Penny Shares Guide

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.

After completing the drilling of the first two wells this year, Dragon Oil is charging ahead with its 2010 Turkmenistan drilling programme. The first two wells, both located on the Cheleken contract area in the beautiful Caspian Sea, have been completely drilled. Initial testing has also begun on these two wells, named the Dzheitune A/142 and 13/143. The first well, the A/142, was drilled by the Iran Khazar rig to a depth of 3,961 metres. This well underwent extensive initial testing at a rate of 2,103 barrels of oil per day. The other well that has been completely drilled, the Dzheitune 13/143, was drilled down 3,450 metres and tested at a rate of 2,168 barrels of oil per day. It is expected that further testing will be administered in the near future.

These two wells are the first of eleven wells that are scheduled to be drilled during the 2010 year. Dragon Oil’s aim in drilling these additional wells is to secure a growth in their production of oil of at least 15 percent. The company, which is headquartered in the country of Dubai, is confident that it will be able to meet it’s committed production growth target with the addition of these eleven new wells.

The Khazar rig used to dig the A/142 well will next be completing a workover of a well located on the same platform as these first two wells. Another drilling rig, Rig 40, which was used to drill the second of the new wells, will begin to dig the Dzheitune 13/144 well in the coming months.

In response to the announcement concerning these newly drilled wells, Dragon Oil’s shares dipped 2.50p to land at 478.50p. Well, I thought it was good news!  Perhaps someone thought it was not good enough.

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.

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.