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junior oilers 28/29 december

  1. jocam9

    1,317 Posts.

    Junior Oilers 28/29 December

    Brent crude hit $30 this week as concern continued to mount about a looming war with Iraq and strikes disrupted oil supplies from Venezuela. North Korea added another element of international tension by re-commissioning a nuclear reactor raising fears that it was re-activating its nuclear weapons program. Curiously share prices of Australia’s major producers have not significantly reflected the higher international oil prices.

    Natural gas prices (Feb contract) ended slightly above $5. Henry Hub price for Gulf of Mexico gas was only slightly lower.

    Best performers in a week shortened by the festive season were AWE (broke decisively through resistance at 91 cents on its third try in as many weeks), NWE (starting to move ahead of the Perth Basin drilling) AYO (continues its recent move upwards) and CVN (selling, allegedly by Perth broker Hartley Poynton, dried up). EGO also rose on Friday though on small volume and EPR gained 0.5 cents again on Friday and also on small volume. Worst performers included COE and STU (after Karbine was plugged and abandoned). MOS was much sought after at the beginning of the week, a continuation from the previous week after success at Churchie 1A but dropped a cent on Friday.

    Perth Basin drilling stocks aside, we could see some modest rises in coming weeks in the following stocks:

    Over a million shares were sold on Monday last week ensuring the price stayed below 5.5 cents. When the selling dried up buyers reappeared on Friday bidding the price up to 6 cents. There has been no recent news out of Carnarvon to justify any renewed interest in the stock and in any event the volumes were small. But if the up trend continues it will be a positive sign that support is gathering. CVN has avoiding talking up the prospects for the Wichian Buri field saying to one participant at the AGM that they had done that in relation to other prospects in the past, at some cost to their credibility. So like PSA, they prefer the facts (eg. production reports) to speak for themselves. Should be some updating of production figures in January as well as a revised estimate of reserves. These will have to be positive reports to get me to add to my holdings. Yogi has also posted on a CVN turn around on Aussie-oilers

    This stock showed a signs of awakening towards the end of the week with a slight uptick on Friday on small volume. It is a difficult stock to accumulate because it is traded so thinly. Any upsurge in buying interest could significantly affect its share price. Interest may be growing ahead of West Koriot 1 due to spud on 6 January but it is its Otway leases both onshore and offshore that make EPR such an interesting play particularly now that some bigger partners have farmed in;

    NZO and PPP
    Have said this many times before but it is worth repeating, both these stocks should improve as Tui drilling gets closer; Like EPR, NZO is traded very thinly so accumulating a decent holding on the ASX without bidding up the price is difficult. PPP is the better leveraged play and it is easier to get the scrip. PPP has been sitting around 12 cents for the last month or so and has not been too knocked about by a disappointing Carnarvon drilling program. Tui is very risky but it is a real monster if it lives up to expectations. AWE is the safest play and interestingly has shown no desire to farm down its 25% interest.

    I was a bit surprised at the lack of market reaction this week to STO’s announcement that Bilip 1 when tested had flowed at the equivalent of 2000 barrels a day and that it would be suspended as a future oil producer. Maybe the market was disappointed at the wells failure to deliver at depth or that the interval tested higher up in the Iagifu Sands was only some 3 metres when a 30 metres column was originally reported. Or maybe the market needed higher flow rates to excite it. I thought it was quite a good result. What did disappoint me was CUE’s failure to announce firm plans to develop the oil and gas discovery at Oyong which I had been led to believe would be out before Christmas. Maybe a hiccup in signing gas sales agreements or whatever. Still think CUE is a good buy for a significant re-rating in 2003 so watch for the announcement on Oyong.

    Sent some figures on likely cash flows off to the company this week and they came back with production capabilities of the West Cameron wells and the capacity of the production platform due to be completed in January. They suggested I do my own calculations. That is fine as they gave me an idea of production and transportation costs (60 cents an mcf) and set out their interests in each of the three wells coming into production. I’ll work on those figures this week. Should be some announcement from PSA in January about completion of production platform and first revenues from Ship Shoal. Share price has remained steady at around 25 cents. As Hotcopperites will know I think this one is a real sleeper.

    Karbine was a disappointment but the subsequent drop in the share price offered a good buying opportunity. Shares recovered nicely only to be hit by a second announcement reiterating that Karbine had been plugged and abandoned. Would have thought one announcement would have been enough! A little further down the track COE and BPT should benefit when Beach announces details of its 6 well drilling program in its Cooper Basin leases scheduled for the first half of the year. Need also to look for confirmation in January that production from Sellicks is up to the 1000 bopd mark BPT predicted in December. And it will be interesting to see if there is any further appraisal or development drilling at Sellicks.

    AYO is clearly in an uptrend and, along with AWE, recently featured in Shares magazine’s list of Top Ten stocks under a $1.00. Upcoming drilling program and increasing gas sales all contribute to buyer interest. Company also made some predictions about revenues which must have looked good to potential investors.

    Inexplicably Hardman has wallowed at around 53 cents the past couple of weeks having been as high as 57 cents earlier in the month. Upcoming Perth Basin drilling was probably responsible for HDR ticking up 2 cents on Friday so look for this to continue next week.

    Five million shares changed hands on Monday with the stock finishing at 16.5 cents. This followed the announcement of a gas find at Churchie 1A using nitrogen cooling technology which resulted in the well flowing at 5 times the rate of Churchie 1 which was drilled just 400 metres away using traditional methods. Ql’d government had earlier announcement approval of the Churchie field gas pipeline which will enable production to commence once Churchie is connectd to the Q’ld gas grid. Sales have already been agreed with Santos. MOS is cashed up after STO bought back into Churchie 3 and the company completed a successful SPP . Revenues of $4.5 million are predicted in 2003. Interest waned in MOS towards the end of the week with the shares retreating to 15.5 cents but the future for the company looks much brighter than it did 12 months ago. Given its gas interests in PNG MOS is still influenced by progress in the ongoing discussions on the PNG/Q’ld pipeline. MOS could be in for a re rating this year.

    Perth Basin Drilling

    Northwest announced during the week that the Ensco 53 rig would likely be on site on 31 December and commence drilling Cliff Head 3 in WA 286P on Thursday 2 January. If that’s the case the first results could be in on Monday 7 January. The rig will then move to Twin Lions in TP/15 and Mentelle 1 (WA 286P) after that.

    I have seen some posts here suggesting the upcoming drilling is going to turn those who hold the relevant stocks, in particular Northwest Energy, into the equivalent of Lotto winners and so would like to sound a note of caution. I agree with those who believe Nwe is the best leveraged entry into this program and have myself suggested that it is a possible big bagger but the reality is that oil drilling is a risky business and the liklehood of success of any particular wildcat, such as Twin Lions, is statistically not very high. Even with the best seismic and the encouragement of nearby discoveries we won’t know what is down there until the well is drilled. So if you are going to gamble on Twin Lions being a success, and that is the biggest prospect to be drilled, then I suggest you don’t put your shirt on it and be prepared to accept the inevitable losses if it comes up a duster.

    My own strategy will be to hold AWE through the drilling program because while it has less upside if the drilling is a success it also has less downside if it is not. I will hold part of my Nwe shares through the Cliff Head appraisal well and review my position after the results of CH3 are to hand. I will hold some Northwest through Twin Lions only if I can make sufficient profits trading them before hand so that I am virtually free carried through the drill. I’ll sell BUY before the drilling of Twin Lions even if I have to do so at a loss. Disappointingly BUY has shown no pre-drill price appreciation as yet and time is running out. Some will see this as a pretty piss weak strategy but while I realize I don’t stand to gain a lot from drilling success I won’t be wiped out by any failures either. For me the aim of the game is to preserve my capital while hopefully making money through small regular profits that outweigh infrequent small losses.

    Disclosure: I hold AWE, BPTOA, BUY, COE (added this week at 12.5 cents after announcement that Karbine was a duster), CUE (added to my holding this week at 5.3 cents after announcement of flow rates from Bilip 1), CVN, FAR, GBG, PCL and PSA. Cheers JBC

    Early this week off to the 'Gong....

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