A trading week shortened by the New Year holiday saw some interest returning to the junior oiler sector ahead of the drilling in the northern Perth Basin. The coming week should be one of the more interesting and volatile weeks that followers of the oilers have had for a long time. Wish I knew how it was going to pan out.
Not much point in commenting in detail on the Perth Basin drilling program and interests involved given the amount of coverage it has already received here and elsewhere. Let me just say that one would be wise to take the program one well at a time and adjust one’s strategies as the results come in. My intention is to hold AWE and a reduced number of NWE through to end of Cliff Head drilling and then review where things stand. I have to keep reminding myself that Twin Lions is a wildcat and statistically the odds of it coming in are weighed against the punter
Last week’s action on the Perth Basin stocks may provide some guide as to how they will perform next week ahead of the drilling results.
NWE ‘s best day was Monday 30 December when volume surpassed the total number of shares traded on the succeeding three trading days. It managed to get to 10.5 cents before profit takers pushed it back below 10 cents. It pretty much stayed that way for the rest of the week with big numbers on the sell side as the market price offered those who had got in on the SPP a 20-30% profit. Media attention and drilling reports should keep interest up but given the current weight of sell orders I can’t see the stock getting above last Monday’s highs until there is some positive news from the well head. And then…. well 15 cents maybe? Can’t see much more given its small interest, the fact that it is going to have to raise more capital to fund its share of development costs and the long delay to production. Remember Cliff Head is already an oil discovery so the excitement factor will not be as great as if CH 3 was a total wildcat. Also the market expects CH 3 to be a successful appraisal so to a certain extent that is already factored in to the share price.
AWE has powered along in the last two months rising from a low of 68 cents in early November to an interday high of 1.03 cents this week. Broker support, institutional buying, relatively large interest in the Perth Basin permits, and then Tui should all conspire to keep the stock pretty much at current levels until Cliff Head 3 comes in. A good result should see AWE heading for 1.10, a poor one and it is back to 85-90 cents. AWE is the least risky of all those involved in the drilling and therefore the one least likely to damage the bank account if things don’t turn out as planned. It is also the one most likely to recover the fastest from any one well set back.
VOY has surprised me, like AWE it is also up 30% in the last couple of months and was again strong this past week though it appeared to have peaked on Thursday. Price and volume was off some on Friday. Suggest VOY has had its run for the time being and will trade sideways early next week. Does not have an interest in TP/15 (Twin Lions) as far as I am aware. VOY is a well managed newcomer to the bourse that traded as low as 10 cents not long after listing. Listing the day after 9/11 didn’t help but it certainly has developed a following this year.
Hardman came in for some attention on Friday with 4.3 million shares traded and the share jumping 5 cents. There was no specific news from the company to spark the rally so some may just have been watching for a rebound and joined in when it came. Friday may have been HDR’s pre Twin Lions rally as Monday was NWE’s pre Cliff Head rally. Hardman does not have an interest in Cliff Head so stock may be a bit more subdued this week. But who knows. This weekend’s article in the West Australian could lead to renewed interest in all the Perth Basin stocks. Just how stocks will move will probably depend on what brokers say when clients ring for advice .
BUY which is free carried through Twin Lions for a 5% interest picked up a little this week but on very thin volume so maybe some upside left in this one ahead of the drilling.
With attention focused on the Perth Basin stocks there may be an opportunity to pick up some other value stocks on the cheap. Cue is an example. Understand that rig was moved from Bilip site over Christmas. But that doesn’t mean to say though that it is all over by a long shot. One reason for taking a small quantity of oil from the well was to do a chemical analysis to see whether it was compatible with SE Gobe oil. If production from Bilip is to be routed through SE Gobe facilities the oil has to be fairly similar in quality or so I am told. This all suggests to me that Bilip is regarded as a likely producer from the upper Iagifu sand. The next moves (and announcements) are up to Santos. Understand announcement on an Oyong gas sales agreement should be out next week. This will be a further step along the path to that field’s development. CUE suffers from being heavily focussed on Indonesia and PNG but it is still turning a profit and revenues should be up again this quarter.
Another possible stock of interest is Horizon though this is certainly not one for the faint hearted having disappointed so many times in the past. I think I may have gone close to calling it a dog in a previous post never to be touched again. However I understand that an agreement may be in the making to farm out HZN’s 48% interest in Bosavi. The deal may give HZN an interest in a second well in the area. Bosavi is a big one so there could be some renewed interest in HZN pre drill. I bought back in this week in expectation that this would happen. I suppose I should have waited until after Chott Fejaz but there seemed to be a flicker of interest in the stock last week - at least it traded on Tuesday for the first time in a week! – and I didn’t want to get left behind.
Pan Pacific is having a very good run and acturtle must be very pleased with himself for timing his entry so well and having the patience to wait for it to perform. I tried to get some at 13 cents this week but only got a quarter of the order filled. Tui is also a big prospect and PPP is the best leveraged stock. Could do a runner in the next couple of weeks and speed past 15 cents on its way to 20. Lot of NZ interest in this well.
Essential Petroleum was a bit more active last week and although volumes were not great they easily surpassed those of previous weeks. Price closed at 25 cents having begun the week at 23.5 cents. West Koriot 1 is due to spud next week, a follow up to the Port Fairy well so this may account for the interest. If buyers get serious with this one price could move considerably higher as supporters seem reluctant to part with scrip. EPR has a lot of potential in its Otway Basin interest including the potentially huge Descartes prospect offshore but really needs a cash flow before it can be taken seriously. Managed to get some money in from conversion of options so is healthily cashed up.
Bayou Choctaw
Not a lot has happened on these leases in Louisiana in the past year so I made some enquiries of the participants this week both ICN and HZN. ICN didn’t return my call so what follows is taken from published info and some comments from HZN. The Bayou Choctaw lease are three in all, two shared by HZN and ICN and one exploratory play owned 100% by HZN. The best plays for immediate cash flow are the two development leases lets call them. They are Wilberts which is situated on the salt dome and Victory Financial. ICN has ambitions to raise sufficient cash to drill 9 shallow development wells and 20 new development wells at a total cost of $US30million. HZN has less grandiose ambitions and is seeking an American company to farm in as operator and begin a conservative drilling program. Within the industry few give ICN much hope of raising the cash to finance their plans so HZN ‘s approach seems to have more chance of getting up. If HZN manage to get a new partner in to start drilling then ICN has 30 days to decide whether it wants to go with the HZN program. Something may happen at Bayou Choctaw this year so it is worth keeping an eye on. FAR also has an interest in these leases and with cash in the bank could finance a small entry if ICN decided to water down its interests for financial reasons. Given the good gas prices currently available in the region it is surprising someone hasn’t farmed in already.
PSA
PSA should hopefully complete its production facilities at West Cameron this month and begin production from its three successful wells drilled last year. First cheque from Llog for PSA’s 7% ORRI in Ship Shoal should arrive at the end of the month. Be interesting to see how much it is. PSA has not put out a press release since 12 November so not sure if everything is on schedule. Usual contact was away on leave last week. PSA ‘s reports on a calender year basis and the next report will show a lot of expenditure and no income in 2002 but the money has been well spent and 2003 should provide ample evidence of this.
Quarterly reports
January is the month for company’s to report on their December quarter activities and cash flow. Most report towards the end of the month. These reports repay careful study given that they are a statement of how a company is travelling.
As usual above for information only and to provoke discussion. Always do your own research.
Disclosure: I hold AWE, BUY, BPTOA, CUE, CVN, COE, FAR, GBG, HZN, PPP, PSA and NEW. Prosperous trading to you all. JBC
