May 26

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.

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May 13

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.

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Mar 03

The shares of Cove Energy (“COV”) present an interesting buying opportunity for the right investor. Clearly a speculative play, there reward potential is high, but significant volatility should be expected. The fundamental factors on the company are mixed, although intangibles are strong, and the technical picture offers some interesting insights. Overall, within the speculative space, COV is an attractive buy, but should not be a core holding of any but the most aggressive portfolios.

Fundamentally, the company’s interest in various wells coupled with the fact that it has already raised the capital needed to fund its current-year drilling is encouraging. The strategic locations of the wells – from offshore in Mozambique to Rovuma and Mnazi Bay – places them is well-diversified and potential critical areas. The strategic partnerships the company has developed, primarily with Anadarko, provides further evidence that COV is positioned to succeed. Lastly, the experience of the two top executives, one from Shell and one from Petrocelic international, are key. The pressures facing speculative plays like this require the skill of a stable hand at the helm.

Technically, the recent spike drove the stock into a severally overbought condition, but this has eased. What is particularly encouraging is that the stock was able to correct this condition without a massive sell-off in the stock. After spiking above 40, the shares have eased to 38. The corresponding decline in overbought readings has been more significant. Essentially the stock is well positioned to build on its own momentum and run significantly higher with the right catalyst. The stock is still significantly above its 50-day moving average, so potentially buyers should watch this relationship. Any close significantly below this moving average should be perceived as negative.

In general, the story supporting this stock, coupled with fundamental and technical factors, make it an attractive speculative bet with a solid risk to return profile.

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Jan 25

Oil and Africa, Worth a Pun–in the Shape of Afren? Natural resources and Africa continue to be the two themes for investors of the new decade for me. Oil, the black gold and Africa, the dark continent are an interesting pun to some.  But for a company called Afren, an African independent oil and gas company, founded in 2004 with £1m from family and friends and currently listed on the Main Board of the LSE, it’s all about its big ambition to be the world premier African oil producer and explorer. Afren is not just living for the present; it’s looking years ahead.

Afren lost $37 million after tax in the first half of 2008, but rich in cash, it repaid $26 million of debt and bought into a few very intriguing oil fields. The company has 16 oil assets in Nigeria, Cabon, Congo, Cote d’Ivoire, and Ghana. They suck out 27,000 barrels of oil a day. Afren’s share price has gone up 6 times since March last year. With shares trading at 103.75p as of 22/1/2010 and 889.07m shares in circulation, the company has a market cap of £922.40m. Its current EPS is -9.68 and P/E ratio -10.71. But analysts predict revenue to be £441m for the coming year.

Afren’s biggest share value is probably in the Gulf of Guinea, the top oil hot spot. But such an investment is not without risks. Also, as Afren has already gone up, is it a bit late to the game for investors? Still, oil will be in big demand, when the recession is a history. And the young Afren could eventually realize its mission as Africa’s top oil company, because of all the untapped bonanza of black gold. Remember, Oil’s Well That Ends Well.

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Jan 07

I have a habit of watching the oil AIM shares, for two reasons.  The first is I have friends in the industry, as my wife trained as a Geologist, and I got to know many of them at Aston University.

I spotted this in the news and it hit a spot.

uk.reuters article

This company, 4 months or so ago, were dropping like a stone as they were not achiving the drill speed they had expected.  The suspicious investor could think that it was a sign they were up against the wall, and were unlikely to hit gas at any time in the future.  (Or at least while their funds were still available).

It seems (and I can only say in retrospect) that they have hit gas, and so the business can grow some more.  There are some interesting comments on the LSE board if you use it.

If anyone has any other companies like this, it would be good to hear.

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