Malcy’s Blog – Bucket list 6 month update.


August 2019 Bucket List update

By Malcolm Graham-Wood

Once again, the bucket list performance has been incredibly volatile, crude oil was $78 a year ago and $65 when I updated in February, today it is $61, a level one might have thought would be more than comfortable for the industry.

Those familiar with the list will be aware that it is meant to serve as a model fund which gives exposure to risk across the sector, originally thought up by leading (non-energy) Fund Manager Adrian Collins to gain exposure to the sector at a time of $30 oil when exposure to individual stocks might have been a recipe for disaster. Nowadays I get the impression that readers tend to use the list as a guide to risk and timing, the ideas are for the long term although it is always wise to keep on top of any portfolio. Here is the interim ‘league table’ which is pretty indifferent right now but is a reasonable snapshot of how the sector is seeing a disappointing push-back and lack of interest from investors. Prices are from today and compared to end of February.

  1. Eco (Atlantic) Oil & Gas + 209.5%
  2. Reabold Resources +91%
  3. Far Limited +11%
  4. Amerisur Resources +8.3%
  5. Hurricane Energy +2.8%
  6. Savannah Petroleum -3.3%
  7. Serica Energy -4.3%
  8. Genel Energy -8.4%
  9. Rockhopper -9.9%
  10. Jersey oil & Gas -12.6%
  11. Trinity Exploration & Production -16.9%
  12. Victoria Oil & Gas -23%
  13. President Energy -34%
  14. Echo Energy -40%
  15. Aminex -41%
  16. SDX Energy -46%
  17. Sound Energy -62%

So, as usual comments on the list going forward and, on the performances above. Starting at the top Eco Atlantic has been the poster boy for some time now, it went in the list at 20p not long after I had met the company and realised what a potential goldmine it might be. A year ago it was 34.5p giving a return since then of 449% or 775% from 20p and having succeeded at Jethro is now drilling Joe, whatever happens here I would hang on in there. Reabold has also justified early entry as this is another company with good management and a solid defined model. Success in California and more recently at Parta and West Newton have paid off for patient investors. Those followers of Far Limited, quoted on the ASX have seen the company recover well from the disappointment of the well in The Gambia. With a lot of news imminent I remain a firm supporter of Far who have a fantastic team and a really exciting, broad portfolio. With Senegal coming up to critical development stage, which Far are confident of financing, they are set to be a sizeable company in a very hot area of town, in addition they are going back to The Gambia to drill in 2020 and CNOOC has recently farmed into Guinea Bissau where they will also drill with Far next year. Arbitration news should be out by the end of the year as well.

Things have just started to move for Amerisur where a cheeky bid by Maurel & prom at 17p seems to seriously undervalue the company. But it has shaken things up to the extent that a full review of its options is taking place. AMER has the huge value of CPO-5 with ONGC, a partnership with Occidental, the Putumayo and of course the OBA pipeline where 3rd party oil is now profitably flowing so has may options rather than just a one-off sale which would be disappointing. Hurricane Energy might be a lot higher by now as the EPS at Lancaster is spewing oil but the company is remaining cautious and not getting over excited until 6-12 months of stable production data is forthcoming. The shares stalled when the Warwick Deep well was dry but at the Capital Markets Day recently a good deal more optimism was showed. Sorting these points and hope for the Lincoln well will shape HUR going forward and my valuation remains a good deal higher than the current price.

Savannah Petroleum has recently announced Ministerial approval for the Seven Energy deal which I hope will mean a swift revival for the company in Nigeria as well as picking up from its highly successful programme in Niger. The market has been getting increasingly nervous about this deal and now it looks like getting over the line the recent rally should be extended. Serica was added last change and it has performed very creditably although I’m sure the management team, like many others feel that they have done enough to be higher up the list. I remain 100% confident in the management here and it is in a very strong position on a production basis with plenty of upside going forward.

Genel Energy is a stock that should be a great deal higher, with its massive cash flows enabling ongoing capex in organic development and competing for assets in the market as well as now paying a dividend and buying back stock in the market sometimes I wonder about what companies have to do to get institutions to participate. Genel is a high margin, large producer and extremely well managed and has significant upside, what’s not to like?

As for Rockhopper the market really is playing a game of brinkmanship, with the PIM now in and almost all the necessary paperwork with contractors and so on completed, sanction and then FID for Sea Lion should be not far away….RKH has been in the list from the start, patience sure is a virtue. Jersey Oil & Gas has had a bit of a roller coaster ride, in to begin with for the Verbier exploration well which got over the line after a false start, back in January it stayed in ahead of the appraisal of that discovery. Who was to know that it wouldn’t work but since that disappointment the company has bounced back with some fantastic acreage awards and will probably make the Greater Buchan area a highly successful hub.

I am seriously optimistic for Trinity Exploration as it looks in great shape as they approach the important second half for drilling in Trinidad. The onshore drilling programme returns and the company will be drilling its first HAW well which should change things big time for Trinity. With an exciting programme in the short, medium and long term, strong finances after years of diligent cost cutting, arguably the best management around, the stable, growing production and high impact upside should warrant good returns for shareholders.

Whether to keep VOG or not in the list was a close call, after a difficult 18 months the market now needs to see the company deliver after the recent financing and management changes. But for now I am going to continue to give the benefit of the doubt for which I am sure I will get some stick. They are getting paid; they are showing signs of growing the business and are less reliant on that big contract…

President Energy has been doing all the right things but with no following wind, I have great sympathy with the management team who have operationally delivered in spades but with no reward. The Argentine link has been hanging over it but recent polls ahead of the Presidential election have upped the beta and forced the company to take a rain check on oil and concentrate on its gas assets for the time being. As a result, I think it wise to take the company out of the list for the time being.

As for Echo this is no time to bottle out, the company has been in the list for some time waiting developments at Tapi Aike which I consider to be the jewel in the company’s crown. With 3D seismic completed and being analysed, the agenda looks like being set fair for drilling in Q4 2019 whereupon we shall see what might be had. I am not underestimating the country risk here but feel that a big discovery should make a positive impact whatever. Another company I will likely get stick for staying with is Aminex which I should probably have cut a long time ago. But right now, I’m convinced that John Bell and the team are doing all they can to prepare the company for the future and with strict cost saving and hopefully soon a farm-out completion faith will be rewarded.

SDX Energy has had a difficult time this year, a combination of missing targets on the South Disouq start-up more than once, missing out on a number of potential acquisitions, firing its CEO and then slashing guidance in Morocco has left its toll on the share price. Historically I don’t change the list between interim reports but I probably should have seen the writing on the wall, cancelling analysts visits twice should have been a sign to be taken on board, anyway the company is off the list for the time being.

Finally, Sound Energy where after a very promising start in Morocco the last well was disappointing and the company has decided to market the existing gas discovery. As such it would be unwise to take it off the list in the middle of such a process and the company still has a market cap of £100m which should be respected.

Now all is needed is to decide on the replacements from the subs bench as it were. I said last time that RockRose Energy would have been included had it not been suspended so now I can rectify that. At 1730p it seems odd having been taken off the market at 805p but that was prior to the Marathon deal that they have just completed. The deal doubles or more production and resources and in a stroke takes it into a bigger league where I am sure more deals will be possible. At this price the shares are totally covered by cash and that leaves huge scope for a significant upward rerating, I have a target price of 3750p.

Another stock covered by its own cash in the balance sheet is Chariot Oil & Gas whom I am also promoting into the bucket list today. The management have proved that they can get over previous disappointments with the drill bit and bounced back with a very exciting deal in Morocco earlier this year. The Lixus deal looks very impressive and for a very small outlay they have a gas discovery at Anchois-1 which can be monetised very quickly. Having picked up a substantial 75% stake they will farm-out some of this but with a strong domestic gas market there will be no shortage of potential partners for the company. Chariot has a very tight grip on costs and with more than the current share price in cash is in a very strong position.

As and when any of the above stocks leave the list, and with at least two potentially in bid situations then I will go back to the bench where IGas, Predator, PetroTal and DGO are all waiting and in very good shape.

By Malcolm Graham-Wood

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