SpecialFeature Feature Special
Gulfsands Petroluem
Heritage Oil
When Gulfsands Petroleum was first featured in the “Oil Explorers Dream Portfolio List” in July this year, its share price was 90p having plummeted from over £4 in 2011 to a low of 77p in June due to concerns about its exploration and production assets in Syria. Since then, the shares have rallied to 125p (time of writing), and still valuing the company at just £148 million.
Plenty of recent news flow from Heritage Oil which was 130p at the time of the original article (we called a Conviction Buy at 142p in April). In early July, the company announced it had formed a joint venture, Shoreline Natural Resources, with a local Nigerian partner, Shoreline Power, to acquire a 45% participating interest in OML 30, in Nigeria. It subsequently announced a $370 million rights issue to fund the $850 million acquisition with the remainder coming from a $550 bridging loan. The terms of the Rights Issue are expected to be announced by the 28th August 2012.
In July, the company said that its Chorbane permit in which Gulfsands has a 40% interest and is operated by ADX Energy (located onshore Tunisia) has been renewed for a further period of three years. The minimum work obligation for this further three year period consists of the drilling of one exploration well to a depth of at least 2,500 metres, and if the well is successful, Gulfsands will have the right to become its operator. In June, the Sidi Dhaher exploration well on the permit was plugged and abandoned since, despite good flow rates from the two reservoir zones, the fluids did not contain any oil. Clearly despite the rerating from the lows, the value of Gulfsands’ Syrian operations has been pretty much discounted in its entirety by the market. Any potential resolution to the Syrian crisis and a resumption of activity could have a significant impact on the share price — probably starting with a 2 — and if not, then triggering a bid for the Group. For now the situation remains uncertain, but for patient investors it continues to be worth the wait and the shares should be added-to on any weakness.
Bowleven At 60p in July and now at 64p, investors are waiting for key pieces of news from the company which is due to begin drilling in mid-August, and agree a farm out deal for its offshore Cameroon assets as well as the onshore Bomono acreage by the end of the year. Recent broker reports estimate a valuation of 189p a share based on the $4.7 per barrel achieved in the recent farm out by Rockhopper to Premier Oil. Keep adding.
38 | www.financial-spread-betting.com | September 2012
The OML 30 assets were acquired from Shell, Total and ENI and will increase Heritage’s production significantly to around 11,500 barrels per day. The fields will be 45% owned by Heritage with the remainder being in the hands of the Nigerian government. The company expects OML 30 production to increase from 35,000 to 145,000 barrels per day by 2018. Heritage estimates that OML 30 has gross proved and probable reserves of 707m barrels of oil and 2.5trn cubic feet gross reserves of gas. The shares were suspended at 123p in early July at the time of the announcement. The shares returned from suspension on August 7th and have since rallied to 173p (time of writing). The cash flow from the Nigerian deal will enable Heritage to develop its other assets such as the Miran field in Kurdistan. In our opinion this is a smart deal to allow funding of more speculative parts of the company’s portfolio, and more importantly bridge the cash flow of the company through to monetisation of their key Miran field in Kurdistan. It also avoids some of the financial pitfalls that many smaller oil and gas companies are presently experiencing.