Penny Shares Guide

Gold Oil Plc, a 6-years-old small, independent oil and gas exploration and production company, was set up to acquire oil and gas projects in Southern and Central America, particularly in Peru and Colombia, areas that have seen intensified oil and gas interests with their friendly governments in the backdrop, plus low tax regimes. Shares in the company (GOO) are quoted in LSE’s AIM sub-market and were at 3p as of 25 May 2010. However, equity shareholders fund on the company’s balance sheet has increased substantially over the years, from a mere £305,000 in 2004 to about £8m in 2008. The company’s goal is to build up the capital value of its projects to a point where it can pay dividends.

Operations Overview

Gold Oil intends to seek low risk cash flow projects by establishing significant license positions within a few geographic areas. It is recognised as both an onshore and off shore operator in Peru and on shore in Colombia. At the end of fiscal year 2009, the company had two exclusive license interests in peru, Block XXI and Block Z34, and three partial license interests in Colombia, the 58.5% Burdine-Maxine-Nancy, the 49% Rosa Blanca, and the 20% Azar Block. Activities on all five licence interests are being actively pursued. Negotiations to farm out part of the 100% interests in Peru have been planned. The main focus on Nancy and Burdine in Colombia is to increase production. An exploration well on the Azar Block may be carried out pending results of seismic interpretation. Exploration on Rosa Blanca has been ongoing, with one testing well drilled back in 2008 and a planned seismic shooting in late 2009. New activities will depend on further seismic and geological work.

Selective Financials

Revenue for fiscal 2009 increased to £1.004m and gross profit was £79,000. But development expenditure and administrative expenses over weighed, resulting in a loss after tax of £3.039m. The situation should be improved after more productions come on line. The company had £2.179m of cash at bank in hand at the end of fiscal 2009, after undertaking two share placings during the year, with one issued at 8p for 22.92m ordinary shares to raise £1.8m and the other at 4p for 16.125m shares to raise £645,000. Because of the capital intensive nature of the business, having that access to capital in building up cash reserves in the current constrained credit market environment provided a much needed funding relieve for the company to allow it to continue operations and move forward with all of its assets.

Rockhopper Finds Oil According to a recent article on Rockhopper Exploration PLC from Interactive Investor, the AIM-listed small oil and gas exploration company licenced to survey and drill in the North Falkland Basin has reported on not only its first oil discovery, but also potentially good quality of the reservoir, and is now waiting for lab results to further confirm that the oil is indeed moveable without any free water. So far, investors have responded to the two reports quite positively, pushing shares up almost three folds, from around 70p before the news to 195p at the close of 11 May. It looks like that the field is to be commercial, said Evolution Securities in a note, as long as the flow rate is in line with the rock properties.

By any means, investors’ jubilant reactions are justified, not to mention that their patience is finally being paid off. Investing in AIM-listed shares of small, start-up companies requires a lot of entrepreneurial spirit and taking on a new business adventure about the old oil commodity calls for a keen judgment in the mid of all the renewable-energy talks that are flowing around. Sometimes, narrower investor participation in smaller-scale business undertakings that are nonetheless well-planned and focused, like the one being conducted by Rockhopper, set up in 2004 to explore for oil and gas in the Falkland Islands, could potentially yield much greater investment rewards than the mass lingering at big oil establishments.

However, trading AIM-listed shares often entails greater precautions, as shares, if thinly traded, may be subject to price manipulation. Unless you’re an active trader, most likely trading through CFDs (Contract For Difference) using leverage, it’s a good idea to buy and hold your AIM-listed shares and keep an eye on the shares’ underlying business and do your research. Drilling by Rockhopper soon following the tests could potentially gush out oil in the thousands or even millions of barrels in a region allegedly holding up to 60 billion barrels. Its shares would then be worth much more than what it is now, which reflects only the good testing news so far.

No risk consideration is too much of a contemplation, especially for the oil industry. Oil production around the globe has been known for its political risk association because of many unstable corners of the world that happen to be rich in oil reserves. For Rockhopper, if Argentine government’s political stance on the Islands translates into any adverse business effects in the future, the company’s newly found fortune is surely to be affected and so are those of investors.

Oil and gas exploration company VOG (VOG) warned that further share dilution could be on the cards as it continues to pursue its drilling campaigns in Russia and Africa.

In a letter to shareholders on Wednesday morning, chairman Kevin Foo addressed investors’ fears at the level of dilution taking place.

In the last year, the group has raised $53 million through the issue of 926 million shares and Foo recognised shareholders’ fears as a “valid and important point” which undoubtedly contributed to a disappointing share price performance.

However, shares in the group tumbled a further 3.4% as it admitted that it would issue new shares for cash in the future as “such capital is the lifeblood of all growing companies.”

“We have some very attractive projects and until cash flow from Logbaba can cover our development costs we will pursue all financing options to avoid dilution. I want to assure shareholders that new share issues will only be approved by the Board if necessary to maintain schedule and when all other options have been eliminated,” Foo said.

In an effort to appease shareholders, the AIM-listed group said the last six months had been the most important in the company’s history as it battled to bring its flagship Logbaba project to fruition and assured investors that the steep drilling costs of the wells were now firmly behind it.

“We have faced and overcome some incredible challenges involving technical, operational and financing issues that at times have threatened the very existence of our Company. It is worth bearing in mind that one year ago, Logbaba was just a site in a region where no onshore drilling has taken place since the early 50′s, with no available infrastructure. Then, our budget to drill and complete the two wells was approximately $24 million and we anticipated that this would be done by the end of 2009. In fact, the total cost of the two wells and support in Cameroon has been about $49 million and only recently have we completed the second well.” Foo said.

For an alternative look at Victoria Oil, check out the iBall TV episode on the company

Drilling progress was also considerably slowed by the need for heavier mud weights, it added.

Tests have revealed La-105 to hold the capacity to serve demand from the group’s industrial customers after initial flow rates showed the equivalent of approximately 10,000 barrels of oil. Meanwhile, La-106 encountered in excess of 300 feet of gross pay in multiple gas bearing sands.

VOG anticipates first gas delivery to customers in the final quarter of this year.

“This has been a very successful campaign and we are expecting a substantial increase in Reserves and Resources from previously published figures of about 100 billion standard cubic feet of Proven plus Probable gas and condensate equivalent,” Foo said.

The group is now focusing on building gas production facilities and a pipeline at Logbaba.

Meanwhile, exploration activity has continued at the company’s West Medvezhye gas and condensate field in Russia. It is still aiming to collect as much information on unexplored areas as possible to ensure future wells will successfully supplement the existing discovery at well 103. Surveys commissioned on the area should be completed by the end of this month and its licence requirement calls for it to drill two new wells by the end of 2012.