Oil price continued its decline over the week as a number of factors emerged that put a damper on the price of oil.
1) Baker Hughes reported that the US put an additional 12 new rigs to work in the previous week. This is the first increase in rig count since October 2014. The total count now numbers 640.
2) The Greek Crisis. In the event it turns from bad to worse, it is likely to impact the EU economy in the short to medium term. Oil price thrives on good economy news. In the absence of such, it is likely to decline.
3) US officials are confident of reaching a deal with Iran soon. It is expected that Iran will ramp out production upon the lifting of sanctions. This invariably, will pressure the oil price and put a damper on its price.
4) Improvement in methods of extracting oil by shale producers, which allow some producers to comfortably produce oil at US$60 - US$65 per barrel.
However, as the hedges run dry in the coming months, many shale oil producers will find it even more difficult to generate positive cash flow and for those who cannot produce profitably at US$60 - US$65 per barrel their very existence will be challenged.
Bond activities among shale oil producers in recent months have been slow (read The Economist article below), and this means that banks are lending less for fear of collapse or interest rate has gone up, making it meaningless for shale producers to borrow and refinance their existing debts.
This is a very interesting article by The Economist, and it is worth a read.
I would advise all to stay out of US shale companies as their debt levels are just too high. If you should invest in oil companies, go for those which are onshore with conventional plays.
http://www.economist.com/news/business/21656671-americas-shale-energy-industry-has-future-many-shale-firms-do-not-fractured-finances
Friday, July 3, 2015
Thursday, July 2, 2015
UKOG TO ACQUIRE A 20% INTEREST IN UK ONSHORE LICENCE PEDL143
UKOG announced that it has executed a Farm-In agreement with Egdon Resources to acquire 20% interest in UK onshore licence PEDL143 (Holmwood Prospect), further increasing its interest in the Weald Basin.
The prospect is 91.8 sq km (35.5 square miles) and lies immediate West of Horse hill, and immediate South of the Brockham oil field which UKOG also holds an interest via its 6% interest in Angus Energy.
Subject to the approval of the oil & Gas Authority in UK, UKOG wll pay 40% share (1.2 million Pounds) of the Holmwood-1 well exploration cost which is estimated at 3 million Pounds.
Wednesday, July 1, 2015
BALTIC DRY BULK INDEX DOWN 6 POINTS TO 794 - WHAT ARE THE IMPLICATIONS
For those who invest in dry bulk shipping companies the Baltic Index is a good indicator of the present demand for dry bulk cargo.
The index has had a high of 1,484 points on 4 November, 2014 before coming down to its 52 weeks low of 509 points on 18 February, 2015. Since then it has recovered marginally to its current level.
Inadvertently, it shows that the global economy is still struggling. In the past, China's demand for commodities was what put the index in the highs of more than 10,000 points. Those days are gone, and the present situation looks bad.
Therefore, I would refrain from any investment into dry bulk shipping companies as global fundamentals are weak.
I would also avoid investing in mining companies as the demand for iron ore and other similar minerals are simply not there.
However, I will be on the look out for gold mining companies in Australia which are grossly undervalued and have a strong Balance Sheet. I would not however invest aggressively but accumulate slowly in manageable quantities. The reason?
AUD is at its lowest vs the USD in 5 years, due to the poor demand for commodities. Gold currently is less than USD1,200 per oz because of the strength of the USD. The greater the strength of the USD, the lower will be the price of gold. The only time when gold will shine is when there are great risks in the global economics and financial stress in major economies. As demand for gold rises, so too will be the demand for gold mining stocks and the AUD. You can potentially earn from the capital appreciation and FOREX.
That day is not too far off. China will continue to weaken as the past reductions in interest rates and capital ratio requirements for banks have failed to lift the economy from its present predicament. Asia itself, is swimming in a sea of liquidity with many countries seen lowering their interest rates to lift their respective economies which are clearly showing signs of a slowdown. Asia too is facing unprecedented high levels of debt due to the cheap money being made available since the last Global Financial Crisis and of course, property speculation.
Besides gold, you can also look at high dividend stocks or REITs which are financially strong and remain undervalued to this day. These will help you weather through the financial storm ahead.
These are just my opinions. It is advisable to do your own research before investing.
The index has had a high of 1,484 points on 4 November, 2014 before coming down to its 52 weeks low of 509 points on 18 February, 2015. Since then it has recovered marginally to its current level.
Inadvertently, it shows that the global economy is still struggling. In the past, China's demand for commodities was what put the index in the highs of more than 10,000 points. Those days are gone, and the present situation looks bad.
Therefore, I would refrain from any investment into dry bulk shipping companies as global fundamentals are weak.
I would also avoid investing in mining companies as the demand for iron ore and other similar minerals are simply not there.
However, I will be on the look out for gold mining companies in Australia which are grossly undervalued and have a strong Balance Sheet. I would not however invest aggressively but accumulate slowly in manageable quantities. The reason?
AUD is at its lowest vs the USD in 5 years, due to the poor demand for commodities. Gold currently is less than USD1,200 per oz because of the strength of the USD. The greater the strength of the USD, the lower will be the price of gold. The only time when gold will shine is when there are great risks in the global economics and financial stress in major economies. As demand for gold rises, so too will be the demand for gold mining stocks and the AUD. You can potentially earn from the capital appreciation and FOREX.
That day is not too far off. China will continue to weaken as the past reductions in interest rates and capital ratio requirements for banks have failed to lift the economy from its present predicament. Asia itself, is swimming in a sea of liquidity with many countries seen lowering their interest rates to lift their respective economies which are clearly showing signs of a slowdown. Asia too is facing unprecedented high levels of debt due to the cheap money being made available since the last Global Financial Crisis and of course, property speculation.
Besides gold, you can also look at high dividend stocks or REITs which are financially strong and remain undervalued to this day. These will help you weather through the financial storm ahead.
These are just my opinions. It is advisable to do your own research before investing.
Tuesday, June 30, 2015
Monday, June 29, 2015
LGO - WHAT NEXT
The "CPR" has come and gone, but there was just a brief spike before a sell down. Perhaps many were disappointed that the 1P and 2P reserves were not high enough as many were expecting 20x more for 1P reserves at the very least.
Admittedly, I was also expecting similar results; ie: 20x increase in 1P reserves.
However, when Challenge Energy's CPR (2012) is compared against the recent Synergy's CPR, there exist a deep contrast between the two (a fact that was highlighted by an LSE member).
First an foremost, there is no mention of any contingent reserves in the Synergy report.
Secondly, the new report is only based on the 8 wells drilled in 2014 and ignored the 30-well fully funded programme in Goudron.
Perhaps those were the reasons why the Synergy's Report is described as an Upgrade in Reserves and not a full CPR.
Nevertheless, the most positive indication is the potential of Goudron Field which has a five fold increase in oil in place, amounting to 805 million barrels.
But what does this mean actually?
LGO's current net back per barrel is in the region of US$14 per barrel. Let us take a very conservative approach and assume US$10 per barrel.
We adopt a 10% potential recovery by conventional means and 18% recovery via water flood. The 18% is based on the previous recovery method via water flood estimated by Challenge Energy in 2012
So 28% of 805 million x US$10 = US$2.254 billion
The Pound equivalent is 2.254 billion/1.52 = 1.483 billion Pounds
This is equivalent to 14.3x current market cap or 45.76 pence
This value will gradually increase if the price of oil increases. Not to forget that the high estimate could be 1.335 billion barrels instead of 805 million barrels. Also this is solely based on the Goudron Field. LGO has an oilfield in Spain which could have its licence renewed prior to 2017 and of course, the ever tempting Cedros Peninsula which rests right in the middle of the rich Venezuelan Basin.
Therefore, ignore the current noise from the Greece crisis, and the CPR setback (which has been explained above) and concentrate on the potential prize.
Important news in coming weeks and months:
1) Pad 4 production. There are 3 wells on the pad.
2) Pad 5 drilling update and production. There are 4 wells on this pad.
3) Completion and commissioning of of 5,000 barrels storage tank at Goudron
4) Progress report on permission to construct Pad 6 and 7 (5 wells per pad), LACT meter, 4" pipeline, additional 5,000 barrels storage tank and commencing on drilling and production from the upper Goudron Sandstones.
So you can imagine the many positives that could potentially raise LGO's share price. At the end of the day, you look at the massive infrastructures underway to support a boost in production. Total storage capacity to increase to 12,750 barrels from 2,750 barrels, new 4' pipeline besides existing 2.5" pipeline, and inclusion of LACT meter to ensure continuous flow of oil to Petrotrin.
To really reap the rewards from LGO you need to have a longer time view in investment of 2- 3 years.
My disclosure: I am long LGO.
Admittedly, I was also expecting similar results; ie: 20x increase in 1P reserves.
However, when Challenge Energy's CPR (2012) is compared against the recent Synergy's CPR, there exist a deep contrast between the two (a fact that was highlighted by an LSE member).
First an foremost, there is no mention of any contingent reserves in the Synergy report.
Secondly, the new report is only based on the 8 wells drilled in 2014 and ignored the 30-well fully funded programme in Goudron.
Perhaps those were the reasons why the Synergy's Report is described as an Upgrade in Reserves and not a full CPR.
Nevertheless, the most positive indication is the potential of Goudron Field which has a five fold increase in oil in place, amounting to 805 million barrels.
But what does this mean actually?
LGO's current net back per barrel is in the region of US$14 per barrel. Let us take a very conservative approach and assume US$10 per barrel.
We adopt a 10% potential recovery by conventional means and 18% recovery via water flood. The 18% is based on the previous recovery method via water flood estimated by Challenge Energy in 2012
So 28% of 805 million x US$10 = US$2.254 billion
The Pound equivalent is 2.254 billion/1.52 = 1.483 billion Pounds
This is equivalent to 14.3x current market cap or 45.76 pence
This value will gradually increase if the price of oil increases. Not to forget that the high estimate could be 1.335 billion barrels instead of 805 million barrels. Also this is solely based on the Goudron Field. LGO has an oilfield in Spain which could have its licence renewed prior to 2017 and of course, the ever tempting Cedros Peninsula which rests right in the middle of the rich Venezuelan Basin.
Therefore, ignore the current noise from the Greece crisis, and the CPR setback (which has been explained above) and concentrate on the potential prize.
Important news in coming weeks and months:
1) Pad 4 production. There are 3 wells on the pad.
2) Pad 5 drilling update and production. There are 4 wells on this pad.
3) Completion and commissioning of of 5,000 barrels storage tank at Goudron
4) Progress report on permission to construct Pad 6 and 7 (5 wells per pad), LACT meter, 4" pipeline, additional 5,000 barrels storage tank and commencing on drilling and production from the upper Goudron Sandstones.
So you can imagine the many positives that could potentially raise LGO's share price. At the end of the day, you look at the massive infrastructures underway to support a boost in production. Total storage capacity to increase to 12,750 barrels from 2,750 barrels, new 4' pipeline besides existing 2.5" pipeline, and inclusion of LACT meter to ensure continuous flow of oil to Petrotrin.
To really reap the rewards from LGO you need to have a longer time view in investment of 2- 3 years.
My disclosure: I am long LGO.
REM - FY RESULTS 2014
REM recently reported its Full Year 2014 results.
The company has not started and production yet, so there is no Revenue for the year.
The Loss widened from 0.04 pence in 2013 to 0.06 pence in 2014, resulting in an increase in Loss of 50%. The Loss was mainly due to the non-cash charge associated with share-based payments to directors, staff and consultants for 2014. It also reflected the significant increase in corporate and investment activity throughout the year.
Current Ratio is 10.4
Debt to Equity Ratio is 0.08
Corporate Activity since 2014 year end:
Sonora projects consisting of 40.78% share in El Sauz/Fleur and 15.40% share in La Venata is advancing to its fully funded Pre-Feasibility Study.
2.5 million Pounds raised via a share placing with an institutional investor (Standard Life).
The Yangibana project in Australia which REM has a 30% stake is progressing rapidly with several updates.
Western Lithium which REM has a 3.05% stake has produced its first high purity lithium from its demonstration plant.
REM acquired a 6.65% interest in the Cinovec project in the Czech Republic which has one of the largest lithium deposits in Europe.
REM is a long play,3 -5 years but t is at this current price which you will reap your rewards. I have a BUY rating n REM.
Two main developments which could support lithium price in the future is the completion of Tesla's gigafactory in US, a mere few hundred miles away from the Sonora project, and China's proposal to limit export of rare minerals.
For the uninitiated, Tesla is also developing the Powerwall which is a home battery that charges using solar power.
My disclosure: I presently do not own any REM shares, but have intention to accumulate at a later date.
The company has not started and production yet, so there is no Revenue for the year.
The Loss widened from 0.04 pence in 2013 to 0.06 pence in 2014, resulting in an increase in Loss of 50%. The Loss was mainly due to the non-cash charge associated with share-based payments to directors, staff and consultants for 2014. It also reflected the significant increase in corporate and investment activity throughout the year.
Current Ratio is 10.4
Debt to Equity Ratio is 0.08
Corporate Activity since 2014 year end:
Sonora projects consisting of 40.78% share in El Sauz/Fleur and 15.40% share in La Venata is advancing to its fully funded Pre-Feasibility Study.
2.5 million Pounds raised via a share placing with an institutional investor (Standard Life).
The Yangibana project in Australia which REM has a 30% stake is progressing rapidly with several updates.
Western Lithium which REM has a 3.05% stake has produced its first high purity lithium from its demonstration plant.
REM acquired a 6.65% interest in the Cinovec project in the Czech Republic which has one of the largest lithium deposits in Europe.
REM is a long play,3 -5 years but t is at this current price which you will reap your rewards. I have a BUY rating n REM.
Two main developments which could support lithium price in the future is the completion of Tesla's gigafactory in US, a mere few hundred miles away from the Sonora project, and China's proposal to limit export of rare minerals.
For the uninitiated, Tesla is also developing the Powerwall which is a home battery that charges using solar power.
My disclosure: I presently do not own any REM shares, but have intention to accumulate at a later date.
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