Special Feature
Rockhopper Exploration, in complete contrast to Desire, saw significant success with the drill bit in 2010 in the North Falklands, ultimately landing 356 million barrels of 2C resources after the drill program with their Sea Lion field and ancillary discoveries. This led to the proposed 60% farm-out deal with Premier Oil announced in the summer of this year and which was just approved by the Falklands Islands government in October. Despite the significant 2C oil resources and farm-out, Rockhopper’s shares slumped in September to just over 150p;, this after hitting over £5 post the Sea Lion discovery and £3.93 prior to the publication of the latest Competent Persons Report (CPR) in April. Rockhopper/Premier are targeting first oil out of Sea Lion in 2017 and the project is fully funded now. For those investors with patience, the company offers a compelling long term investment case with the shares currently sitting at £1.70 and this magazine made them a Conviction Buy on the 8th October at 157p.
In 2012, Falkland Oil and Gas (FOGL) has announced farm-out deals with Edison and Noble Energy, giving it significant financial firepower compared with many AIM oil companies. Unfortunately, drilling success has been muted to date with a sizeable gas discovery at its Loligo well in September, but unfortunately no oil, knocking the shares back from around the £1 level to the current 66p. The company is currently drilling the Scotia well using the Leiv Eriksson rig and which has prospective resources of 1 billion barrels with results due in November. However, the COS (chance of success) has been estimated at no more than 25% for this wild cat well. FOGL has the advantage that it is fully funded to drill several additional exploration wells in 2013 as a result of its farm-out deals and so for those with the stomach for it, offers opportunities for the adventurous investor. However, it remains at the riskier end of the spectrum given that the South Falklands basin has only delivered gas or gas condensate to date and costs are high due to its deep water. Certainly the best bet in the South Falklands for now, but, in our opinion, you should not have heavy exposure here — if the drill(s) are successful then there is plenty of upside for even modest position sizes.
South Falklands Oil explorer, Borders and Southern (BOR) has had a rollercoaster of a year, moving above 130p in April from the 45p level just months earlier — a level that they had gyrated around for quite some time. Rumours were rife that they had hit a giant oil discovery, but in the end it was gas condensate that was found in their Darwin East well. Gas condensate has a value but the market perceives the higher recovery and exploitation costs to be potentially un-commercial. In July, the company disappointed further with their Stebbing well that proved to be duster. For now, the company has exhausted its cash resources for further drilling and is somewhat reliant on Falkland Oil and Gas to find a major discovery and increase investor interest in the basin. At these bombed out levels, BOR may in fact be tempting for other sector corporates, given its gas condensate find, and some support from cash-rich oil-majors to further appraise its acreage may be just around the corner. We also made BOR a Conviction Buy at 24p on the 17 Sep — our rationale that the downside here is extremely limited versus a farm-out upside. The continued purchasing of the stock by the respected hedge fund Lansdowne Partners should not be ignored and looks to be in line with our thinking.
Offshore Namibian focused explorer, Chariot Oil and Gas has had a dreadful 2012, with its shares falling from over £2 to just 30p at time of writing on a lack of drilling success. Both its Tapir South well in May and Kabeljou well in September proved to be duds. It has acquired further offshore exploration blocks in Mauritania and Morrocco this year to broaden its interests, but much uncertainty remains. With Petrobras and BP having farmed in to its Namibian acreage, the company has the flexibility to drill more targets in 2013. But any further failures in Namibia means that it will struggle to develop its other assets beyond 3D seismics without further significant funding which will be difficult in the current climate. Avoid for now.
52 | www.financial-spread-betting.com | November 2012