Oil & Gas Update: Altona Energy Plc, Salamander Energy Plc and Victoria Oil & Gas plc
There’s been a round of middling-to-good news from some of the oil and gas firms I follow this week, so here’s a quick round-up of the main highlights.
Altona Energy Plc (LON:ANR)
The Australian government recently renewed Altona’s exploration licences for its Arckaringa assets, and this appears to have prompted Altona’s Chinese partner and financial backer CNOOC NEIA to give the green light to proceed with a test drilling program, which is an essential part of the Bankable Feasibility Study Altona is currently working on for the Arckaringa project.
Altona has regulatory approval for 30 boreholes, but this initial program will comprise seven boreholes and is intended to help the company clarify design plans for the mine and confirm its assessment of the coal resources.
Drilling could be underway by October and nearly finished by the end of the year, so there may be some interesting and hopefully positive news around the end of 1Q 2014.
Salamander Energy Plc (LON:SMDR)
Salamander Energy reported a disappointing start to its G4/50 exploration program offshore Thailand this week. The exploration well drilled in the firm’s Rayong prospect was found to contain water only and has been plugged and abandoned.
However, it’s worth remembering that exploration wells often find dry holes, and the company only estimated the chance of success at 31% for Rayong.
Rayong was only the first of six wells planned by the company in G4/50 this year, with more to come next year. The next well to be drilled is the Surin prospect, in a different sub basin, targeting 4 – 31 million barrels of prospective resource and estimated as having a 36% chance of success.
Victoria Oil & Gas plc (LON:VOG)
Cameroon-based Victoria Oil & Gas was the subject of rumours early this week that new CEO John Scott was about to publish some good news! The share price shot up by around 20% in one day, but has since subsided somewhat.
The news arrived this morning, and suggested that Victoria is making reasonable progress, albeit with a few hiccups, as you might (realistically) expect.
The main highlights were:
- Gas production and customer signups are going well
- Gas sales are down due to power outages affecting Victoria’s thermal customers and forcing them to suspend operations
- Victoria sees this as a medium-term opportunity to convert more customers into gas-fired power customers but this will require a period of investment and low initial margins
- The initial costs of setting up power customers are being mitigated by acquiring rental generators, rather than purchasing them outright
- The firm is on-track to complete its pipeline expansion and has also accelerated its ‘phase 4’ section of pipeline to enable gas to be supplied to customers across the Wouri River.
- The sale process for Victoria’s West Medvezhye asset in Russia is proceeding and expected to complete by the end of this year.
- The company’s ongoing legal dispute with RSM Production Corporation over the ownership of the Logbaba licence is expected to be resolved by the end of September 2013
The upshot of all of this suggests to me that Victoria has its eye firmly on the ball and is continuing to make progress, but is battling with the kinds of headwind — practical and political — that often arise in emerging markets.
Financing looks like it may continue to be a problem; the bank has still not closed its secured revolving credit facility — which was first mentioned in October 2012 and is presumably the Societe Generale facility first mentioned in January — but which is not now expected to happen until after the first gas-to-power customers have gone live.
On a similar note, positive cash flow still seems a distant prospect, and I suspect today’s ‘letter from the CEO’ may be a way of preparing shareholders for disappointing financials when the company publishes its final results, which are due in the next couple of months.
There seems a good chance of some more concrete progress by the end of the year, although I’m concerned that the company’s finances might once again be stretched if it cannot increase cash flow from live customers over the next six months.
Disclaimer: This article is provided for information only and is not intended as investment advice. The author may own shares in the companies mentioned in the article. Do your own research or seek qualified professional advice before making any purchase decisions.