The markets are starting to show signs of weakness and although we are yet to see any major downwards correction, it is starting to look more likely that we will get one. Usually that would make me extremely nervous of investing in companies at the lower end of the market, but in the background to all of this oil still remains relatively strong, so there could still be an argument for putting money into some of the more speculative plays within this sector. Lansdowne Oil & Gas (LOGP) seems to be a company which falls into this category at the moment, especially as there should be further news flow to come on the operational side of things.
This company has been a big disappointment to investors so far, as there was a time a few years ago when it was flying high following the discovery and initial appraisal of the Barryroe field in the Celtic Sea Basin off of Ireland. But subsequently wider interest in the field pretty much dried up as oil prices took a tumble, alongside a lack of existing infrastructure in that particular area in terms of other producing fields. Given that the company produces nothing, has no revenue and thus burns through cash just keeping things ticking along, you could argue that on the face of it, it isn’t worth the £12.4 million market cap that it currently has at a share price of around 1.9p. But as we know, with this type of company it is larger about future potential, and whilst progress so far has been painfully slow, there has at least actually been a discovery and testing, and the 10% interest which Lansdowne has in the field currently has net contingent resources of 69 million barrels of oil equivalent.
One of the most recent developments has been the signing of a farm-out deal with APEC, which will finally get things moving on the drilling front, with a total of five wells planned – four vertical and one horizontal, along with drill stem testing – with operations beginning in the second quarter of 2019. These drills should certainly generate some interest, and there is a further option for two additional wells. The terms of the farm-out will see APEC paying for 50% of all costs, up to $19.5 million, and the remaining 50% of the costs will be financed by APEC via a loan which will be repayable from eventual production cash flows. Once the loan is repaid, Lansdowne would be entitled to 50% of future production cash flows. One of the main aims of this drilling programme is to 2C resources into 346mmboe of gross 2P reserves, and if the reservoir performs as well as is hoped, then a field development plan would be put in place. The drilling will also test other zones on the Barryroe licence, and look to convert some of the P50 778mmboe of stock tank oil initially in place into 2C resources. Previous appraisal produced 43 API oil at a rate of 3,514bopd, so there would seem to be a decent chance of a good outcome from the forthcoming drilling programme.
Of course it is still early days and a lot of work is needed before it can be established that Barryroe will actually reach production, assuming that it ever does. But that is the risk you are taking with this sort of play, and why they are relatively cheap, and at least in this case the field has already been confirmed as a discovery and has flowed, rather than being purely at the exploration stage. Whatever the eventual outcome following the drilling, I would expect there to be plenty of interest in the shares next year, plus it also looks cheap when compared to Providence Resources (PVR) which has a 40% stake but is valued at £84 million – that does have other interests, but for me this is the main one of interest at the moment. Quite a large proportion of shares are out of public hands, with LC Capital Master Fund holding 29% of them, plus Brandon Hill Capital hold 14.3% directly. It's also just been announced that Brandon Hill directors Neal Griffin and Oliver Stansfield had increased their holdings to 3.78% and 2.42% respectively, giving a combined total of 20.5% under Brandon Hill control. The shares have slipped back a bit since the rise caused by the announcement of the farm-out, and could even drop back a bit more until we get closer to the drillbit turning. But I think this presents a decent speculative opportunity in a share that could see some substantial rises during 2019, so I’d consider this as a buy at this share price and below.
Filed under: Lansdowne Oil & Gas, Mayan Energy, Cairn Energy, Frontera, TomWinnifrith.com
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