forward to news on potential new projects. We are reiterating our BUY recommendation and 3.9p Target Price.

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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