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junior oilers 19/20 april

  1. jocam9

    1,317 posts.
    Junior oilers 20 April

    Another quiet week for the junior oilers. Some oilers like NZO, CPN, SUR, BUY, AMU, ICN and COE regularly have days when they are not traded but this week they were joined by companies that just a few months ago were highly sought after like NWE, CVN, and FAR. All three companies failed to trade on at least two days this past week. Another example I guess of the extent to which the oilers have gone out of favour in this current bear market.

    And if you need more convincing have an occasional squizz at the daily volume in Looksmart (LOK). In any one day last week the value of its shares traded was greater than the value of all the shares traded in 32 of the 33 junior oilers on my watch list! Easy to see where the speculative dollar is going.

    With the war in Iraq all but over and the coalition moving into the reconstruction phase, oil prices were supposed to drop. But Nymex Crude closed up a dollar on Thursday at $30.55. OPEC¡¯s forthcoming meeting where Oil Ministers are expected to agree on production cuts may account for the price resilience.

    Gas prices too are strong with Nymex Henry Hub closing the week up at $5.71. April is usually a month of weak gas demand so we assume restocking of inventories is keeping the price from collapsing. Many analysts predict that gas prices will not fall to the $2 level of previous northern summers but hold around $4 this year. If true that¡¯s good news for Aussie oilers in the USA like AMU, FAR and of course PSA.

    Of the 33 stocks on my watch list 13 rose, 13 fell and 7 stayed the same. (Last week 10 up, 16 down and 7 neutral so slight improvement in the stats this week)

    There were some good gains registered by AWE which was up seven cents or 10% and Petsec Energy (PSA) which ran up 10.5 cents or 25% with half those gains recorded on Thursday when the stock went for a run on small volume (535,662 shares).

    AWE

    There has been no particular news in the market this week to account for AWE¡¯s recent return to favour so one assumes it is due to investors taking another look at its strong underlying fundamentals. Perhaps it is a delayed reaction to the company¡¯s presentation of 20 March which contains just about all you need to know about AWE (see ASX website).

    AWE does have a well coming up in EP320 (Red Back) and I think a development well is planned for Jingemia mid year. Then there are two more wells in the Carnarvon Basin (Cerberus and Snitch) in July/August. Tui 2 looks like it will be drilled before year¡¯s end as does Trefoil, a very large prospect in the Bass Strait (T/18P). AWE seems to be quite excited by what it has found at Tui in the Kapuni F sand, so much so that the pressure is on to get the seismic finished in May so a follow up well can be drilled next southern summer.

    I had expected some weakness in AWE¡¯s share price post Perth Basin drilling so recent price appreciation is a bit of a surprise. Be interesting to see if it can be sustained.

    PSA

    One theory attributes PSA¡¯s strong rise this week to the word getting around that it is about to announce strong cash flows from West Cameron, news that some of us who have been on board for a while anticipated months ago. So to the extent that is true, PSA¡®s March quarterly news may already be factored in to the share price.

    I would be more inclined to agree with this thesis if the volumes had been higher on Thursday. But with only 535,000 shares changing hands it is hardly what you would call a run on the stock. I think we will see Petsec go higher still given that in this market immediate free cash flow cannot be ignored and the size of PSA¡¯s recent monthly flows is yet to be fully appreciated.

    As posters here noted during the week, the fact that PSA is tightly held, that it is not really one for the daytraders (whiteyg you are the exception!) and that the serious buying has yet to take place, suggests that the stock has some way to go yet.

    On Thursday PSA closed with some 40 bids and only 12 offers with a gap between 55 and 60 cents and only 26,000 shares on offer at 55 cents or less. I think we will see a further appreciation next week before some profit taking sets in.

    Further down the track the reality is that reservoirs at West Cameron will begin to decline and new ones will need to be brought on line by a work over rig. Production rates could get a bit ¡°lumpy¡± as a result of down time.

    And there is the liklihood summer¡¯s gas prices will be lower than current highs, despite the fact that so far prices have been abnormally strong. So I wouldn¡¯t expect PSA¡¯s recent cash flows to continue at the extraordinary levels of February and March, at least until next winter. But they will still be very healthy. All the more so since PSA will have recouped its entire initial investment in West Cameron in four months. The next three years or more of cash flow is money for jam.

    Drilling the next two prospects at West Cameron will obviously run the risk of failure but given PSA¡¯s track record over the years of something like 90% success rate, these look to me more like development wells than wildcats, particularly as they have been chosen with the benefit of data from the currently producing reservoirs.

    I know also the company has high hopes for its Vermilion leases and it will be interesting to get more info on what is planned for these at the forthcoming AGM. One insider is firmly convinced success at Vermilion will take PSA shares to $2.

    Vermilion 258 was one of the most sought after leases in the 1993 MMS lease sales following gas discoveries there in 1988 and oil and gas discoveries on neighbouring lease 245. Curiously the lease was handed back in 1998 so PSA picked it up in the late 90¡¯s and have this year added the contiguous leases 246 and 257. Another contiguous lease, Vermilion 245, has been a good money earner for Chevron with both oil and gas production. Chevron was understood to be wanting to sell 245 a couple of years ago so it would be interesting to see whether PSA goes after that as well.

    I would like to know who had Vermilion 258 between 1993 and 1998 and what they did with the lease but it takes some time to trawl through the MMS data bases. I suspect the discoveries on the leases were judged too small at the time when prices were low and development costs high. Now of course all that has changed. Good thing about the leases is that PSA knows there is at least one 8 bcf resevoir down there. It was discovered in 1988. That¡¯s enough to pay for a lot of drilling elsewhere in the Vermilion leases. Infrastructure is close at hand with Shell¡¯s Central Gulf Gathering System right next door on Vermilion 247.

    The other interesting thing to watch with Vermilion is who farms in to the lease. PSA has made it clear it wants to farm out some of its 100% interest. It¡¯s possible it might be another Australian company, perhaps one or more of the China jv partners, which means ROC, FAR and/or HZN.

    And that brings us to Beibu which is looking very promising. Interpretation of the 3D shot over this field suggests it maybe up to 100 million barrels recoverable from very good reservoirs. Roc¡¯s CEO John Doran seems to be quite excited about China and he doesn¡¯t get excited easily. The Chinese are not used to giving out information about their oil activities so don¡¯t expect too much publicity for this field until October/November when a drill is planned.

    PSA has an $US 11 million exploration budget this year which is very conservative when you consider that it should have $US 11 million comfortably in the bank by the end of April. Gives it the opportunity to do things that we haven¡¯t even heard about as yet.

    AYO

    Amity Oil (AYO) continued its strength of recent weeks rising two cents to 75 cents though failing to recapture its recent high close of 77 cents on 9 April. AYO was last at these levels on 20 January when it topped out at 80 cents. It fell through February and early March to record a low of 58 cents on 12 March.

    The next day, that is 13 March, AYO announced its first half year profit and revealed a healthy cash balance. A day later on 14 March it announced a major drill proposed for southern Turkey (Yesitelpe). AYO shares were back at 68 cents within a week. Who can doubt the value of good public relations? Media releases like those are great for timing entries into a stock like Amity and I am kicking myself for not realising it at the time. Those that bought then are looking at good profits.

    But Amity shares are now entering a volatile period with the start of a two well drilling program. Cayidere spudded on 16 April and should reach target depth of 900 metres in eleven days. It is targeting 15 bcf of gas in a prospect 33 kms to the south east of the producing Gocerler field. Adatepe, another gas well if I am not mistaken, will spud on 25 April. AYO has a 50% interest in both wells. No need to say what success or failure means for the share price.

    In June AYO hopes to drill Yesitelpe a potential elephant of a prospect in southern Turkey. It currently has 100% interest in the exploration license but intends to farm down to 60%. It will be interesting to see how many takers AYO has for the prospect given the farm in market is almost comatose.

    If the gas wells are dusters and AYO share price falls there may be an opportunity to buy in for a ride up to the Yesitelpe drill. Longer term the news from Amity this week that its daily production rates and one assumes sales rates, were up to 14.5 mcf was encouraging. Amity has to get these rates up if we are to see a sustained rise in the share price. Overall the company¡¯s prospects look pretty sound but timing an entry to coincide with the start of a drilling program is not a good strategy. I will have another look at AYO a bit further down the track.

    BPT

    Beach Petroleum was another winner this week with its shares up 1.5 cents to close at 32.5 cents on small volume. Beach has been struggling to get attention for some time despite being one of the success stories of 2002. Now that it is about to start its 2003 drilling program interest may return.

    BPT may be a candidate for ¡°buy early sell before spud ¡° investors though the small targets it is chasing may limit the anticipatory upside. Last year before Maslins, a target of some five million barrels BPT ran up to 42 cents but following that duster it range traded between 29 cents and 33 cents. A break out of 33 cents would suggest the stock is on the way to being rerated.

    BPT has an eight wells firm, three wells contingent drilling program in the second half of the year, so it will be quite busy. With its good revenue flows from the Bodalla fields BPT can finance its program without needing to raise extra funds. The first well in the program is Moana 1 in PEL 107 targeting 1.8 million barrels of oil. The well is some 17 kms from Sellicks. Announcement of a date for Moana¡¯s spud could be the trigger for the punters to buy back into BPT.

    Of the 13 stocks that fell last week most showed only minor deviations from the previous week with the exception of Carpathian which fell 15% or 1.5 cents. But this is a very thinly traded stock, thought that said it has had its moments in the past.

    Thich leads me to one of the unloved stocks I talked about earlier, Sun Resources.

    SUR

    Sun Resources first floated at 25 cents January 1994 and ran pretty quickly to more than 70 cents. It fell back to just below 40 cents in the middle of that year before going for another run in the second half of 1994 which saw it hit 65 cents. But in the last months of the year the stock nose dived to 20 cents.

    It spent much of the next three years around that level with the occasional spike to 30 cents then from 1998 to 2000 range traded between 10 and 20 cents. Since the end of 2001 SUR has spent most of its time under 10 cents. In fact the chart looks bloody terrible.

    So there is nothing in SUR¡¯s past which suggest the stock is going to go for a run any time soon. Indeed it would be out of character for it to do so. And even after nine years of exploration it has yet to develop a revenue stream of any kind.

    However what it does have is a healthy cash balance of some $9.2 million at the end of December with most of that the proceeds of a successful sale of its interests in Basin Minerals when the latter was taken over by Iluka Resources last year. With the proceeds SUR paid a generous 4 cents special dividend to shareholders which is the only return long suffering shareholders had seen for some time.

    Another plus for SUR is the fact that it has a relatively small 95 million shares on issue. It also has some 11 million June 05 options. At a recent price of 8.5 cents SUR is capitalised at $8 million which is less than the cash it has on hand and gives no value whatsoever to its exploration acreage which is considerable.

    SUR¡¯s interests are widespread and include the Dampier Sub Basin in the Carnarvon Basin, probably its most valuable assets, the Offshore Exmouth Sub Basin, the Onshore Sydney Basin, (coal seam gas), PEP 38330 with PCL in East Coast, New Zealand (where Waigaromia was drilled last year) and in the San Joaquin Basin , California with Victoria Petroleum and First Australian Resources (Eagle and Kingfisher). It also has some interests in Paua New Guinea in PPL 228 a lease containing a number of large prospects including Maipe, Muir and Guy River.. (For a detailed review of Sun interests see its March quarterly activity report).

    Unfortunately for Sun Resources it has had a bad run of drilling failures with Waingaromia, Eagle, Kingfisher, Ceres, and Argos some of the most recent. One wonders when its luck with the drill bit will change. Maybe it is about to.

    As miningnut has noted these past couple of weeks SUN is participating in another Carnarvon Basin well, Kilauea 1 in WA 257P. Apache is the operator and SUN as a 7.5% interest acquired last December. The target is 419 bcf of gas and 10 mmblo if oil is present. Gas seems more likely if the well is successful. There has been little pre drill interest in SUN and the spud is scheduled for May.

    Be interesting to see what happens to SUR¡¯s share price in the run up the drill. Given Apache¡¯s poor hit record in recent months it would be about time for a success. Good luck to miningnut on this one.

    It seems to me that SUR would be better off rationalising its interests and concentrating on a few prospective areas rather than chasing things like CSM in Wollongong. You would have to wonder also about continuing to be in PNG. Perhaps it should have a good hard look at the strike rate of a number of its partners, including Pancontinental, Victoria Petroleum and First Australian Resources and ask itself if it is keeping the right sort of company!

    Whatever happened to this well?

    Eagle 1

    This was a well drilled by SUN, VIC and FAR and some other US interests in the Joaquin Valley in California targeting oil and gas in reservoirs called the Upper and Lower Gatchell Sandstones. The trap was stratigraphic and prognosed to contain 24 million barrels of oil and 62 billion cubic feet of gas. Given the proximity of big city markets and the price of gas on the West Coast success at Eagle would have been very significant for the small Australian companies involved. There was a lot of interest in Vic Pet at the time of the drill.

    Mechanical problems (not to mention a defaulting jv partner) plagued the well which was eventually suspended with a drill head stuck in the reservoir zones. The plan was to drill through the stuck pipe and drill head with a coiled tubing unit. Expert advice was sought on how best to test the well and that advice was to drill a new well entirely. The joint venture has accepted the recommendation. With the resolution of the problem of the defaulting jv partner, and given that the well will cost $US 3 million, Victoria Petroleum on behalf of the partners is seeking to farm out a portion of their interests. And that apparently is where this project stands.


    That it for yet another week Remember seek expert advice before you invest you hard earned in the speccie sector of the market. The above is largely to stimulate an exchange of ideas and information.

    Disclosure: I hold BUY, COE, FAR, FAROA and PSA.










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