The Oil Man: Echo Energy, President Energy, Reabold Resources
1st November 2017 15:15
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WTI $54.38 +23c, Brent $60.94 +35c, Diff -$6.56 +12c, NG $2.90 -7c
Onwards and upwards as yesterday's news was all pretty positive, both actual and technical. The Reuters October OPEC production report showed exports of 32.78 millio b/d, 80/- b/d down on September and compliance is around 102%, if not lower.
The API inventory stats, which came out after the close, were also way better than expected. Crude stocks drew by 5.09 million barrels against the whisper of 1.8 million, and in products gasoline drawing a whopping 7.7 million barrels and distillates 3.11 miilion, also much bigger than forecast. If the EIA numbers today in any way confirm these stats then the recent rally will likely continue.
Finally, on the technical front, as I mentioned yesterday, chartists are getting very excited by this latest uptick in the oil price, from its low of $44.43 on 22nd of June to the new January contract trading at $61.50 this morning, the crude chart is behaving very well indeed. Closing around or above these levels give very strong signals on the chart.
Echo Energy
The long-awaited landmark deal from has been announced. They are entering Argentina with an onshore farm-in agreement covering four assets with CGC, a private subsidiary of the Corporatión América International. This well respected local partner will provide just what Echo needs as it aims to become a leading LATAM gas explorer.
Under the agreement, Echo will gain a 50% interest in each of the Fracción C (FC), Fracción D (FD) the Laguna de los Capones (LC) and Tapi Aike (TA) licences. All these are in the prolific Austral Basin of the Santa Cruz Province and cover 11,153²km in total.
Consideration for this acquisition is spread across the assets depending on work programmes etc. At TA there is no upfront cash payment, Echo will carry CGC for 15% of the three-year work programme (4 if tight gas) which will include reprocessing 2D and 3D seismic, the acquisition of 1,200²km 3D and 4 exploration wells, Echo's estimated carry here is $9 million.
At FC, FD and LC there is a $2.5 million signing on fee and Echo will pay 100% of the initial 18-month work programme for which their cost of carry is estimated to be $9-12 million for CGC's 50% interest. This will include reprocessing existing 3D seismic on the LC licence, acquisition of 500²km of 3D seismic on FCas well as four exploration wells completed as producers. A
At FD there will be three workover wells and, if appropriate, one new well as well as acquisition of 230²km of 3D seismic. After this there will be a deferred cash payment of $2.5 million and a series of options to progress to second terms on the licences.
For Echo, all this adds up to a very meaningful package of assets that give gas production at FC and FD of 11.4 MMscfe/d with the potential to rise to 80MMscfe/d, which at 'strong local gas prices' will be a useful start.
Having said that, it is the appraisal and substantial exploration upside that will be the making of this deal for Echo. Indeed, it might rival or even beat the TCF opportunities at Sound Energy as a comparison. With a massive work programme, investors will see a well to be spudded in Q1 2018, followed by a lengthy period of operational activity. It looks as if the James Parsons/Fiona MacAulay team has got off to a flying start, after all it takes two to tango…
My comments below on Argentina should ensure that investors will be happy with the country risk and see this deal as the company says, the 'backbone of our gas business'. It certainly looks to be a very impressive start.
President Energy
I had planned to write a couple of things about , especially having seen Peter Levine's presentation at the 121 conference on Monday. A number of commentators, particularly those on the Private Equity panel, were impressed by the way the company is being set up to make decent margins and proper profits.
I would add that, given the company's exposure to Argentina, it is worth noting the article in yesterday's FT regarding the opening up of banking within the country under President Macri. That neatly tailed in with news that Reuters have upgraded the country from B to B+ and a 'stable outlook' with strong consumer and business confidence.
Whilst there is clearly some way to go, it makes for a pleasing backdrop to the investments that President and others are making in country.
If you combine this with the strong recent oil price and confidence placed in the company by its shareholders in the recent placing, it is most surprising that the shares are trading at an albeit modest, discount to the 10p in the €5 million Open Offer currently still available to holders.
With my target for this company significantly higher and with obviously increased interest in the region, the market price and that of the offer are more than just tempting, rather unduly attractive.
Reabold Resources
A very quick word on , a company I wrote about recently as I have a feeling that it may well become a magnet for smart small-company investors. Today, they announce that they are investing £1.5 million for a 34.5% holding in Corallian Energy, a private company with a number of licences including the Colter appraisal project.
Colter is offshore and adjacent to Wytch Farm and appears to be pretty low risk, with an appraisal well due to be spudded 1H 2018. This might just be a small pot of gold.
I am led to believe that this, although only RBD's first deal, is more than likely to be the first of many for the pair of former fund managers in the sector, and the company should be very much on investors radar screens…
And finally…
There will be November baseball this year after the Dodgers beat the Astros to level the World Series at 3-3 and take it to game 7. The momentum is now back with the Dodgers, but if the rest of the series is anything to go by, this all or nothing decider should be a classic. Yu Darvish pitches for LA and he takes on Lance McCullers Jr for Houston, although you can expect to see a couple of big names coming out of the bullpen. Whatever happens, it has been an amazing series and credit goes to both teams for a great show!
Less exciting was last night's footy. Benfica lost at the Theatre of Dreams with comedy goalkeeping continuing from the home leg, Chelski lost 3-0 to Roma, but should still qualify but Celtic will not after losing at home to Bayern. Having said that it is the Europa League that excites Brendan Rodgers…
Tonight, the HubCap Stealers have another chance at the coconut shy with opponents NK Maribor, whilst the Noisy Neighbours are in Napoli and Spurs have a chance to prove the last game wasn't a fluke by entertaining Real Madrid at Wembley.
Malcolm Graham-Wood is an independent oil industry expert and freelance contributor, not a direct employee of Interactive Investor.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.