Daily Oil & Gas Monitor
Argos Resources (LON:ARG) – Countdown Starts: Argos has secured an extension to the second phase of its exploration licence, by a further 12 months to 25th November 2016. This has provided some much needed breathing space to the Company, allowing it to potentially leverage off of the synergies that may be offered by Premier Oil and Rockhopper’s development drilling campaign, which should be underway by then, if a 2017 start-up is still mooted, and allow the Company to either secure funding, if it is going it alone, or seek a farmin partner; either way the Company will require funding in the next 12 months, which may offset the positive effect that today’s news has on the share price.
Gulfsands (LON:GPX) – The Race is On: Today’s results from Gulfsands are not so much about the top line, which has been decimated by the exclusion of its Syrian operations, but about the cash balances and the outlook. Management must be credited with not waiting for fortune to turn in the Company’s favour as it has sought investments elsewhere to offset the impact of its exposure to Syria. with ~$90M in the bank and an ambitious investment programme, the longer-term outlook (ex Syria) hinges on the ability of the Company to achieve sustainable cash flows from its new operations before the cash balance is consumed. This notwithstanding, the Company can do more to help itself by cutting the cash portion of the salary bill, replacing it with a non-cash share element; in these situations cash is king, and management must lead the way. Given the acute nature of the timing, we are raising our risking on the stock, and as a result, reducing our Target Price to 150p, but reiterating our HOLD Recommendation, as the valuation impinges on the final outcome of its Syrian operations.
In this news:
• Execution of agreement to acquire Cabre Maroc Limited in December 2012 providing good oil and gas exploration opportunities
• Award of two operated exploration licences in Colombia post year end in Putumayo and Llanos basins
• Increased participation in Chorbane and Kerkouane permits in Tunisia
• Operatorship of Chorbane Permit secured
• Tested Sidi Dhaher well, onshore Tunisia
• Free cash balances at year-end of $91.0M (2011: $124.2M).
JKX (LON:JKX) – Production Isn’t the Only Thing to Look At: Today’s annual results do not read well for JKX, production is down, operating profit is down and from our perspective, the cash flow is down too; the only bright spots have been the increase in reserves and the strengthening prices. For a Company this size, we are becoming increasingly concerned that the SG&A line in the accounts is becoming bloated, and this, coupled with the fact that there is less than 1 month of revenues in cash, makes the Company vulnerable. There has been one difficult period for the Company to weather in the last few years and the concern is that should there be any headwinds in the immediate future, that JKX may well find itself in a position where it endures a disproportionate amount of pain as a result. Still, the Company is exiting a period of investment and production should start to strengthen, which should reflect in the cash flow, but the Company also needs to focus on cost containment and sweating the assets while there is still the opportunity to rebuild its financial position.
In this news:
• Group revenue $202.9M (2011: $236.9M)
• Group production 8,281 boepd (2011: 9,045 boepd)
• Gas realisations in Ukraine $12.1/Mcf (2011:$9.6/Mcf)
• Cash flow from operations $109.3m (2011: $124.2M)
• Operating profit (before exceptional charges) $51.6M (2011: $82.0M)
• Non-cash exceptional charges of $45.8M (2011: nil)
• Capital expenditure $67.3M (2011: $162.0M)
• Commercial gas sales and ramp-up of production from Koshekhablskoye field in Russia
• Upward revision of 2P reserves to 93.8 MMboe, a reserves replacement ratio of 208%
• Award of Rudenkovskoye multi-stage frac contract, execution Q2 2013
• Frac preparation work nearing completion at well R-103 in Rudenkovskoye, Ukraine
• Approval of the Elizavetovskoye field development plan in Ukraine
• Successful exploration drilling at Zaplavskoye exploration licence in Ukraine encountering highly productive reservoirs
• Solid financial platform following repayment of short term debt and completion of a $40M 5-year convertible bond
• Fully-funded development programmes in both Ukraine and Russia
• Focus in Russia now on expansion of plant capacity to 60 MMcfd at minimum capital cost
• Strong gas realisations in Ukraine expected to be maintained through 2013
• Continued focus on growth opportunities in the gas markets in Ukraine and Russia.
Tullow Oil (LON:TLW) – Housekeeping: Today’s announcement that Tullow is selling its interests in Bangladesh for ~$42M doesn’t really warrant much interest in the context of its wider portfolio, but what is does do is underline the fact that the Company has reached the point where it has critical mass, and can now start to highgrade the portfolio. We would expect Pakistan to be the next to go so that its focus falls on the North Sea, Latin America and principally Africa.