Sound Oil’s Casa Tonetto project includes the Nervesa discovery located in north-east Italy, which was first drilled by the company during 2013. Exploration drilling revealed that the prospect had the potential for three wells and the initial test well produced a total gas flow rate of 2.7 million standard cubic feet per day. 

The granting of the production concession is the final step in the permitting process to enable commercial production from first well drilled by Sound Oil during 2013. With the permit in place, Sound Oil can now commence the construction of the production facilities at the project. Based on current projections, first commercial gas production is expected later this year. 

Commenting on the concession news, Sound Oil’s chief executive, James Parsons, said:

“First commercial gas at Nervesa will be a significant milestone for the Company…
“Similar to the Company’s other existing onshore discoveries, Nervesa benefits from very strong gas prices. A Gas Sales Agreement with a long-term partner is expected to be signed shortly.”

Next steps

2015 has been a transformative year for Sound Oil. The company’s preliminary results for the financial period ended 31 December 2014 showed production growth that exceeded management’s expectations, up 97% year on year, and a doubling of revenue. In addition, excluding exceptional items, group operating losses for the period declined by 60%. 

What’s more, the company’s outlook has drastically improved. City analysts are now expecting Sound to report full-year 2015 revenues of £8.1m, up a staggering 710% year on year. Further growth is expected during 2016. Analysts have pencilled in revenue growth 70% for 2016. 

And unlike many other oil minnows, Sound Oil has a solid cash balance with which to fund growth.

At the end of April, the company announced a placing to raise £12m, adding to the unaudited cash balance of £12.6m reported with full-year 2014 results. With an estimated £24.6m of cash on hand, Sound Oil has plenty of financial headroom for growth.

However, it’s unclear how much of this cash has been spent on exploration activities so far this year. Although, as City analysts expect Sound Oil to report a pre-tax profit of £1.3m for 2015, it’s reasonable to assume that the company is generating cash from operations to supplement its existing cash pile. 

Expensive growth

With Sound Oil’s maiden profit expected this year, it’s little wonder that the company’s shares have gained 70% year to date. 

Still, after recent gains Sound Oil’s shares now trade at a forward P/E of 242, which does not leave much room for error if things don’t go to plan.

Nonetheless, based on current City forecasts, if everything goes to plan over the next 18 months, Sound Oil will report EPS 0.5p for full-year 2016, up 616% year on year. With such rapid growth predicted, figures suggest Sound Oil is trading at a PEG ratio of 0.1.

The post Sound Oil plc Jumps After Being Awarded Production Concession appeared first on The Twelfth Magpie.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Here are a couple of scenarios you ought to consider before snapping up its shares.

19.25p A Share: Is It A Fair Price? 

Its shares closed at 19.25p on Friday, some 7.25p below their 52-week high of 26.5p as of 28 April — a record that was hit when Sound Oil reported its 2014 preliminary results and announced the issuance of 63.1m new shares at a price of 19p a share.

The placing aimed to raise £12m, and also included “an equal number of detachable warrants to subscribe for new ordinary shares in the company at a price of 24p per ordinary share for a period of 5 years from issue”. 

“Should all of the warrants be exercised, the average issue price of all equity issued in connection with the placing would be 21.5p”, the oil explorer added. Based on these elements, Sound Oil seems fairly priced at around 20p a share, particularly because not much has happened since. In fact, Sound Oil continued to trade in the mid-20s for about three weeks until 19 May on the back of a couple of minor trading updates, Morocco and Nervesa, which supported the investment case. 

But soon after the stock started to fall, losing 36% in less than four weeks of trade as investors either overreacted to other trading updates or just took profit. On 16 June, Sound Oil closed at 15.3p; since then, the stock has surged 25%, and now it trades some 27% below its record high for the year. 

Performance

Sound Oil has risen 75% this year, 87% over the last 12 months, and 102% in the past two years. 

With 482.9m of shares outstanding, its market cap stands at £92m. 

It announced last week that it had received “valid acceptances and excess applications from eligible shareholders for a total of 15,599,752 open offer shares“, which did little to boost its stock price, given that the statement referred to the last £2.8m tranche of the £12m placing.

So, the spotlight now is on any upcoming operational trading update. While it’s impossible to predict any such outcome, what’s known is that its latest unaudited financials showed revenues of £1m, which doubled year on year and imply a revenue multiple of 92x, which isn’t a very reliable valuation metric. Further down the income statement, 2014 losses per share have almost halved on the back of lower exploration costs that should rise over time, however.

Mixed signals come for the income and cash flow statements. Let’s look at the balance sheet.  

Hunting For Value

Its unaudited cash balance of £12.6m as at 31 December 2014 amounts to a significant portion of its total assets, which stand at £38m — this is one element I like.

A back-of-the-envelope calculation suggests a realistic liquidation value of £30m, excluding the amount of cash it raised in its latest placing — I have assigned zero value to intangibles, which are worth £8m, but I have not applied any discount to ‘Property, plant and equipment’, whose book value stands at £13.2m. 

Here is the conundrum: the stock trades in line with the price of the placing (19p), so it looks like investors are eager to bet on management and the business’s prospects, which indicate possible upside in the region of 30% or more (this is my best-case scenario); but given that its market cap trebles its liquidation value, downside could be as much as 66% (based on trailing unaudited financials), which should be adjusted, however, in order to reflect a lower level of risk than liquidation in the light of its funding needs over the next 18 months.

The post Are You Ready To Pocket A 30% Return On Sound Oil plc? appeared first on The Twelfth Magpie.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

What’s gone wrong at each of these firms and what does it mean for shareholders?

Sound Oil

Shares in Italy-focused Sound Oil fell by as much as 20% when markets opened this morning, after the firm said that it has decided to abandon the second appraisal well drilled at its Nervesa discovery.

Sound said that, despite stimulation and reperforation operations on the lower section of the target reservoir, it had “been unable to secure a stabilised flow rate”. With “no material gas shows in the upper section of the target reservoir”, Sound had decided to abandon the well.

This is bad news but not a total surprise, in my view. Last week, Sound warned that the lower section of the well appeared to be “of relatively low permeability”.

The good news is that the first appraisal well drilled at the Nervesa discovery is expected to become a producer. The company plans to start the construction of production facilities shortly.

Sound is also progressing towards drilling an exploration well on the potentially exciting Badile prospect, which has a mid-case prospective resource of 178 billion cubic feet of gas.

However, today’s news was significant enough to persuade the company to delay the acceptance deadline for its current open offer, through which it is trying to raise €5m from shareholders.

APR Energy

Shares in temporary power provider APR Energy fell to a low of 146p in January, but have recovered strongly since then, rising by 170% to a high of 400p in March.

It now seems that investors priced in a recovery far too quickly. APR shares fell by around 30% this morning, after the firm said that 2015 profits would be “significantly below market expectations”.

The firm also warned that it could breach its financial covenants later this year and said its chief operating officer, Brian Rich, had left the business with immediate effect for “personal reasons”.

APR says that today’s profit warning is the result of new contract negotiations being delayed and higher-than-expected demobilisation costs in Libya.

It was the Libya fiasco that caused APR shares to start sliding last year, after the firm’s contracts were not renewed, following months of delays and unpaid bills.

What’s the outlook now?

Even before today’s announcement, analysts were forecasting a full-year loss of about 23p per share for APR in 2015. The firm was also expected to report 38% drop in revenue, highlighting the impact of the loss of its Libya business.

In my view, todays’ profit warning suggests that a return to profitability will be a big challenge for APR. I suspect the firm’s net debt of $546m could become a costly headache. Ultimately, it’s very difficult to value shares in a business with possible debt problems and loss-making operations.

If you want exposure to this sector, I believe Aggreko is a more attractive alternative. I’d avoid APR until the firm’s outlook becomes clearer.

The post Why Are Sound Oil plc and APR Energy PLC Falling Today? appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares in Aggreko. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Part of the road back to health has been a new funding package from Beijing Sibo Investment Management, which has already handed over £5.2m ($7.9m) in return for 650m news shares at 0.8p each, in an investment that could eventually be worth up to $35m.

This comes on top of the news that Range’s production in Trinidad reached 620 barrels of oil per day and that “For the first time in Range’s history and despite the challenging oil price environment, the Company has positive operating cashflows…“.

Is Range good value today? Sibo seems to think so, and is putting its money where its mouth is.

Falling oily

Sound Oil (LSE: SOU) shares soared to 24.4p on 5 May, but since then we’ve seen a fall of nearly 25% to 18.2p. The latest update on the firm’s second Nervesa appraisal well in Italy confirmed it had found gas shows in multiple intervals, but went on to tell us that the perforated intervals it had tested are “of relatively low permeability“. The firm must now decide whether to “initiate a well test directly or to utilize stimulation techniques beforehand“.

The company has also entered into a farm-in agreement at the Tendrara licence in Morocco, with the Moroccan Oil and Gas Investment Fund, so things look to be developing nicely.

But the recent uncertainty at a time when Sound Oil is extending its current open offer seems to have unnerved investors — but if things come good, the latest dip could turn out to have been a nice buying opportunity.

Cheap gold?

Gold miner Pan African Resources (LSE: PAF) has seen its shares lose 21% over the past 12 months, to 10.9p as I write, so is there are bargain to be had here? Well, the firm released a profit warning on 8 June telling us that its EPS and Headline EPS for the year ending June 2015 are “expected to be between 40 per cent and 60 per cent lower” than the previous year.

But there’s a fairly healthy Buy consensus out there from brokers right now, and with an increasing number of commentators suggesting stock markets are getting a bit toppy and the gold price stabilising over the past quarter, could we see interest in gold pushing Pan African shares back up?

The post Do Price Falls Make Range Resources Ltd, Sound Oil plc And Pan African Resources plc Good Value? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Today’s First Update

As upstream oil and gas company with a market cap of almost £100m and operations in the Mediterranean area, Sound Oil certainly deserves attention, given that it is expected to report fast-rising earnings over the medium term. It’s also attractive because following a recent placement it seems to be well funded, as its balance sheet shows. It said today that it had entered into a farm-in agreement “with the Moroccan Oil and Gas Investment Fund in relation to the Tendrara licence, onshore Morocco“. 

There’s “exploration upside” here, at least according to Sound Oil, which will acquire, upon completion, a 55% working interest in Tendrara. Under the terms of the agreement, Sound Oil will pay the full cost of the three wells, of which “only the first well would be a firm commitment“. The drilling of the first well is expected to cost about £6 million, and will commence in Q4 2015 — the commitment to fund the second and third wells will depend upon the results of the first well.

All good here: there’s risk, but the explorer could generate some cash flow sooner than expected, and is funded, so its plan makes sense.

The onshore Tendrara licence includes two stranded gas discoveries with “low risk appraisal potential and significant blue sky exploration upside,” the group said, adding that preliminary internal estimates of existing discovery volumes “are broadly comparable to estimated volumes (post a successful drill) at the company’s Badile licence in Italy“.

Nervesa Gas Discovery Update 

The second appraisal well at the Nervesa discovery in Italy isn’t faring as investors expected, and here’s where things get a bit more complicated. 

“As announced on 20 May 2015, the company identified gas shows in multiple intervals in the Upper Miocene San Dona Formation. It has now successfully perforated and completed seven intervals in the lower section of the reservoir where the most significant gas shows were identified.“

What does this mean, really? 

As initially feared, Sound Oil confirmed that initial gas flows have identified that “multiple perforated intervals (between 1929 and 1988 metres depth) are indeed gas bearing, but are however of relatively low permeability“.

Performance

Well, then delays become inevitable, with clean-up operations set to follow, and only later Sound Oil will decide whether to initiate “a well test directly or to utilise stimulation techniques beforehand“.

Investors were not pleased with its key Nervesa update, but should you really give it a pass at its current price? On the one hand, at 17.8p a share Sound Oil has lost 30% of value since 5 May. On the other, it currently trades in line with its 52-week median, which suggests that investors are not entirely sure about what the next update may bring. 

Finally, consider that its implied earnings multiple stands over 30x, on a forward basis, which is not a prohibited valuation, if Sound Oil delivers — but then there’s no dividend attached to the stock, which has already risen more than 50% this year.

The post As Sound Oil plc Plunges, Should You Buy Or Sell It Today? appeared first on The Twelfth Magpie.

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Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

At Faroe Petroleum (LSE: FPM) we saw a 3% price dip to 79p, after the company released the results of its Bister exploration well. Drilling at the site in the Norwegian  Sea commenced on 27 April, and has reached a total vertical depth of 2,990 metres below sea level with one side track reaching 2,770 metres. Unfortunately, no hydrocarbons were detected, and the firm will now have to re-asses its seismic results before moving on to its next exploration targets.

A challenge

The firm still does have confirmed discoveries elsewhere and plans to follow those up in the coming month, but today’s news has dashed hopes that a 2015 upturn in the shares was set to continue. After a 49% gain to 90p in early April, the price has now given up 12%, and with a 40% fall over the past 12 months and no profit expected this year or next, Faroe is in for a challenging drilling season.

Meanwhile, over in the Mediterranean, Sound Oil (LSE: SOU) seems to be pleasing the punters — its share price is up 190% over 12 months to 22.8p, with the bulk of that gain driven by successful developments this year at the firm’s Nervesa gas discovery. In fact, Sound Oil is one of those rare explorers that has profits forecast for this year — only just, but 2016 is expected to bring in the start of some significant earnings.

However, after the firm released news of its second Nervesa appraisal well, the shares suffered a small dip and fell 4.9% to 22.8p. After reaching a depth of 2,054 metres, the drilling has apparently detected “the presence of various gas bearing levels“, but we won’t know more than that until further tests are made.

New shares

In other news, the company confirmed the details of its planned new equity issue, telling us that the new shares will be priced at 19p and eligible shareholders will be able to buy one for every 23 they already own. While that might have been partly behind the share price dip, the new issue had been know about since 28 April and doesn’t really contain any surprises.

Which of these should you buy? Well, if you like the bigger risk then Faroe Petroleum could turn out to be a bargain while the price is depressed. At full-year results time the firm reported closing reserves of 30.6 mmboe with contingent resources of 109 mmboe, and had net cash of £69.6m — and if earnings aren’t yet positive, forecasts have things moving in the right direction.

A bit pricey?

By comparison, Sound Oil looks pretty safe now with profits just about assured, but after the soaring price this year we’re looking at a forecast P/E of 46 for 2016.

The post Faroe Petroleum plc And Sound Oil plc Fall After Drilling News appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But, looking at the long term energy needs of the global economy, there is still reason for optimism for investors in the sector. And, with valuations having tumbled in recent months, now could be a good time to increase your exposure to the troubled sector.

Financial Risk

As well as the risk of further commodity price falls or, in the case of oil, a return to the slump that saw it trade below $50 per barrel before spiking to $60, there are other risks to consider. Chief among them is cash flow and this is highly relevant to investors in Genel (LSE: GENL). It is focused on the Kurdistan region of Iraq and has an excellent asset base from which to produce oil and profitability for investors moving forward.

The problem, though, is that the region is politically very unstable and, while payments have been made to operators in the region (such as Genel) by the Kurdistan Regional Government (KRG), there is considerable uncertainty regarding future payments, which is a major concern for investors.

Diversity

Genel also suffers from lacking significant diversity. For example, while energy majors such as Shell and BP have multiple assets in a variety of different locations, and so can overcome challenges posed by one or more assets at the same time, Genel is focused upon Kurdistan/Iraq. This means that it is highly sensitive to external events in the region and, while the company appears to be making considerable progress, external challenges may cause its share price to be hit hard.

This, however, does not appear to be the case for Rare Earth Minerals (LSE: REM). It has stakes in four main projects, from Australia to Greenland, and from Nevada to Mexico. As such, it seems to suffer from less political risk than Genel and, while demand for lithium may not be as high as for oil at the present time, it is a market with considerable potential that could lead to impressive returns for Rare Earth Minerals in the long run.

Looking Ahead

Despite this, Rare Earth Minerals is still not expected to post any revenue figures in either of the next two years. As such, it makes valuation more challenging – especially while there are other energy plays such as Sound Oil (LSE: SOU) and Genel which are forecast to be highly profitable during the same time period.

For example, Sound Oil is expected to move from five years of losses to a pretax profit in the current year, before delivering a pretax profit of £4.3m next year. This puts it on a price to earnings growth (PEG) ratio of just 0.1, which indicates that it offers good value for money. Likewise, Genel trades on a PEG ratio of 0.2, which indicates that its potential reward compares favourably to the aforementioned risks that come with investing in it.

So, while all three stocks have clear long term potential, it may be prudent to stick with the likes of Sound Oil and Genel since, unlike Rare Earth Minerals, they are set to be profitable this year and, as a result, are easier to value and could benefit from improved sentiment as their profitability rises.

The post Are These 3 Energy Plays Worth Adding To Your Portfolio? Rare Earth Minerals PLC, Sound Oil plc And Genel Energy PLC appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of BP and Royal Dutch Shell. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Ophir

Ophir Energy (LSE: OPHR) is a reasonable size with a valuation of around £1bn, but its share price is down 45% over the past 12 months to 144p, so what is there to fear? Forecasts suggest two years of losses per share for this year and next, so the company’s cash position is surely going to be crucial in the short term.

As of 31 December, Ophir had $1.17bn in cash and equivalents in its books — which was up on the previous year, and appears adequate for its current drilling programme. What’s more, the firm is cutting costs, while at the same time “…there is a unique opportunity at the moment to acquire exploration acreage at low cost and with minimal work commitments“, in the words of CEO Nick Cooper. He told us the firm had “doubled its exploration footprint during 2014” without committing to too much spending over the next few years.

Although the cash is there for now, Ophir is going to have to spend a lot in exploration over the next few years — the big question is whether it will find enough oil before it needs more cash.

Sound Oil

Next up is the much smaller Sound Oil (LSE: SOU), valued at just £100m — and whose share price is up 170% since January! Sure, at 25p the price is still some way below its 2011 peak, but what’s been happening?

Well, the Europe- and Mediterranean-focused company has issued a string of releases in recent months with news of its Nervesa gas discovery in Italy and authorisation for the start of operations generating some excitement — and it was soon followed by the commencement of drilling.

Better-than-expected results also helped and, judging by the share price, the reaction to the firm’s plan to raise £12m through a new placing has been positive. Caution is still needed, though, as profit is not here yet, even if forecasts suggest it’s just around the corner.

Frontera

Finally we come to Frontera Resources (LSE: FRR), a relative tiddler with a market cap of just £25m (as of close of play 5/5/15) and a share price of a shade under a penny. Frontera was founded in 1996 and explores for oil and gas in Georgia, and is typical of many smaller companies in the industry in still being in the net investment phase with no profits to show yet.

It’s actually been producing gas in Georgia for a year now, which is promising, but with no forecasts available and the firm carrying a fair bit of debt (which it has been paying down by the issue of new equity), I’d say it’s impossible to quantify right now. For me, Frontera could go either way and I have no clue which — but I hope for success for its shareholders.

The post Are Ophir Energy Plc, Sound Oil plc And Frontera Resources Corp Heading For The Big Time? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.