Forgotten - about Ophir Energy worth a look suggests Gary Newman

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Several of the once really popular oil and gas companies seem to have almost have been forgotten by investors, as progress has been far slower than had originally been expected and people have gone off seeking riches elsewhere. I think that Ophir Energy (OPHR) would definitely fall into that category as it is now a company which you rarely hear mentioned by private investors, but I personally believe that the potential is still there and have recently been buying shares myself at around the current share price of 66p.

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If you are looking for something offering a bit more risk than an out-and-out producer, but one which is also backed to some degree by its current production, then this African and South East Asian focussed company looks like the perfect choice. Currently the production comes from its fields in Thailand and Indonesia, with Bualuang averaging 8,100bopd during H1 2017 up to the end of June, and having increased to 8,900bopd since new wells came online. The further development at this field is costing $145 million but will add an additional 9.2 million barrels to 2P reserves and is expected to pay for itself quickly. In Indonesia at the Kerendan field, production has reached 19.2MMscfd, well up from the 12.3MMscfd that we saw earlier in the year, and the company is now working towards approval for gas sales from the rest of the 457Bcf field – currently only 120Bcf is contracted, but additional drilling, testing and seismics, which have been carried out, should see further sales approved by the government. The Sinphuhorm gas field hasn’t been producing as well as had been expected, and full year production now looks like it will average 98MMscfd, as compared to the budgeted 126.6MMscfd. Overall total production for the rest of the year remains in line with expectations of around 12,000boepd.

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Overall the profits from this part of the business aren’t anything to get too excited about as they come in at nearly $19 million, on a gross basis, for the first six months of 2017. That led to the company making an overall net loss of over $84 million – although $39 million of that was due to taxation, with a further $77 million spent on exploration. The good news is that the company is continuing to implement savings following the integration of the two businesses since it took over Salamander Energy. So I think it is pretty clear from all of this that you wouldn’t be investing in Ophir purely for the current production, as that looks expensive. Although with higher oil and gas prices, these assets could provide a handy source of revenue for helping to finance other activity. For me the main reason for investing in the company at the moment is the potential upside from the Fortuna FLNG project in Equatorial Guinea, which is now at the stage where it could be signed off imminently.

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Ophir is aiming for a final investment decision to be made by the end of the year, and before that there should be news on exactly how the company intends to fund the project, in which it has a 33.8% ownership following a deal with Schlumberger and Golar last year. It isn’t going to be cheap to reach first gas though, with a total of $2 billion expected to be needed. Initially the project is expected to monitise 2.6Tcf of the gas reserves, and could be producing as much as around 370MMscfd, over a period of up to 20 years, and if all goes to plan production would commence in around 2020. That is of course still some way off, but given the potential upside at Fortuna, I think that news on funding and sanctioning of the project could potentially give the share price here a decent boost from the current lows which we are seeing.

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There is also still plenty of potential at the project which initially got many people interested in Ophir, that being Blocks 1 and 4 in Tanzania – where the company sold a 20% interest for $1.3 billion back in 2014. Since then  progress has been slow, but with Shell owning 60% of the 3Tcf 2C contingent resources project, and with Statoil and ExxonMobil also involved in LNG in the area and looking to begin development, there is still plenty of potential for this to go ahead towards production. The company has always had a reputation for going out and finding oil and gas, and often in potentially large quantities – based on the success in Tanzania and Equatorial Guinea – and it will continue to explore, such as at its licence in Mexico. But overall it is trying to keep a lid on those costs to some extent and to preserve the $237 million it had in cash at the end of June, along with a further $178 million in undrawn lending facilities. This certainly isn’t without risk, as a lot of the value here is dependent on the development of Fortuna, and the Tanzania assets at a later date, but if things do play out even close to the plans which the company has in place, then I can see plenty of upside in a stronger oil and gas price environment going forwards. But the next pieces of Fortuna news do need to be positive if the shares are to move ahead.

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Filed under: Ophir Energy, Jamie Oliver Restaurants, RedX Pharma, URU, Strat Aero, SysGroup

2017-11-06 12:39:25

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