junior oilers dec 14/15 part 2

  1. 1,317 Posts.

    Junior Oilers continued

    DLS I held for a long time then gave up on them but they have come to life with a vengeance this past week though on small volumes. DLS’s South Bonaparte leases which are said to contain a possible 700 mbo are really the key to whether DLS takes off. But DLS needs to farm out the leases for a free ride and in this lousy market there aren’t too many takers. So if DLS retraces on a capital raising announcement or for any other reason I might get in again. I don’t think there will be any drilling on these leases for at least a year and certainly not until after the recently announced 3 D seismic program is completed and analysed. But some development wells in its Queensland gas producing leases could maintain interest in the stock. DLS’s Canadian interests seem to be taking a long time to live up to expectations.

    PPP has cash and the drilling of Tui coming up. Tui has potential elephants in stacked sands which if proven would send the participants northwards very quickly. PPP seems to be the best leveraged entry, AWE the least risky and NZO somewhere in between. As with the Cliff Head drilling you either bail out before the well spuds or take the risk by holding through the drilling. (Or again you could sell some and keep some). The value of picking up stocks well ahead of known drilling when nobody is interested in them is best illustrated by acturtle’s post this week. He picked up PPP at 6.7 cents some months ago and has already virtually doubled his money. Patience, foresight and a knowledge of future drilling programs pays!

    Horizon (HZN) has wells coming up at Chott Fejaz (Tunisia) and Bosavi (PNG) both targeting big reserves, but I think Huinga has burned a lot HZN believers. Stale bulls seem likely to keep a cap on this one though if Chott Fejaz was successful the stock might be worth looking at again. HZN badly needs some cash flow. Seems overvalued at 8.5 cents to me. By my revised reckoning HZN has spent $A29 million in 12-18 months and not got a lot to show for it.

    BUY shares have halved since listing in February this year. A period of weakness after listing seems to have been the pattern of new oiler floats in recent years but then so has a subsequent recovery. VOY, COE, AOE, EPR have all followed this pattern, falling initially only to rise again. So if BUY is to be consistent with other newcomers we should see some strengthening in price going forward, particularly now that the market seems to have absorbed the entitlements issue (1 for 3 at 7.7 cents) and the Perth Basin drilling is about to start. BUY is free carried through two wells in TP/15 I (Twin Lions and Moondah) and will get cash flow next year from the Woodada gas discovery. I thought the capital raising may have sent the stock lower but there are no sellers at present willing to part with scrip at less than 10 cents. BUY claims to have some big targets offshore NZ and Sydney, and in its Bonaparte leases, but its immediate future is tied up with the Perth Basin. BUY is a tempting play at these prices but I can’t see big bagger potential, a 10-20% rise pre Twin Lions is more likely. If Twin Lions comes in BUY’s small equity position might limit the upside. .

    So in this group my picks for potential big baggers would be NWE and PPP and possibly much further out, DLS but the optimum time to buy them has now passed. NWE was below 6 cents, PPP below 7 cents and DLS around 5 cents only a few months ago and that obviously was the best time to accumulate. There should still be some upside pre drill for both NWE and PPP but a significant re-rating will now only come with drilling success. If the Perth Basin and Tui drilling fail to live up to expectations both stocks will get hammered back below current levels. PPP is to drill Montgomery 1 in the next week or so but this Carnarvon Basin drilling program has not been very successful so far, though contrary to a comment I made last week Taunton 2 was successful but the positive impact on PPP was temporary.

    The next group of stocks have graduated from penny dreadful status. They include PSA, EPR, NZO, BPT, VOY, COE, and STU. I like the look of all these stocks and think they all have solid growth potential over the next twelve months. But it is hard to see any of them being a big bagger though NZO might go for a ride if Tui hits. I hold PSA and think it is the most likely of the group to record the highest percentage gain next year on the strength of the revenues from Ship Shoal and West Cameron that will start to flow in the New Year. I think in fact PSA has become one of the better and less risky investments on the junior oil boards since it regained control of its US subsidiary last January. In my opinion it could at least double in 2003. It has already more than doubled this year from a low of 12.5 cents. Both fundamentals and chart suggest continued strong growth. If it had a decent public relations strategy it would already be higher.

    EPR is a stock that I think has good potential and one that is trading on low volumes at a price in the low 20 cents range. It has two onshore wells coming up, West Koriot 1 due to spud in the first week of January followed by Banganna in March. EPR has attracted some substantial partners including Mitsui, Origin and Beach into its prospects in the Otway Basin. One of its offshore permits VIC/P46 is thought to contain a potentially very large oil pool. EPR is worth having on one’s watch list. A retracement after West Koriot could be a good buying opportunity, presuming the well is a duster. The offshore Otway Basin could make EPR the only really big bagger I see in this group.

    Finally an article well worth reading is Colin Nicholson’s piece on trader psychology on page 56 of the December edition of Shares magazine which examines patience and discipline as the essential prerequisites for successful trading and investing.

    Disclosure: I hold AWE, BPTOA, CUE, CVN, FAR, NWE, PCL, GBG and PSA. And have orders in for BUY and VOY.

    Above is to stimulate discussion only. As always do your own research and come to your own conclusions. And then tell me! Cheers all, JBC

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