FoxDavies Daily Monitor - Premier Oil, Melrose Resources and Enegi Oil

Thursday, March 22, 2012      

Premier Oil (PMO LN, 427p,▲ 0.71%)- In to the Big League: the Company has released its 2011 results, with increased revenues and operating cash flow of $486mm, an increase of 11.4%, and an exit rate of 60k boepd in a year that has seen the exploration and appraisal portfolio mature with the completion of operated Chim Sáo and Gajah Baru fields in 4Q'11. The acquisition of EnCore's interest in Catcher and subsequently the assumption of the operatorship, completed in 2011, will only start to have an impact in 2012. As a result of the acquisition, discoveries and appraisal programme, 2P reserves increased to 296mm boe (2010: 261mm boe), with 2P reserves and resources increasing to 527mm boe (2010: 488 mmboe). With the announcement of these results, the company is progressing well. With strong operational cash flow and increased financial muscle adding up to $1.4bn for its 20 well exploration programme or acquisitions , there is plenty to provide a springboard for further growth in 2012.

Melrose Resources (MRS LN, 131p,▲ 0.96%)- Sharper Focus, Better Balance: The Company has announced that it has agreed to farm-out a 40% of its equity in the Muridava (Ex-27) exploration concession offshore Romania to Midia Resources, a subsidiary of Sterling Resources. Following the transaction, Melrose will hold 40%, Midia Resources 40% and Petromar Resources 20%. This marks the Company's continued focus on higher growth and prospective areas, such as Egypt (its operational core), Turkey and France (exploration).

Aurelian Oil & Gas (AUL LN, 19.75p,▲ 1.28%)- Back in the Game?: Operational update- Highlights include: Drilling contract signed with NAFTA Pila, which gives them access to rigs for the Company's operated Polish and Slovakian licences;planning to commence multi-well programme in the Carpathians block in Q4 2012; to spud first exploration well in the Zechstein by mid-April which will be targeting 35 mmbbls gross STOIIP, 3.1 mmbbls net recoverable to Aurelian1. The Company has appointed Iman Hill Strategic Advisor for the Company's Siekierki asset. Iman has over 25 years of technical and commercial upstream experience with BP, Shell. Iman will be involved in the next phase of the staged appraisal programme including commercialising gas from Trzek-2 and 3 via field. For the Block EIII-1 Brodina licence in Romania, the company has received approval for entry into the 2-year Phase II of the Brodina licence. A number of positive updates from today's announcement. The Company is making good progress across all the blocks, but we struggle to see how this fits in with its earlier statements. Still, it is good to see that the Company appears to be engaging again, which will be pleasing for investors.Enegi Oil (ENEG LN, 18.6p,▼ 3.9%): Garden Hill South Operational Update -The Company announced that it is making good progress on the workover programme at Garden Hill South block. The PaP#1-ST#3 well has been flowed using various choke sizes, with visibility of water content. The Company is in the process of removing all injected chemicals and spent acid, after which the Well will be shut-in to allow the bottom hole pressure to recover and commence long term flow test. We will be watching out for further updates on the workover programme.

Salamander Energy (SMDR LN 226.5p,▼ 0.9%) Drilling update- The Company announced that it has secured a jack up rig (available from 24th March) for the drilling programme on its B8/38 licence in the Gulf of Thailand; the Company plans to drill 2 exploration and 2 development wells on the block. It has also signed a contract with Atwood Oceanics for securing Atwood Mako jack up rig for the Greater Bualuang area, Gulf of Thailand. This rig is currently under construction in Singapore and is expected to be delivered in September 2012. The company initially plans to drill 16 development wells from the Bravo Wellhead Platform, in the main field and the East Terrace, and also drill exploration wells on the G4/50 licence. Securing two rigs for two blocks in the Gulf of Thailand is a step forward to unlocking the resources in the prospective B8/38 licence and Greater Bualuang area. Updates on exploration and development programme on the B8/38 licence provides near term catalyst, which we expect to be reflected in the share price.

Providence Resources (PVR LN, 478.5p,▲ 0.24%): Repsol assumes operatorship of Licensing Option 11/11 - The Company announced that Repsol (40% WI) will assume the role of Operator for the block. However there is no change in the current ownership structure - Providence(40%), Repsol (40%) and Sosina (20%). This is positive news given Repsol expertise and access to deepwater technology which will help in expediting the exploration work on the block.

Mediterranean Oil & Gas (MOG LN, 5.75p,▲ 02.2 %). Gas Sale Contract. The Company has reached an agreement with Energetic SpA to terminate the existing gas purchase contract relating to the Company's entire net gas production from the Guendalina gas field, on 31st March 2012. The Company has however signed a gas sales contract with Repower Italia SpA ("Repower") relating to the Company's entire net gas production from the field, and this comes into effect from 1st April 2012. This follows the recently signed contract with Repower relating to the Company's entire net gas production from the same field for one 'thermal' year, commencing from 1st October 2012 and ending on 31st September 2013. This news should have no impact on the Company's shares, as we believe it to be the results of the operator (Eni) effectively managing its credit risks. However, this is positive in that the partners are effectively managing the project's risks, whether they are technical, or financial.

Leni Gas and Oil (LGO LN, 1.57p,▲ 17.5%)- LGO Not Taking a Siesta: Since announcing in October last year its intention to seek a partner to assist in the further development of the Ayoluengo oilfield, including a possible Enhanced Oil Recovery project, the Company has been locked in a series of dialogues with interested parties. Following the close for submissions yesterday, 21 March 2012, the Company announced that it has received a number of strong expressions of interest from international oil companies to either participate in the development of the Company's Spanish oil assets, or to purchase the assets outright. A number of conditional cash bids to buy the assets have been received at a very significant premium to the original €2.6 million paid for these assets, and the Company will now be working with the bidders to close a transaction. Today's news bodes well for the long term future of the Company. The divestment could potentially represent the best opportunity for the Company in light of the new development opportunities previously announced in Trinidad and Gulf of Mexico. Further portfolio action will sharpen the focus still further.

Trap Oil (TRAP LN, 27.75p,▲ 4.23%)- Positioned For Growth: the Company has reported its maiden results, disclosing that following its raise of £60mm, it successfully completed the acquisition of Reach Oil & Gas Limited for £30m, thereby securing a significant exploration portfolio, a farm in to 10% of the Orchid prospect, farming-out Kew to JX Nippon Exploration and Production and Centrica (receiving ~$4mm in cash and retaining a carried 20%), as well as disposing of the Lacewing prospect to ConocoPhillips for ~$1.5mm in cash its recent acquisition of 15% of Athena oil field from Dyas post balance sheet date. With production from Athena scheduled for 2Q'12 the Company appears to be well positioned to continue its upward trajectory, establishing value for shareholders and a developing a sustainable core.

Oilfield Services News

Baker Hughes (HOLD) (BHI US, $45.0,▼ 6%) Profit warning is disappointing. Baker Hughes announced yesterday that operating profit before taxfor Q1 2012 is expected to be lower than Q4 2011, primarily due to rapidly changing market conditions in the pressure pumping product line in North America with the effect of the weak US gas price, and seasonality in all international markets.

"As a result of the continued shift in U.S. rig activity from natural gas to oil and liquids-rich basins and other market forces, the company's Pressure Pumping product line is currently experiencing: decreased fleet utilization, lower pricing, higher than expected personnel and logistics costs, and shortages of and higher costs for critical raw materials. Overall, the company expects North America operating profit before tax margin for the first quarter of 2012 to be between 13.2% and 14.2% compared to 18.7% in the fourth quarter of 2011.

International activity has also softened slightly. The margin outlook for international operations for the first quarter of 2012 is expected to be between 12.2% and 13.2% compared to 15.6% in the fourth quarter of 2011 due to seasonality of product sales, weather, geographic mix, and project delays in Latin America."

The announcement is somewhat disappointing given recent positive comments from most industry players. The UK and European stocks most likely to be impacted include Hunting and Schoeller Bleckmann. From a fundamental standpoint we expect US natural gas prices to recover as producers' cutback production but the sector will be impacted. We reiterate our positive view on Petrofac, Wood Group and KBC Advanced Technologies. Hunting and SBO shares are likely to remain weak in short term but should be picked up on any prolonged weakness.

Written by Steven Asfour, Sales Trader at Fox-Davies


Article Tags

Premier Oil Melrose Resources Enegi Oil Salamander Energy Baker Hughes LGO Energy United Kingdom Worldwide Finance AIM Operations Update Farm In Gulf Of Mexico

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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