junior oilers 24/25 may

junior oilers 24/25 May

Oil and gas prices remain strong and ended on a par with the previous week. Nymex Crude closed Friday at $29.16 up a couple of cents for the week. Dated Brent Crude finished at $26.93 up 30 cents. Nymex Henry Hub gas prices remain strong closing Friday at $6.12 the same as the previous week’s close. During the week Alan Greenspan indicated that he expected gas prices to remain strong over the summer. I just wonder when the market is going to factor these high gas prices into the price of Australian producers in the US, AMU, FAR and PSA

The continued threat of terrorism is another factor strengthening the oil market this week particularly recent specific threats against Saudi Arabia and the United States. The UN Security Council’s removal of sanctions against Iraq is also a factor but one expected to put opposite pressure on oil prices. The market’s immediate reaction was neutral.

Of the 43 stocks on my expanded watch list 18 rose, 15 fell and 10 remained the same. The bias this week was towards the upside with good gains made in a number of stocks indicating in some cases an important break out signal. The specs seemed poised for a bit of a run.

The outstanding performer was Amity Oil following the announcement that its recent well in Turkey, Adatepe 1 had made a commercial gas discovery. Amity broke through $1.00 and closed the week up 11 cents (12.0 %) at $1.01. It hit an intraday and 52 week high of $1.05 on Friday.

Other winners for the week were Cue Energy, up 0.8 cents from 4.2 cents to 5.0 cents, a gain of 25%; Australia Worldwide Exploration, up six cents from 76 cents to 82 cents, a gain of 8%; Bounty Oil and Gas, up 1.9 cents from 7.9 cents to 9.8 cents, a gain of 24%; Cooper Energy up one cent from eleven to twelve cents, a gain of 8% and Arc Energy up seven cents from 56 to 63 cents, a gain of 12.5%.

Voyager made small gain but the significant increase in volume signalling a possible accumulation was more important. ICN was also up for the week as the market anticipates some positive news about its cash raising in the United States.

AYO

This will inevitably sound like sour grapes but I just point out that Amity’s Thursday announcement was that preliminary interpretation of wireline logs indicated that the well was a commercial discovery. What the joint venture was testing were “oil shows doing drilling” Now I am no expert but I would have preferred there to be strong gas flows to the surface as in Cayirdere before being convinced that this well was worth ten cents to AYO’s share price.

And I just remind everyone that Amity is still having difficulty selling the product. Gas sales for the first 15 days of May actually fell. So for anyone considering whether or not to take profits after AYO’s recent strong performance I suggest you read all AYO’s latest press releases and come to your own conclusion. Mine is that AYO has probably reached its peak for the time being though I am sure to be taken to task for this by some Amitytes. This is a stock that is hyped on bulletin boards so one needs to be careful. The small size of recent trades suggest it is the retail investor that has been responsible for much of the buying this week. They stand to lose most if the stock weakens. And I share others concerns about Whicher Range.

AYO already has a negative cash flow and the last thing it needs is a lot of money down a hole that a lot of others have unsuccessfully spent heaps on. As Yogi says the trick in trading the oilers is knowing when to get out. But AYO is also one of the few oilers that the AFR includes in its leading resources list so it is regarded by the Financial Review as a substantial stock and one followed by some institutions. So do your own research and don't be afraid to leave a bit on the table.

AWE

AWE’s share price has held up well this week with some big trades going through on Monday and Thursday. There is definitely some accumulation afoot, most likely by institutions as they see or are told about better prospects emerging in the energy sector and look for some undervalued companies. A number of posts ago I had predicted AWE would retrace in the absence of any drilling activity but this hasn’t happened suggesting that AWE is coming of age as an oiler.

With 219 million shares on issue, AWE is capitalised at $180 million giving the company a size to interest analysts and brokers. It is also on the AFR’s list of leading resource stocks. And as I said last week the production testing of Jingemia is unlikely to account for the interest in the stock but the publicity will have done it no harm.

ARQ

ARQ was up strongly this week on good volume as the company engaged in some broker presentations. This material can be found on the company’s web site www.arcnl.com.au. Looks like a rerating is underway which could see the stock challenging its 52 week high of 75 cents in coming weeks.

CUE/BUY

The interest in CUE on Friday which saw the stock bid up to 5 cents suggests that there is some mail circulating about how CUE is going to finance its share of the Oyong development. Looks like some people are betting that the market will respond positively to the news when we all get a chance to see it. Cue could well be about to break out of the trading pattern that has seen it languishing around 4.5 cents for months.

CUE is also involved in another well in the lease hosting the Oyong discovery. Santos will drill Manga in August though it is a bit early for that well to be influencing CUE. The other suggestion is that STO will make a takeover bid for CUE and that they may have to pay as much as 12 cents. Personally I can’t see it but I have been wrong before. It is more likely that CUE would sell its stake in Oyong to Santos while maintaining its interest in the rest of the lease ie. Manga. But I am only guessing.

Bounty Oil and Gas came alive this week and, like CUE, is another example of how a stock can be out of favour for weeks even months on end then suddenly come to life. The reason in BUY’s case is the fore shadowed drilling of the Leafcutter well in the Woodada production license in the Perth Basin in June. BUY has 25% in the well. HDR is the operator and holds 75%.

As speculation mounts about the prospectivity of the target, which HDR assesses as holding 16 mmbls of oil recoverable, expect to see further strengthening of BUY. This well is a potential company maker. A date for the spud has yet to be announced. BUY has already reached the 10 cent target I set for it last week so next week might be a quieter time but probably the last chance to accumulate at a price that will seem cheap in a few weeks time.

RPM/KRZ/VPE/COE

Interesting news this week that Roma Petroleum had purchased an interest in PEL 104 in the Cooper Basin by buying up all the issued capital of Permian Oil Pty Ltd. This is the second farm in to this interesting permit in recent weeks. Kalrez Energy took a small stake (5% if my memory serves me right) from Victoria Petroleum who has been seeking to farm down its 80% interest to 55%.

There will be no drilling until next year but the forthcoming Cooper Basin drilling programs by BPT, COE and STU may throw some light on its prospectivity. Roma is a minnow that has been largely inactive for the last couple of years so this latest news suggests it may at last be coming out of hibernation. My understanding is that the PEL 104 jv will concentrate on running seismic over some prospects this year.

With the drilling in the Cooper Basin about to get under way it will be interesting to see what interest develops in companies like BPT, STU and COE. I think it will take some drilling success to get people to sit up and take notice. But I will be watching for any signs that punters are starting to move into the stocks. Cooper Energy announced during the week that its first well Christies-1 in PEL 92 would spud on 16 June. As BPT’s Moana-1 well has been put back a little due to rain slowing field preparations, Christies-1 will kick off the Cooper Basin drilling program.

Also announced this week was the first production from Beach Petroeum’s Aldinga well in the Cooper Basin. Initial flow rates were 70 to 80 bopd. The Beach story just gets better and better but it is taking the market a long time to appreciate the changes that have taken place at Beach over the last eighteen months, including the successful share consolidation, and the huge increase in revenues. A rerating must surely come eventually.

Among this weeks losing stocks were Petsec Energy down four cents to 54 cents and Horizon down from 6.9 cents to 6.1 cents. TAP, ROC, NVS and IOC were all marginally weaker.

PSA

This is the second week in a row that Petsec has retraced and is now down 12 cents from its May 6 closing high for the year of 66 cents. There has probably been some rotation out of PSA into other oilers like AYO which appear to offer better potential short term. PSA will not be drilling again until July.

It has also been reluctant to give the market details about the likely impact the work overs on two of its three producing West Cameron wells will have on June quarter revenues. The market, left to speculate about these thing, usually assumes the worst when in fact all three wells were supposed to be back in full production last week. The company probably sees the work overs as just a part of the normal field management, which it is. But by not saying anything about it PSA only adds to the general feeling that it is not as transparent as it could be about its operations.

That said volumes have been very small, less than 150,000 daily average, so when some interest returns to the stock it should move up quite smartly and test that year high. It will be helped by the continuing strength in natural gas prices which is expected now to be the prevailing pattern throughout the northern summer.

The Financial Review does not include Petsec on its list of leading resource stocks but with its increasing cash flows and market capitalisation that should only be a matter of time. Anyone interested in projections of PSA’s future revenues should check the PSA thread on Hotcopper a lot of people have done some good work this week.

HDR

Hardman has not taken off as expected though it looked at one stage during the week as though it was going to fly past 60 cents. There has been some speculation on the boards that someone has a particular interest in seeing that this doesn’t happen until some warrants expire but I cannot make a comment on that. I am not yet into warrants.

I took a small profit on HDR this week and will look to get back in if the weakness continues. HDR was to have made a presentation to the Securities Institute during the week so we will see if that has impact on the stock going forward. I think there may be some concern that HDR is considering a capital raising following the appointment of two broker representatives in the UK but that is the only collateral I have for that suggestion.

The ASX asked the company to explain an article in the West Ozzie during the week which suggested that the company had project financing all sewn up. I have to confess I didn’t see the article or HDR’s reply. At the time of preparing this the ASX website was not available. I would have expected HDR to have its running shoes on and be sprinting off already as the next round of drilling approaches though it has, in retrospect, already made good gains this year.

PPP

Pan Pacific Petroleum closed on Friday at 6.2 cents a low point for the year. A share purchase plan is currently on offer which together with a lull in drilling activity is depressing the stock. Volumes traded have been small with the exception of a million shares changing hands on 14 May when the stock also closed at 6.2. I really can’t see this one going much lower and had I the cash would be thinking of accumulating at these prices. PPP’s Taunton discovery is soon to be tested and Tui 2 is shaping up as an interesting play for later in the year. PPP announced during the past week that it had been granted an extension of the offshore Taranaki Permit PEP 38460 bringing the Pukeko and Hector propects fully within the license.

Maybe 2003 will be a repeat of 2002 for PPP when mid year the stock was unloved at 6.7 cents only to see interest return later in the year as its Carnarvon drilling program got underway and Tui 1 was drilled. The stock at one point more than doubled closing at 14.5 cents on 24 January. It was savagely pruned back a week or so later when Tui 1 disappointed.

As usual do your own research before investing in the junior oilers. While they are highly speculative you don’t have to lose your shirt and indeed can make quite good money if you go about investing sensibly in this sector. But consult an expert or better still become one yourself.

Disclosure: I hold BUY, BUYO, FAR, FARO and PSA.