Sifting through the carnage
Shares in Kazakhstan-focused Max Petroleum have plunged this year after continued funding problems and lack of drilling success. Its shares currently stand at 4.8p compared with a 52 week high of 15p.
Gulfsands is a Conviction Buy play for SBM, having called this on the 19 June at 90p and initially enjoying a near 50% return. We added to our call at 130p on the 17 Sep — and it seems pretty much caught the high in recent months!
Its exploration well in the Baichonas West prospect in September found a good quality reservoir but proved to be smaller than expected. Completion of drilling was only possible after agreeing funding with Zhanros in August with a placing of shares at 5p after serious cost over runs.
We have covered the stock extensively in previous editions of SBM, but for new readers, the investment basis is predicated on the cash rich nature of the balance sheet, the shareholder list that we think may result in corporate activity and the potential, and hope, that the sorry situation in Syria finally comes to a resolution, not least for the good of the Syrian people.
The company is currently drilling the BSBNE-1 exploration well on the Besbolek North-East prospect in Kazakhstan and success here will be vital in securing the future of the company. The lack of funding certainty remains a drag on Max and investors have already suffered much pain this year as operations have been impacted by the cash crunch; one for the brave only.
With the shares back at the 94p and so valuing the company’s assets (including its Syrian interest) at a pitiful 50c per boe as a result of the recent escalation of violence in the Aleppo region in particular, should the Syrian assets be returned to the company, investors will likely be looking at a return in the hundreds of percent overnight. We maintain our bull stance on Gulfsands Petroleum and think the stock presents one of the best risk:reward profiles out there with core NAV being valued at just £5 should a resumption of their Syrian activities occur.
Conclusion Caza Oil and Gas, the U.S.-focused oil explorer with assets in the Texas Gulf Coast, South Louisiana and Southeast New Mexico, has seen its shares halve from 15p at the beginning of 2012 to around 7p now. In 2011, the company had a series of setbacks at its OB ranch project in Texas, and oil and gas output disappointed investors in Q2 2012. Caza’s production increased 38% to 25,107 Boe for the three-month period ended June 30, 2012 from 18,130 Boe for the comparative period in 2011, but this only equated to 276 barrels per day and, in addition, cash depleted significantly to stand at only $4.7 million compared with over $8 million at the end of the first quarter.
It could be said that now is an ideal time to be investing in certain AIM oilers given the poor sentiment surrounding the sector and the deflation of hope in many of the company’s valuations. The whole point of investing and speculation is to buy low and sell high (not necessarily in the former order) and with the depressed stock prices detailed here, there is an argument that a diversified, underleveraged portfolio of positions could be picked up at much more attractive valuations, ready for the next round of inevitable speculation.
Much now depends on its Copperline prospect, Caza Ridge horizontal well and the Forehand prospect well, in finding additional hydrocarbons to allow production to increase materially this year — something that is definitely required to offset the cash burn. Caza offers a lower risk profile than other AIM oil stocks and with a 9% bounce in the share price in the last month investors seem to be coming back on board, but much needs to be done to rebuild battered sentiment after the OB ranch drilling disappointments; one to watch.
November 2012
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