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SP Angel Morning Oil & Gas Xcite Energy, Frontera Resources, Bankers Petroleum, Petroneft Resources, JKX Oil & Gas

Published: 20:30 21 Mar 2016 AEDT

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Headlines
Xcite Energy (LON:XEL – 16p) – When?: It was time for the management team to act 6 – 12 months ago, in anticipation of the impending bond due date, but we fear that they have been neglected “Plan B” and are now in a vulnerable position. Whatever form the solution ahead takes, we can't see investors enjoying the same level of access to the project's economic value that they have right now, and that at point in the future, there is a dilutive event occurring.
• Frontera Resources (LON:FRR – 0.52p) – Operations Update – Not a Slam Dunk: We believe that the management team have worked for a long time to get to this position, and there is a sense that commercialisation is closer now than it has been at any time in its past. However, the next step isn't going to be as easy as is being portrayed as, which isn't a problem, investors just need to bear this in mind.
• In Brief:
Bankers Petroleum (LON:BNK – 113p/C$1.11) – Acquisition
Petroneft Resources (LON:PTR – 2.13p) – Uncertainty Reigns
JKX Oil and Gas (LON:JKX – 25p) – Final Results – Can They Fix It?

News Items
Xcite Energy (LON:XEL – 16p) – When?
The FEED as we understand it is complete (otherwise there could be no reserves at all), and the project is ready to go, but the only remaining issue is when? It is good to hear that the estimated operating costs for the development have declined and the NPV has increased, but until it looks like delivering cash flow, or investors think it will start to deliver cash flow, it won’t have impact on the forward value.
We have been awaiting news of a co-investor for a long time now, and granted for the last 9 months of that it has been against a backdrop of worsening oil price environment, but surely there must be some progress? We have said in the past that:
The Company need to be more articulate about what their strategy is, and if they are putting themselves up for sale, they should say that too. We have no doubt that ideally they would like an angel investor to foot the development cost while leaving them with the rump of the asset, but in this market, and with the uncertainty surrounding Bentley's enduring commerciality, we see the need to be more inventive, and less rigid on how to structure and develop the asset.
and as there has been nothing from the Company pointing towards “cutting ground,” we feel the control is slipping away from the management team and passing to would be farminees and those that have control over the bond security package.
The fact that the bond is expiring in June is an increasing cause for concern, and where the bond holders of the mind to, we see this as being a cheap way to take the asset from shareholders. As far as we are concerned, the only way forward for the Company is to get a serious farminee or raise capital to satisfy bond holders, as without that, the management team are negotiating from a position of weakness.
It was time for the management team to act 6 – 12 months ago, in anticipation of the impending bond due date, but we fear that they have been neglected “Plan B” and are now in a vulnerable position. Whatever form the solution ahead takes, we can't see investors enjoying the same level of access to the project's economic value that they have right now, and that at point in the future, there is a dilutive event occurring.
Frontera Resources (LON:FRR – 0.52p) – Operations Update – Not a Slam Dunk
Today's news that the Company is progressing towards being in a position to finalise a development plan is a significant positive, and after so long drifting, that the Company is approaching a point at which it can point towards a concrete plan that delivers value to shareholders is a significant step forwards. We, however, counsel caution in the seemingly innocuous statement, that:
“Specifically, internal studies have focused on technical reservoir performance comparisons with similar plays in the United States. This focused analytical comparison and associated transfer of completion technology has provided the basis for Frontera’s evolved technical approach that is designed to optimize new well completions.”
This has been the basis for the development of all tight and shale series since the technique was perfected in the Barnett. While huge strides have been made since that time, the development cycles remain significant, and what is often perceived as a simple technology migration, ultimately ends up being significantly more complicated and involved.
We believe that the management team have worked for a long time to get to this position, and there is a sense that commercialisation is closer now than it has been at any time in its past. However, the next step isn't going to be as easy as is being portrayed as, which isn't a problem, investors just need to bear this in mind.

In Brief
Bankers Petroleum (LON:BNK – 113p/C$1.11) – Acquisition: Bankers hasn't really been high profile for a lot of people, it has just delivered against it plans, save one or two hiccups. Consequently, the current share price offer of ~98% premium to closing undisturbed share price is a fair reflection of the Company's merits. This is also a solid step forwards to investors, who can take the cash on offer now or wait for some point in the future before they catch up. We believe that cash in shareholder's pockets now will allow them to reinvest in other stories that have potential, and therefore we would recommend that they accept the offer too.
Petroneft Resources (LON:PTR – 2.13p) – Uncertainty Reigns: Today's news on the one hand is positive, and on the other is decidedly less so. That its partner in Licence 61 (“L61”), Oil India, has expressed its willingness to fund the 2016/2017 work programme lifts a significant burden from the Company. The largest condition precedent to that, that existing management remain in place, ordinarily would not be too onerous. However, here is where the uncertainty starts and the second news item today has a direct impact on the outlook for the Company’s equity holders. If the EGM goes against the current management, they will be removed and the L61 financing deal lost, leading to not only a change in management, but a significant funding gap, relative to its market capitalisation. What is clear is that until the issue of the EGM is rested can the Company's forward plan be settled and investors have an understanding of where their investment could be headed.
• JKX Oil and Gas (LON:JKX – 25p) – Final Results – Can They Fix It?: As a result of today's announcement, the new management have been able to identify the issues that are of cause for concern, of which there are many, and draw a baseline as to what issues need to be addressed going forwards. The only concern we have relates to whether this management team can actually do anything about it in terms of skill set (Tom Reed was part of the disaster that ran Ruspetro in to the ground – we are only waiting for the fatal blow to be delivered), and time – is it too late? May be if they addressed the first, we could better understand the second, but as it stands at the moment, we have been told what the base line is, now we need to understand better what the solution is.

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