Angus Energy’s share price has exploded as it begins to produce gas at its flagship site. But while further rapid gains could be in the offing, plentiful risks abound.
Author: Charles Archer
Angus Energy (LON: ANGS) For the uninitiated, the FTSE AIM company is an OGA-approved independent developer of multiple UK-based onshore operations, including its flagship Saltfleetby gas field, and oil assets at Balcombe, Lidsey, Brockham, and Holmwood.[1]
With actual production only recently fired up, ANGS shares have been trundling along within a volatile range of between 0.5p and 1.5p for years, but without showing any sign of a real breakout.
As such, the penny stock been left on the radar for many investors; one to watch rather than to actively take a position in.
But that may be changing.
Angus Energy share price: Saltfleetby gas field
On 24 August, ANGS shares were changing hands for 1.25p apiece, well within its typical range. By 5 September, they had exploded to 2.73p, before dipping to 1.60p by 24 October. Today, ANGS has settled in at 1.90p, but further volatility seems inevitable.
[1] What We Do – Angus Energy plc
Two pieces of news have spurred Angus Energy’s renewed lease of life.
First, and most critically, on 25 August the energy developer evolved into an energy producer, announcing that production had finally begun at the Saltfleetby gas field. Specifically, it has started processing wellhead gas from the B2 well at the onsite combined extraction and condensate processing facility.[1]
Opened in 1999, Saltfleetby used to be the UK’s biggest onshore gas field with production of some 67 billion cubic feet, before it was shut down in 2017 with the closure of the Theddlethorpe gas terminal. ANGS bought a 51% stake in the disused field from Wingas Storage UK in 2019, and then acquired the remainder for £14 million.[2]
As its share price spiked, days later ANGS announced its first nomination for gas export and sale to none other than FTSE 100 oil major Shell via the National Grid.[3]
With oil and gas prices still elevated compared to historical levels, it’s not hard to see why penny investors are getting excited about Angus Energy’s new prospects.
However, as with all high-reward prospects, strings come as standard.
ANGS shares: key risks to consider
The problem — or beauty, depending on your philosophical perspective — of penny investing, is that penny stocks have a nasty habit of throwing capricious curveballs at investors, not all of which can be easily predicted.
Consider this: on 23 June 2020, the company announced that it planned to bring gas online from Saltfleetby by the end of the year. While it did warn that ‘there are many moving parts to the
[1] Angus Energy Regulatory News. Live ANGS RNS. Regulatory News Articles for Angus Energy Plc Ord Gbp0.002 (lse.co.uk)
[2] Saltfleetby Gas Field – Angus Energy plc
[3] IN BRIEF: Angus Energy to sell first gas to Shell… | Morningstar
Program and our timeline will be at the mercy of the slowest of them,’ it nevertheless enthused it had ‘some confidence that the timetable will not be greatly altered.’[1]
It took nearly two more years to start production, a case of management overpromising and underdelivering on what was in hindsight an unrealistic timetable. CEO George Lucan has also irritated, and in some cases delighted, investors by updating on Twitter rather than through official channels.[2] This can create unnecessary volatility, even though it also generates increased retail interest.
[1] UK’s Angus eyes first gas from UK onshore Saltfleetby field near year-end | S&P Global Commodity Insights (spglobal.com)
[2] CITY WHISPERS: Shareholders voice discontent with Angus Energy’s tweets | This is Money
But the more important problem is the high risk of a share placement. In February, it raised £1.4 million through issuing 175 million new shares at 0.8p a share, a 20% discount at the time. Lucan defended the placement as ‘critical that the company is able to negotiate from a position of strong liquidity.’[1]
But ANGS also raised an additional £675,000 after placing 61.4 million shares in April, this time priced at 1.1p each after Sound Energy pulled out of a potential takeover deal. The company is not yet profit-making and there is a reasonable case to be made that given the elevated share price, one more discounted placement would be in the company’s best long-term interests, despite diluting existing shareholders. For perspective, insiders have sold off circa 37 million shares over the past 12 months.
Then there’s Angus’s financial position. Despite its £55 million market cap, interim results to the end of March saw it make total losses of £31.75 million, with an adjusted loss of £1.29 million.[2] In the same period in 2021, it lost £1.48 million. And it has a £12 million amortising debt facility to consider too.[3]
While its main gas asset is now producing, further immediate losses may need to be subsidised by additional capital raises.
[1] Angus Energy raises £1.4m in discounted share placing – Sharecast.com
[2] Financial Reporting – Angus Energy plc
[3] Angus Energy: down to the wire now as Sound Energy pulls out (thearmchairtrader.com)
Where next for Angus Energy shares?
This risk isn’t meant to dissuade investors from Angus Energy’s potential, which could be colossal.
It doesn’t just own Saltfleetby. Its Brockham onshore project in Surrey was granted planning permission in April to produce oil at its BRX4 well until 2036.[1] And the other sites evidently show significant development potential.
And as domestic and business energy bills skyrocket, all sources of UK-based gas are looking attractive. In August, the UK received a gas shipment from Australia as it scrambled to boost supplies. And 40% of Europe’s gas came from Russia in 2021.[2] This supply has slowed to a trickle, and with Putin facing military setbacks, it’s not unimaginable that Russia’s President will turn off the taps as the coldest weather approaches.
Of course, energy prices have slipped in recent weeks. Brent Crude hit a high of $140 in the immediate aftermath of the invasion of Ukraine but has now fallen to under $100. International wholesales gas prices have also tumbled; in August the UK benchmark price for next-day gas delivery was 550p per therm, but last week it fell to just 38p.
[1] Breaking: Brockham oil production plans approved – DRILL OR DROP?
[2] Russia sanctions: How can the world cope without its oil and gas? – BBC News
BP CEO Bernard Looney described his FTSE 100 oil major as a ‘cash machine’ when Brent was trading at just $73. The company breaks even at $40 per barrel and is continuing share buybacks as long as the benchmark remains over $60.[1]
And in gas terms, Europe may well be the eye of the storm. Jack Sharples of the Oxford Institute for Energy Studies warns that ‘as the weather turns colder, and demand therefore increases, we will see prices rise again.’[2] Accordingly, Cornwall Insight expects the average household energy bill to rise to £3,700 from the current £2,500 in April.[3]
With ANGS likely to invest all profits into further development, it shouldn’t be hit by the rumoured increased scope for windfall taxes later this month. And bar global demand destruction, Angus Energy is producing five million cubic feet of an in-demand hard commodity daily, which is set to sell for piles of profit.
The key question for would-be investors is whether more shares will be issued soon — a debate likely to spark a rainbow of opinion.
And of course, this sizeable risk means that Angus Energy shares could be trading at a discount relative to their true value.
[1] ‘Cash machine’ BP more than doubles boss’s pay to £4.46m as energy prices surge | Business News | Sky News
[2] Will falling gas prices mean lower bills? – BBC News
[3] Home – Cornwall Insight (cornwall-insight.com)
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Article Published November 8th, 2022
