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Egypt deal a strategic breakthrough for Nostra/ IRG

Both junior oil stocks advanced about 20%, but the Egypt deal is more than just a day trading fillip

Egypt is one of the JV's 'countries of focus' and more opportunities could follow

A deal to acquire producing assets in Egypt represents something of a key strategic move for both Nostra Terra (LON:NTOG) and Independent Resources (LON:IRG).

The pair of AIM oil companies, which set up a joint venture last month, will acquire a non-operated 50% stake in the East Ghazalat concession for US$3.5mln.

It gives the JV some 440 barrels of oil production and just over 1mln barrels of proved and probable (2P) reserves – meaning they’ll each have 220 bopd and about 500,000 barrels of reserves.

The concession also includes two gas and condensate discoveries that have been tested in the past, though they don’t currently contribute to asset’s reserves tally.

This entry into Egypt was described by Nostra Terra chief executive Matt Lofgran as the beginning of a new phase of growth.

A quick glance across AIM’s leader board on Tuesday reveals the transaction has certainly met with approval from investors, as both junior oil stocks advanced more than 20%, but, for the companies themselves the deal is much more than a day trading fillip.

For IRG, the acquisition delivers a degree of tangibility to a portfolio that is otherwise reliant upon a farm-out process and exploration success. In the current environment, particularly, both pose considerable uncertainties.

Assets with established and ongoing production, as well as the potential development and growth opportunities, appear much more attractive at the moment.

Nostra Terra, meanwhile, is able to add scale and diversity away from the increasingly pressured unconventional plays in North America.

Significantly, the Egyptian operation will double Nostra Terra’s production volumes and that will provide support for further acquisitions.

The joint venture partners are understood to still be in the market for additional opportunities.

IRG chief executive Greg Coleman this morning told investors this would be the first of what he hopes will be several asset acquisitions.

He added that his company is targeting assets where value can be added through good cost management, a rigorous approach to decision making and the application of technology.

Charlie Long, analyst at Sanlam Securities, described it as a “transformational transaction”.

“The existing oil production is significant, but perhaps more significant is the development potential on the concession and the possibility of further acquisitions in North Africa,” Long said in a note.

Broker SP Angel, meanwhile, in a note about Nostra Terra, said: “While we appreciate the drive towards cash flow, and after all, cash is king, especially in difficult operating environments such as these, we will have to wait until the financials are made available before we can understand the impact that this acquisition has on the company overall.”

On AIM, Nostra Terra shares gained 21% to trade at 0.11p, which values the company at £3.86mln, and Independent Resources shares were up 20% at 0.9p, valuing it at £1.82mln.

Quick facts: Echo Energy PLC

Price: 0.385 GBX

Market: AIM
Market Cap: £3.11 m

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