junior oilers 2 march

  1. 1,317 Posts.
    Junior Oilers 2 March

    The continuing uncertainty over Iraq is keeping oil and gas prices at near record levels. Unfortunately for the junior oilers, particularly the producers, this has had little affect on their share prices. The market seems to think that a war would be over quickly and be followed by a sharp drop in energy prices. Accordingly it is not prepared to pay a premium for higher revenues which are likely to be short lived. That’s one theory any way.

    There are others who believe that a war could open up a whole new can of worms in the middle east and elsewhere and end who knows where. Oil and gas prices could stay high and move higher still in the event of a conflict that disrupts oil flows or trashes oil fields. Only way we will know if the Americans suck it and see.

    For the moment at least a war seems to be at least a couple of weeks away if not longer and that just suits the junior oilers fine. Two more weeks or a month at these prices provides a welcome boost to their cash flow.

    This week 11 of the 34 stocks I track ended higher week on week as compared to only four the previous week. They were CUE, PSA, FAR,BUY,AYO,BPT, STU, LKO, CPN and OSH. Interesting that apart from CPN and LKO all are producers, but then again there were some notable producer absentees from this list such as ARQ and ROC. So maybe the action was more stock specific and related in some cases to drilling activity eg. AYO and LKO. The gains were minimal in all cases but at least they were gains. No small achievement in this miserable market. Maybe the first glimmer of a turn around???

    ON the “stackings” at the close on Friday only one stock, STU, was showing more buyers in the market than sellers. During the week STU announced a small profit for the six months until December and foreshadowed a bigger profit this half.


    B2 and Blackgold I think it was, thought I was a bit hard on AWE last week when I suggested we might see its shares at prices below 70 cents. Unfortunately that is what happened this week when they hit an intraday low of 68 cents on Friday. They closed the week at 71 cents. Week on week AWE was down 8 cents. The failure of Vindara didn’t help.

    The point I was trying to make was not that AWE was worth 60 cents, it is obviously worth a lot more than that, but that I believe in this current market the company is likely to fall out of favour for a while. The reasons again are that AWE has no significant current production; is about to spend a lot of money on development of BassGas (and hopefully have some left over for Cliff Head) and does not have a too much on the drilling agenda post the current Perth Basin drilling. The dwindling number of burned junior oiler supporters is going to look for a feed elsewhere, particularly if they see short term opportunities in other stocks.

    The drilling of Cliff Head 4 and perhaps Cliff Head 5 might put a temporary halt to the downturn but after that I fear AWE could resume its slide. There is support at 66 cents but if it falls below that we are in uncharted territory.


    Hardman is in a similar situation to AWE, good assets but minimal cash flow. And like AWE it has to wear the disappointments of the recent Perth Basin drilling. During the past week HDR upgraded the reserves at Chinguetti to a “statistical mean estimate of 142 million barrels recoverable”. HDR has 21.6% of Chinguetti.

    This announcement moved HDR up 1.5 cents to 50 cents but the affect of the press release was short lived. HDR was pretty quickly back at 48 cents. The announcement later in the week that HDR had concluded its 2D seismic survey offshore Fench Guiana and that it was “expected to define potentially giant prospects to enable Hardman to farmout the next phase of deep water drilling” failed to reverse the trend. As if it would! HDR closed the week at 48.5 cents and was looking to go lower.

    For me HDR is a trading stock and I will be looking to get in (and out) ahead of the next round of drilling offshore Mauritania. So timing the entry and exit is the issue. I think HDR could go to 40 cents in coming weeks which again says nothing about the underlying value of the stock but everything about current market sentiment. An entry in the low 40 cents range could show a 30 – 50 % gain by the 2003 drilling program nears. Again keep an eye on Aussie Oilers for Yogi’s views.

    Also keep an eye on the imminent onshore Perth Basin wells Eremia (HDR no interest) and Leafcutter (HDR 75%). The onshore Perth Basin prospects were overshadowed by Cliff Head and the follow up drilling program in WA 286P and TP /15. Now it might be their turn. HDR’s most recent share price high was 62 cents in mid January.


    Not a great deal to add to last week’s comments. Still think ARQ will go for a capital raising if Eremia is successful taking advantage of a stronger share price to perhaps pay off Hovea debt and fund development of a new field. Less certain now about a share issue if Eremia is a duster. The well is due to spud this coming week.

    The current high prices for oil must be a real plus for ARQ. Despite that its share price has softened a bit this week from 62 cents to 58 cents. I was expecting some news about the completion of the permanent production facilities at Hovea which were due to be operational by the end of February. Perhaps the need to drill Hovea 6 and 7 after the problems with Hovea 5 has delayed the program somewhat. ARQ needs to inform the market this week of current and predicted production rates at Hovea to allay any concerns that earlier predictions of the field producing 5,000 bopd might not be met.

    ARQ’s share price is dependent in the short term on Eremia and to a lesser extent Cliff Head 4 and 5. If Eremia is a duster and the sps fall as a result they would represent good buying opportunity particularly in the 40-50 cents range, a level last seen between July and November 2002.


    BUY has been thinly traded since the Twin Lions duster reaching a low of 7.7 cents on 21 February but has since recovered a little to last trade at 8.6 cents. BUY was around 13 cents prior to Twin Lions. I am expecting BUY to strengthen a little ahead of the drilling of Leafcutter in the Woodada Gas Field production license in the onshore Perth Basin. Leafcutter is targetting 16 mmbls in lower Permian sandstones and should spud at the end of March. BUY also is looking for a farminee to drill a development welll on the Thomby Creek Oil Field in the Surat Basin.

    An announcement about a firm date for the drilling of Leacutter and /or an announcement on Thomby Creek should spark a bit of interest in BUY. Long term I think it is a very good buy at current prices. Currently the stacking shows six times more sellers than buyers so it is not very popular with the punters at the moment.


    Northwest is languishing at 6 cents and doesn’t seem likely to do much in the short term. Good results from Cliff Head 4 and, if drilled, Cliff Head 5 might spark some interest in NWE. Various analysts have assessed the Cliff Head discovery to be worth around 15 cents to Northwest but it will be a long time before that value is reflected in the share price. It does have a range of other interests as a visit to its website will attest but no short term drilling post Cliff Head. It still has some money in the bank so unlikely to need cash in the short term. Not a stock on my buy list.


    Amadeus announced this week that Rash Barrat “A” No.24-1 on the Red Creek propect in Oklahoma had been suspended as a producer and would be in production in 2-3 weeks within a range of 60-75 bopd.. AMU has successfully participated in three successful wells on the Red Creek prospect and is now predicting a multi well drilling program on this field during 2003. The announcement sparked a bit of interest in the stock on Monday pushing it up to a close of 9.9 cents from a previous close of 9 cents. But interest quickly waned and the stock retreated to 9.4 cents and failed to trade at all on Friday. The Rash Barrat discovery came on the heels of three consecutive dusters for AMU on its Pitchfork prospect, Toreador1, 11 and 111.

    I find it difficult to get interested in AMU under the present management. Seems to have had a tendency to predict too much and deliver too little. And I was never impressed with its hi tech venture or the bio diesel project which is taking a long time to be realised. The company made a profit of $1.8 million in the six months to December and is expecting a profit of between $2.3 and $2.8 million for the year. The half yearly accounts show liabilities of $7 million which seems a lot to me for a small company but I am no accountant.


    Kalrez announced an Oseil Oilfield Production update on 24 February. This is now a monthly report so the next one will be at the end of March. The report is encouraging for KRZ indicating all three Oseil wells are now in production at an average daily rate for the period of 11,436 barrels of oil (of which 285 barrels are attributable to KRZ.) This compares to a daily production of 6,247 bopd announced in the January report.The Seram jv still hopes to have the permanent production facilities completed by April and then ramp up production to 18,000 barrels a day (KRZ 450 barrels).

    Kalrez hopes to have another Bula lifting in mid March which hopefully will be of the order of 50,000 barrels. This should result in another $US 1.4 to $US1.5 million cheque in April.

    KRZ seems to be slowly digging itself out of the financial hole created by the previous management and restoring relations with Kufpec. The shares are finding it difficult to break through 0.008 cents and towards the end of the week were testing support at 0.006 cents. Can’t see anything in the chart or fundamentals that would encourage me to get back into KRZ at this stage but it is on my watch list as a turn around stock. I suspect it will only move on some unexpected news from the company such as new drilling activity, sale of its gas stripping plant or some such.


    FAR announced during the week that its placement had been 44% oversubscribed and would not be extended beyond the closing date of 27 February. Shareholders will be given priority and we should know next week what our allocation of shares and free attaching option is.

    FAR head shares recovered a little this week and are now trading over 5 cents. I would expect some selling of the new shares once they are listed which should put a cap on the stock for a while. It has Banjo coming up towards the end of March, a well in which it has a 30% interest, and a fairly busy drilling program for the remainder of the year on its US leases. FAR is a well run, conservative company that has been around for some 18 years. I am expecting FAR to reach at least 6 cents in coming weeks.


    Horizon formally announced this week that both Chott Fejaz and Bosavi had been plugged and abandoned. I spoke with the company subsequently and learned HZN had $7.7 million still in the kitty which was more than I would have thought. HZN will now exit its Tunisian interests and focus on China and New Zealand (the recently acquired Maari interest). It has an interest in one more PNG well, Kapul, which I understand OSH will drill this year. Emmett said that HZN was in discussion with potential farminees to Bayou Choctaw with a view to HZN being free carried on two wells. (It seems to me these “discussions” have been going on for two years!!)

    I don’t share Quentin Cameron’s enthusiasm for Horizon and don’t see that it has much to offer in the short term. I think PSA is a better entry to China and would want to see the Maari field proved up before agreeing that this is a smart HZN deal. Others may have different views.


    Also spoke briefly this week to CUE and confirmed that they have begun discussions with banks re project finance for Oyong. There are a few more approvals to tie up with the Indonesians before all the details of the project finance can be worked through. Contact said they hoped to negotiate 100% project financing. CUE and Santos were trying to get their heads around some technical and transport issues involved in bringing Bilip into production but these are not insurmountable issues. Field is smaller than pre drill prognosis but will still be quite profitable.

    Cue’s analysis of the siesmic it ran in the Sampang PSC earlier this year (or was it late last year?) has apparently thrown up some large prospects that they hope to drill this year. Wortel will target one of them. The prospects if proved up are apparently big enough to be stand alone projects.

    Cue’s shares are going nowhere but hopefully that will change once some decisions are taken and announced on Bilip and Oyong and/or firm dates are revealed for the next round of drilling. Santos’ statement of a week ago that it plans to fast track both projects has to be taken at face value.

    CUE as a company with no debt and no hedging in place was doing “very nicely” from current high oil prices.


    EGO announced during the week that the Century Rig 24 would be available to drill Eclipse on or about 7 April. The targeted structure is claimed by EGO to have the potential to contain 557 bcf making it a very big prospect indeed. The field is situated only 54 km from Perth. EGO will continue to seek a farm out of Eclipse but will drill it alone if it has to after a recent capital raising.

    The market has become a bit bored with EGO’s attempts to get this well drilled but now it looks like it is happening. The announcement did nothing for EGO’s share price as it dropped from 1.4 cents to 1.2 cents on Friday on reasonable volume. There may be a bit of share price appreciation ahead of the spud though this is not a prospect that interests me. Worth watching however. This is a potentially company making well for EGO. It has two wells to follow Leschenault and possibly Eclipse West


    Lakes Oil announced during the week that the Bunga Creek No 2 well would spud on 27 February. This shallow well (430 metres) is evaluating a gravity low established by the Falcon Gravity Survey flown in July 2002 and not found in Bunga Creek No 1. The well is not far from Lakes Entrance where the first known oil was found in Australia in the 1920s. LKO also announced that the drilling of Patties Pies No1 well was scheduled to begin on 15 March.

    For a company that has had little success with the drill bit one can only wish them well. The shares were up on the week closing at 2.9 cents from 2.7 cents the previous Friday. But this is not a punt I’ll participate in.


    Hopefully PSA will announce Monday or Tuesday the receipt of its first cheque for West Cameron It would be good if PSA also include in its announcement how much it was receiving from it 7% ORRI in Ship Shoal. Might be a bit of upside in PSA this week though one can never tell for sure in this market. Henry Hub spot prices continue to be well above PSA’s earlier announced sale price of $US 5 per bcf. PSA sells at the spot price.


    OSH will report its second half financial accounts (or maybe it is its full year financials?) on Wednesday and the CEO foreshadowed this week “substantial profits”. Be interesting to see what this does to OSH share price. It has traded regularly between 66 cents and 68/69 cents for the past few weeks offering good trading opportunities for those that follow the stock. The PNG/ Q’ld pipeline deal hangs over the company’s future. An announcement that the pipeline is off would send the shares lower which would represent a good buying opportunity IMO.

    As usual the foregoing is to stimulate discussion and an exchange of ideas. Do your own research before investing your hard earned.

    Disclosure: I hold BUY, CUE, COE, FAR, ICN, PSA, GBG and WON (bought back into WON last week)

arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.