FoxDavies Daily Monitor - Xcite Energy, Chariot Oil & Gas and Cove Energy

Tuesday, April 10, 2012

Xcite Energy (XEL LN, 125p, ▲ 4.2%) The issuing of Loan Notes should add contingency funds and thus strengthen the Company's cash position during the Phase 1A work programme on its Bentley field. The fact that they now have enough to provide themselves with flexibility for the next 12 to 15 months will hopefully provide a springboard for the next phase of growth. In the news:

  • A US$50million of unsecured Loan Notes issued
  • The Loan Notes have an initial term of 360 days, but may be extended by XEL for a further 360 days.
  • The Loan Notes bear interest at 14% per annum payable in arrears
  • The Company may prepay the Loan Notes at any time after 14 August 2012, either in full or in part in an amount equal to at least 10% of the principal amount outstanding
  • The funds will be used for the Company's working capital requirements and general corporate purposes.

Chariot Oil & Gas Limited (CHAR LN, 179.5p, ▼ 1.92%) - Building on opportunities: Mauritania, already an oil producing province with good fiscal terms, is an attractive proposition. Thus today's news should bode well for shareholders as the Company shows steady expansion by building a portfolio of opportunities which offer potential for the Company to grow from a single revenue generating stream to alternate revenue streams. In the news:

  • Entered into a production sharing contract (the "Contract") with the Government of the Islamic Republic of Mauritania ("Mauritania" or the "State") for a 90% interest and operatorship in offshore Block C19, which covers an area of 14,125 km².
  • The Contract consists of an initial three year period, during which Chariot has agreed to reprocess the existing 2D seismic datasets and then to carry out a 1,600km2 3D seismic survey
  • The block is located 30km off the coast of Mauritania with water depths ranging from 5m to 2,100m.
  • Like Chariot's Namibian portfolio, it is in an area where petroleum systems are proven but exploration is very immature.

Wentworth Resources Limited (WRL LN, 5.0 NOK, ▼ 27.8%) - Ziwani-1 exploration well Update: News that no significant channel sands were identified in two of the three proposed targets (Pliocene and Miocene) will come as a disappointment; however, the mere fact that there were gas shows means all is not lost. A number of sands were also identified throughout the Oligocene, and drilling is set to continue. The next few weeks will be crucial for the overall commerciality of the project. In the news:

  • Since spudding on 1 February 2012, completion should have taken 35 to 40 days but this has been pushed back.
  • Delays due to equipment down-time, additional activities not accounted in the well plan and extra bit changes.
  • Drilled to a depth of 2,588 meters.
  • While there have been a number of gas shows to date, no significant channel sands were identified in the Pliocene or Miocene.
  • The plan is to complete the well to the original target depth of 2,700 meters and carry out a full logging program.
  • Estimates of the total cost of the Ziwani-1 well will be $1.95 million net to Wentworth ($16.25 million in total).

Cove Energy (COV LN, 218.5p, ▲ 3.9%) - Mozambique Tax Clarification: The Company announced that its transfer of 8.5% WI in Rovuma Offshore Area 1 and its 10% participating interest in Rovuma Onshore block will be subjected to a 12.8% tax on the capital gains. A 12.8% tax on capitals gains is not bad, when compared to the tax levied on similar deals in the African belt. The company's comment that it is continuing its discussions for the asset sale with the potential parties indicates its comfortable position on the tax rate announcement. In the news:

  • the Company will be subject to Mozambique corporate income tax on the imputed capital gain arising on its Mozambique Assets as a result of the Transaction (the "Taxable Gain"); and
  • the effective tax rate to be applied to the Taxable Gain will be 12.8% (after applying available tapering relief to such gain). The tax return must be submitted within 30 days of completion of the Transaction; and
  • the formal sale process, including the dispensations granted by the Panel on Takeovers and Mergers in connection therewith (as detailed in the announcement by Cove on 5th January 2012), continues.

Green Dragon (GDG LN, 8.75p, ▲ 1.75%)- On Fast track with impressive 2011 results: We believe Green Dragon is developing into an integrated company as it is quickly expanding its midstream and downstream retail gas distribution presence. It is on track to meet its production CBM production target of 18 bcf gas; 2011 production was up 150% to 1.5 bcf. Its wholesale gas sales were 2.8 Bcf, up 47.4% y-o-y and it expects to complete China's first commercial gas supply pipeline in Q2 2012. In the retail gas distribution business, its CNG gas sales in retail network increased 273% to 252.9 MMcf from 67.8 MMcf. In this news:

  • Annualized production exit rate for 2011 of 1.68 Bcf, an increase of 27% year-on-year (1.32 Bcf in 2010)
  • First 10 MW per hour power plant constructed and in service, adding the "gas-by-wire" option of gas sales to the state grid
  • CNG gas at retail network achieving prices excess of US$16/Mcf
  • Revenue increased 51.2% to US$75.2 mm.
  • Entered 2012 with cash of US$86.3 mm
  • Original total gas in place of 25.5 Tcf
  • 67 additional wells were drilled in 2011, a year-on-year increase of 131%
  • 2P, NPV10 increased by 18% to US$1.8bn (307 Bcf)

Oilex (OEX LN, 16.75p, ▼ 9.5%) -Operations update- 76H Well: The Company is progressing at a decent pace with the 76-H horizontal well clean-up operations to prepare for the flow test. Success of this well is very important as the Company has invested significant time and resources. The reserves and resource certification report will be completed after results from the Cambay-76H well production test. In this news:

  • Milling and clean out of the first six fracture stimulation stages to a depth of 2,581 metres measured depth has been completed.
  • Of the two remaining stages, one has been partially opened where a significant flow of fracture stimulation sand was encountered indicating the existence of a higher pressure environment.
  • As a result the company has decided to open the final stage as the well is flowed back during the clean-up phase. Oilex has 45% operating interest.

President Petroleum (PPC LN, 54p, ▲ 1.41%) - Positive update: We think this quarter will be an exciting period for the Company due to its active work programme at Dos Puntitas field in its Puesto Guardian concession. Its reiteration that it expects to commence production from DP-1001 by the end of April is positive. In this news:

  • Well DP-1002 at the Dos Puntitas field in its Puesto Guardian concession has now spudded.
  • It will intersect the same intervals and at a similar structural elevation to Well DP-1001.

Kea Petroleum (KEA LN, 9.75p, ▲ 10%) - Puka 1 well strike oil: The Company re-confirms its original estimate of gross recoverable resource of 1mm bbl with a potential upside of up to 3mm bbl with the successful drill of Puka 1 (100% WI) exploration well. This discovery, if successful, will put transform Kea into a mid-size E&P company. In this news:

  • Puka 1 well has reached its planned target depth of 1550m on time and within budget.
  • Independent petrophysical analyses of electric logs indicate a minimum of 4.5m of moveable hydrocarbons in good reservoir quality sands with light oil, somewhat gassier towards the top of the interval.
  • The well has been cased and suspended pending flow testing and, if warranted, long term production.
  • The timing of initial flow testing will be determined by the availability of equipment.

Oilfield Services News

Rig Count News. The Baker Hughes Rig Count is the key barometer for the oilfield services industry and in particular the drilling contractors. The worldwide rig count for March 2012 was 3,663 down 237 from the 3,990 counted in February 2012 (Canada seasonality) but up 229 from the 3,434 counted in March 2011. The U.S. Rig Count for March 2012 is standing at 1,979, up 259 year over year. The international rig for March 2012 was 1,192 down 12 from the 1,204 counted in February 2012 and up 45 from the 1,147 counted in March 2011. The data, despite revealing strong seasonal declines in Canada, still generally reads positively for the industry.

Our key Buy recommendations in the UK are Kentz, KBC Advanced Technologies Petrofac, Wood Group and Hunting. We are also positive on Schoeller Bleckmann and Newpark Resources.

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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