Share Name Share Symbol Market Type Share ISIN Share Description
Emerald Energy LSE:EEN London Ordinary Share GB00B01NJN34
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 747.50p 0.00p 0.00p - - - 0 06:30:09
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Oil & Gas Producers - - - - 468.40

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Date Time Title Posts
02/6/201103:54EEN - Undervalued & Oversold35,305
22/12/201023:32Emerald Energy - Serious Long Term Investors Only26
09/9/200907:54The Latest Bob Threat10
12/8/200915:58Emerald energy11

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stefield: thanks for the update ken between that and syria, i dread to think where the share price would be. i think we were very luck to get taken out. merry christmas
bobobob5: eddie: AB restated on Friday at the meeting what he'd said to me years ago: "I put the information out there, but it's up to you to interpret it". There is a significant 'clue' that he gave on Friday, which nobody seems to have studied so far: the date at which Sinochem first approached Emerald. We now know that this is April 2008. studying the RNSs around that time we can deduce what it was about Emerald that interested Sinochem. It's very EENteresting, because that date preceeds the spudding of Gigante-2 by a mile, and it also preceeds the drilling of Ombu. So we know that the initial £4 figure could only have taken account of some 'risked' upside at Gigante and Ombu. And progress with Colombia, in general, was not exactly 'headline news' at that time, production kind of "OK but quite some way below what was hoped for". But that initial offer was at the time that Kurbet East was starting to move ahead at a rate of knots. We had the early horizontal drilling done, and the potential prospect of something like 40,000 bopd of oil from the FFD (on the zero water cut case). Not long before, Emerald was being talked of as "The Cash Machine" in parts of the City because of the very high levels of revenue that were anticipated. So I am pretty sure that Sinochem was motivated by the potential of Block 26. At that time, hiddendepths and myself were of the view that the K-dolomite (and to a lesser extent, the Butmah) gave a really significant low-risk upside, because of the KHE-1 discovery RNS. Now this line of thought is revealing, because it suggests that Emerald was *not* seen by Sinochem, at that time, as some sort of distressed asset due to funding issues going forward, involving Capella. That said, funding Gigante development would have been more tricky, but I somehow doubt that Sinochem would have been after Emerald to get its hands on the (apparently imaginary) "one billion gross barrels" in that structure. btw AB said at the meeting that the original naming of the structure as "Gigante" (obviously 'Giant' in Spanish) was not a very good move... Sinochem were surely after the B26 assets. It's very interesting that, at the time that Sinochem must surely have been getting ready to approach Emerald, i.e. in the period prior to April 2008, the EEN share price has been stuck at about £2 (actually about £2.10 +/- 15p or so) for some 18 months, which was obviously a daft undervaluation - as repeatedly pointed out on here by many including Kiwi and myself. So their initial £4 would have looked, to some of us at that time - had we known - that at least Sinochem had got some sense, even if the rest of the market did not. Clearly, the board were not happy with a 100% premium to the plateau price, though Sinochem wanted the B26 asset, so the drilling continued to prove-up KHE, and Ombu came in, and the price moved up, and the deal was finally done... My feeling is that Emerald moved slightly over that period, from a relatively easy play in B26 to a more valuable but more capex-demanding one because of Ombu. In parallel, the potential of B26 also kind of shifted over that period: The KHE Fairway took a more dominant position, and the 'deeps' were kind of put on the back burner. Insofar as the K-dolomite and Butmah are concerned, Sinochem would have known that there was no movement on them, but unless they had information not in the public domain, they would presumably not have thought this was related to any lessening of expectation, but more to capex issues and the (always vital) need for managers to prioritise. My guess is that Sinochem would prefer to have 100% of B26 rather than the 50% non-working interest. They approached Gulfsands early in 2009 about buying them out, but were reportedly told "no"; Gulfsands did not know that talks were continuing between Emerald and Sinochem. Incidentally, AB used the identical "we get them all the time" wording on Friday that he had used maybe three years ago, in that earlier case to describe approaches for Gigante. It seems to me that numerous oilers have approached Emerald for several years, but clearly none of them was offering anything that was considered relevant or appropriate. This is why I repeatedly said on here:"if another major wants to buy Emerald, and has the money, there will be a counter-bid". There never was, but it is absolutely not because they never knew about the company and its assets and the 750p broker targets (and about this thread...) etc. They just did not want to, or could not afford to, pay the price. I have to say that I'm not happy with the current GPX share price. I have been holding these for years, since before any drilling started in B26, and my price is 95p. Less than a year ago, despite the major finds in B26, I was still at break-even. How could that possibly make sense? As you know, Gulfsands couldn't understand it either. It has subsequently picked up a bit on the back of the Emerald rumour and bid, but even's hardly good. Maybe the Sinochem deal will provide the facilities for GPX to fulfil its potential, but on the other hand, they might simply buy it. I have no idea what will happen, but the share price suggests to me, if to nobody else, that the market (whatever that is) doesn't exactly expect fireworks in the near-ish future. bob but imho DYOR etc as always
pendragon2: A sort of contrary view, though you all know I think the take-over price should have been nearer 10quid, though not as high as Bob's 12, as things are now. If I were to take a bidders view of EEN and the acceptance of its takeover valuation, it might go something like this: The business is in good shape, however the oil price uncertainty is an issue. The income looking forward will include a fall off in production at CR and Vigia, which have contributed most of the cash seen in the last five years, until Syria came along. Ecopetrol backing in to Gigante a couple of years back meant G1A stopped contributing significantly to the business and now gives the company less than 500bopd, (with proportionally high production costs) though it enabled the drilling of G2. As only 50% of G2 production is attributable to EEN, assuming that means between 1000 and 2000bopd, it will be some time before the exploration costs are paid off. In the mean time Ombu/Capella needs to be financed and though it may be a very significant discovery, uncertainties in the oil price mean it will not turn a clear profit for at least 5 years, if not longer. EEN's share of Syria is about 25% of production, so 4,500bopd max for at least a couple of years when the field production centre is working. The contract sees EEN's share fall as production rises and a series of one off payments arise. Will another $50m for a larger processing facility really pay for itself in a reasonable timescale? The operator has a slightly different interest to EEN and the national company yet another set of interests. However, the margins in Syria narrow as development in B26 proceeds. For all its attractions, EEN's rate of development is becoming more long term and will suite a larger company with strategic rather than commercial priorities. from the seller's point of view: EEN's management defined their interests as 'low cost, low risk' exploration. The company is gradually moving away from these parameters and the rate of increase in the market cap we have seen is unlikely to continue. Previously fund raising has been rather small scale, some tens of millions. The figures arising in the foreseeable future are closer to the hundred million which will bring far greater dilution than previous rounds. Trying to fund development from income is an option, but three large commitments - Syria, Gigante and Ombu - would be a strain on the business. The business will grow, but the chances are that this kind of growth would not be reflected in the share price either because of dilution or the inability to pay dividends. Does it make sense to move the management team to another business opportunity. I think probably yes, if there is a chance that the currently weak share price of SEY brings in the possibility of a significant recovery when the business is stabilised. Are SEY's opportunities in the field as promising as EEN's? Possibly, but there are always risks. However, is there a chance that the concert party can realise a substantial increase in the value of their holdings via SEY over 5 to 7 years? Probably yes. Is that likely to be greater than the increase in the value of EEN? Probably yes. Is there an uncertainty in the global economy that to wait might make it more difficult to reposition in the coming year, meaning it makes sense to sell now rather than wait? Possibly yes. EEN has moved from 25p to 7.50 (1:30) under the concert party. Will EEN's share price get to around 100 in five years (1:15) - perhaps but probably not. SEY has a depressed share price for several reasons. Is is possible SEY will move from 1.30 to 39 (1:30), I doubt it, but moving from 1.30 to 19.5 (1:15) could be achievable fairly quickly, say 3 good years..... Obviously managers get the opportunity to exercise their options, as they leave the company, so that is attractive for them. By whitewashing the concert party situation earlier this year, the concert party now have a window of opportunity which will not recur if there is a further round of fundraising which would dilute their interest, perhaps below the critical level at which they lose effective control of EEN. Do the concert party wish to concentrate on EEN for the rest of their careers or follow new opportunities? Why not go now? My position. Without the current management, EEN becomes a completely different business and the new owners can be expected to exercise their control (with or without the full bid succeeding) with a different strategy to the concert party. I think this reduces the company's prospects in the medium term and makes me feel it is time to move on. I'm not keen on accepting the bid, but am acquiescing. Without key managers, I don't want to see the bid fail and I would now expect AB to resign at, or after the AGM, whichever way the decision goes. (btw: I recall putting 8.40 in my prediction for the share price at end 2009, but can't find the full poll at the moment. How many of us are ahead of our predictions by accepting 7.50 now?) A graph from the share price on Jan 1 though 7.50 in October would let us all know)
captainfatcat: bob sorry for the delay in reply, work and parenting etc "where do you - personally - think the share price would be without Capella?" That's a tough one, lower than todays share price for certain. Around the £4.50 level perhaps, plus or minus 10%. There are lots of factors such as the market realization as to scale of Capella came just at the right time and was a major factor imo in insulating Emeralds share price from the wider market corrections over 2008. I also remember there was a strong symmetry between Gulfsands and Emeralds share prices for a notable period prior which may provide a better indication of what the share price could be. It would be interesting to see the projected share price on the share price take out time line graph. I copied it for reference but am unable to locate it on my pc. Trouble is that then leaves the discoveries at G2 (Caballos), Mirto and Capella only adding £3 to the share price which is harder to accept. I do agree that significant upside potential at Emerald is becoming increasingly difficult for the management to achieve. To double the sp/market cap would require significant operational successes which would come at a ever increasing capex cost. I have always believed and stated the best way forward would be for the company to sell off some of its crown jewels (after proving up) and provide the funds with which the management might find better use for, Sterling looks a prime example. I just wish it was the third leg. I have sold about a third of my holding here and taken the opportunity to increase holdings in companies such as XTR which looks to have sparkling future ahead. Happy to hold on to my remaining Emeralds and have a good foot hold in both camps so to speak. cfc Edit, the nice thing about Emerald over the last couple of years is its perception of being a safe investment when compared to the pre Bacon Saver times.
pindyexpress: Sterling revalued The placing and amended bank waiver agreement announced in August will provide Sterling with the financial stability to sell its US assets in good order, repay all of its debt, and drill the high potential, low risk prospect Sangaw North in Kurdistan, starting by the end of 2009. Management changes should ensure cash is available for new and existing exploration, and may change the exploration fortunes too! The success case in Kurdistan could be worth several times the current price, with similar potential in Cameroon and Madagascar. The £62.5m placing (before expenses) provides funds to close the borrowing base gap and sign an amended waiver with the banks, giving Sterling an 18 month breathing space in which to sell off the US assets and pay off remaining bank debt. More importantly, it allows the company to spud the exciting, large, low risk prospect Sangaw North in Kurdistan in 4Q09. Addax, an established producer in Kurdistan, has farmed in and will pay Sterling's drilling costs up to the point of testing. Sterling has only to pay the cost of testing if successful. With a best estimate gross recoverable resource potential of 804m bbls, the upside potential net to Sterling could be several times the current share price. The well should spud in late 4Q09, targeted to reach the primary reservoir in 1Q10 and be completed in 2Q10. Management changes include bringing in Alastair Beardsall as executive chairman. Alastair has established a highly successful track record at Emerald Energy. He brings with him a reputation for prudent cash and operational management and exploration success – both of which are required at Sterling. Kurdistan is one of the last areas in the world where very large fields remain undrilled due to past political issues and, with expanding infrastructure, any discovery here could be transformational for Sterling shareholders. Sterling has other interesting prospects in Cameroon and Madagascar which could add substantial upside in 2010/11, but short term, investors should regard the imminent drilling in Kurdistan as one of the most attractive low risk/high reward opportunities in the E&P sector in the next six months. Prior to Kurdistan drilling we set an initial target price of 6p/share, but recognise that the success case is several times this number. September 09 2 Sterling revalued The placing allowed Sterling to agree an amended waiver with the banking syndicate giving the company an 18 month breathing space in which to dispose of the US assets, the proceeds of which should clear the remaining debt after the $35m September repayment. More importantly it allows attention to focus on the drilling of the exciting Sangaw North well in Kurdistan to spud in late 4Q09. This low risk prospect, with Sterling's costs funded by Addax up to the point of testing, has the potential of several times the current share price and offers one of the most attractive risk reward propositions in the E&P sector in the next six months. What has happened? Sterling has issued 4.8bn new ordinary share to raise £62.5m ($100m) net of expenses at 1.3p. This includes $46m from new cornerstone investors – Waterford, taking 29.9% of the enlarged share capital. Waterford has actively participated in previous successful investments in the E&P space including First Calgary and Emerald Energy. The remaining proceeds have been raised through a placing to existing institutional shareholders. In addition, there is to be a subsequent open offer for existing shareholders of up to £20.6m at the same offer price of 1.3p by mid-November, based on the register at the close of trading on September 8th. In conjunction with the open offer the company intends to undertake a share consolidation. Use of proceeds Revised financing arrangements Some $35m of the placing proceeds are to be used to reduce total debt to $75m ($64m under the syndicated loan base and $11.1m corporate facility), thus closing the gap between the total debt and the asset borrowing base. In return for this partial repayment the banks have agreed an amended waiver of its borrowing base review and removal of other financial covenants for a period of 18 months to February 2011. The history here is that in the last 12-18 months Sterling has become a victim of the banking crisis and lower commodity prices. The resultant shrinking of the borrowing base resulted in the company surviving from one six monthly borrowing base review to the next. This uncertainty caused problems with the process of disposal of the US assets, which was put in train in 2008 ultimately to pay off the syndicated loan and corporate borrowings. The remaining proceeds of the raise are to be used to fund Sterling's contribution to the Sangaw North testing programme (if required) – Sterling's share of the drilling costs to the point of testing are to be paid by Addax as part of the existing farm in agreement. September 09 3 Remaining funds (around $90m including proceeds from the open offer) are to be used in progressing Sterling's existing projects – such as Cameroon, Madagascar etc. as well as potentially any appraisal at Sangaw North in the event of a discovery, to fund any capex plans in the US (prior to disposal) and to participate in new projects either via farming-in to existing projects or securing new ones. Sterling will continue to pay down the bank borrowing at the rate of $1m/month until such time as the debt is paid off. Likely news flow US Asset disposal – by 1H10? The disposal of the US assets was put in train in 2008 but the combination of a collapse in US gas prices and the global banking crisis with resultant lack of available debt or equity funding has seen this disposal process stall. The banking waiver should allow the company to conclude a deal. We understand that there are a number of parties showing renewed interest in purchasing the US assets, which consist of 2P reserves of around 69 bcf of gas and 4.2m bbls of oil (at 1st April 09) and current production of around 21mmcfd. With the company's future now on a firmer footing, we would expect a deal to progress and might expect a deal to be concluded by end 1H10. On the basis of current US asset transactions be would expect the portfolio to realise between $70m-90m (valuation based on a price of $2.80/mcf for the end April 2P reserve base). This should be sufficient to pay off the remaining outstanding syndicated loan and corporate debt (our estimate of total existing debt is $75m post placing and banking one-off payment). Exciting exploration drilling in Kurdistan in late 2009 Partners have agreed to drill initially to 3,660m with an option to drill deeper, on the Sangaw North prospect, where Sterling has a 53.3% interest, reducing to 40% if the KRG backs-in. A letter of intent for a 2,000 hp rig has been signed with a rig operator which is currently drilling in Kurdistan and therefore has in-country logistics and technical expertise. The rig contract has been approved by the Government and signature of the rig contract is imminent. The rig is scheduled to start drilling towards the end of 2009. The well cost is budgeted at around $30m (dry hole cost) plus $6m-9m for 2-3 tests. Sterling is to pay 53% of testing costs only ($3m to $4.5m net to SEY) as Addax will pay Sterling's dry hole costs (and back costs) under an existing farm out deal. The well is scheduled to take 150 days – and take around 60 days to reach the Cretaceous primary target (the Shiranish Formation – which is a productive formation in the Addax Taq Taq field to the NW). Independent experts RISC have assessed the best estimate prospective recoverable resources in this horizon of 804m bbls (gross) – with Sterling having a 40% fully diluted stake in the prospect after Addax farm in and government back in. The upside case for the Shiranish reservoir is 1.6bn barrels gross recoverable. The well is regarded by independent experts RISC as a low risk prospect with a 27% chance of success. September 09 4 A secondary reservoir target is Jurassic – 2 horizons - Sargelu and Sekhaniyan with a best estimate by Sterling at 331 m bbls (207m bbls + 124m bbls) – with an equal chance of oil or gas success assessed by RISC at 10%. The Sargelu was recently successfully tested by Gulf Keystone in its Shaikan well at 8,000 b/d. The third reservoir target is the Triassic – Kurra Chine and could be either oil or gas bearing with a best estimate by Sterling of 200m bbls of oil or 1.2tcf of gas with a chance of success assessed by RISC at 10%. The success case valuation is discussed later. Farm out of Cameroon – possible drilling in 2010 It is likely that the Ntem licence (SEY 100%) offshore Cameroon could come out of force majeure by the end of 2009, as we understand that the governments of Cameroon and Equatorial Guinea have reached agreement over the long standing border dispute. We understand that the inter-governmental agreement has no impact on the shape and size of Sterling's licence. Once the relevant presidential decrees have been signed, Sterling has an 18 month window to drill a well. Sterling has a number of third parties interested in farming into this block which is one of the few undrilled deep water blocks remaining in this prospective corner of W Africa and there are discoveries in adjacent blocks to the N, S & E. This includes a 100m bbl + 450bcf field 50kms north of Ntem being developed by Noble with first production scheduled for mid 2012. 3D seismic has identified a number of substantial channel and fan-type prospects on the Ntem licence similar to many other W African discoveries. Four initial drillable prospects (Maxwell, Discovery, Atlantis and Helena) have a total potential of 1.5bn barrels (SEY estimate). Interest in Cameroon is hotting up (cf Vitol's $100m farm in to Bowleven's acreage recently). It is likely therefore that Sterling will be able to farm-out the cost of drilling a well ($50m-60m on 100% basis) on the block, thus conserving its own cash. It is possible that a well could be drilled in 2010. Madagascar – well not before 2011 ExxonMobil were looking to drill a well in 2009/10 on the Ampasindava block (SEY 30%) as the Sifaka prospect is large and potentially interesting (independent experts RISC gave a gross best estimate unrisked resource of 1.1 billion barrels). Although higher risk than Kurdistan (chance of success 5-10%), the potential profitability could be much higher with NPV(10)/bbl of $5-10/bbl. However, political changes in Madagascar have led to a delay. The well will be expensive (>$150m) – of which Sterling has around $40m gross ($12m net) carry remaining from the Exxon farm in – so Sterling could be on the hook for $35m to $45m for their 30% share. We understand that Sterling has an agreement from Exxon for an extension to end 2009, to farm out part of their interest before committing to the 3rd phase well commitment. Drilling is not now expected before the end of 2010. Cash flow We estimate that the company could have cash/uncommitted funds of around $61m after the placing and bank borrowing base repayment. Available funds could increase by another $30m subject to the success of the open offer planned for mid-November 2009. Obligations Fund US capex until assets are sold ($25m-35m), however, we understand that the US operations are essentially self funding. Debt repayment (continues at $1m/month) – currently funded from cash flow from US production (21 mmcfd 1H09 average production) and revenue from the Chinguetti field in Mauritania. USA disposal/ debt gap repayment fees ($2.0m-4.5m). Sangaw North drilling – dry hole costs are funded by Addax. Sterling would pay for testing if required ($3m-5m net) and be funded ready to commit to an appraisal programme if the first well in successful. Possible well in Cameroon – drilling costs likely to be funded by farmout of block. Obligation is to drill one firm well within 18 months of the end of force majeure. New management It is usual with "distressed" fundraising that management changes take place and Sterling is no exception. Existing, and previous incumbents have to take some of the blame for the deals of the past, and whilst the Chinguetti deal was unsuccessful due to the potential reserves begin overestimated and poor performance by operator Woodside, Sterling has to take the hit for the poor performance of the Whittier acquisition in the US, made worse by declining gas prices, which did not provide the cash flow or upside promised. However, whatever has happened in the past, the survival of the company over the past 12 months, retaining a large interest, and on some projects now carried, interest, in some significant exploration plays is testament that there are some good management skills present. The new broom The new board sees Alastair Beardsall coming in as Executive Chairman. He saw an opportunity at Sterling where a combination of good management and exciting assets were being strangled by the burden of bank debt and associated covenants. The management change and refinancing, appears to be supported very strongly by the existing significant shareholders. Alastair has been responsible for the successful turnaround of Emerald Energy from a struggling minnow with one damaged well and minimal production in Colombia in 2003 to a cash rich balanced E&P company with entitlement production of over 5000 b/d production, growing to 7000 b/d in 2010 and working interest 2P reserves of some 60m bbls. Emerald is currently subject to an all cash offer from Sinochem at 750p/share, giving a 30x return for investors who bought in at the time of Emerald's distressed refinancing in 2003 which was done as a rescue rights issue at 25p/share. Alastair Beardsall has a reputation for running a "lean ship" and spending cash efficiently, skills that should prove useful, as once the US producing assets have been sold, one of Sterling's main assets will be its cash pile which must be put to work effectively in progressing existing projects and securing new opportunities. At Emerald, Alastair has been very economical with equity. After the initial funding of $10m back in 2003 supported by Waterford ($7m), further equity was issued in 2004 ($16.7m) to fund a successful drilling campaign and in 2005 ($13.8m), to fund the purchase and provide working capital for the interest in Syria, which has proved to be very successful, and a convertible offering of $30m in 2007. Portfolio - key assets Sangaw North – Kurdistan (SEY 40% after farmout and KRG backin) Geological summary The Sangaw North Block contains the large Sangaw anticline. The assessment of the technical case for the presence of hydrocarbons is good. ► The source and charge of the structure are established. ► The areas with within the regionally charged Kurdistan mountain foredeep area (cf. Taq Taq – 450m bbls, Kirkuk – 5bn-10bn bbls and Miran – 1.1bn-2.1bn bbls fields. ► There are numerous oil and condensate seeps on the structure proving charge. ► The structure in on trend with the Chemchemal gas condensate field (3tcf in the Pila Spi formation - Eocene) which has oil in the Cretaceous (the main target in Sangaw North). ► The source rock is regional and similar in age and type to that sourcing crude in Taq Taq. Reservoirs The Eocene Pila Spi has the potential as a shallow reservoir target - although the RISC report suggests that the shallow depth (450m) may preclude it from containing high quality oil - probably residual or degraded oil. The main reservoir targets are the same Cretaceous sequence as at Taq Taq. The Shiranish carbonates are of reservoir quality when fracture porosity is present. It has flowed oil at Taq Taq and gas condensate at Chemchemal. Kometan – carbonates of reservoir quality when fracture porosity is present. Flowed oil at Taq Taq, but tight in Chemchemal. Upper Qamchuqa – carbonate - have flowed oil in Taq Taq and flowed water at Chemchemal. Lower Qamchuqa – carbonates with some matrix porosity. Have flowed oil at Taq Taq and were tight at Chemchemal. Jurassic and Triassic Oil and gas discoveries have been made throughout the region in the Jurassic and Triassic, Hawler-1 well (DNO) tested 9,000 b/d from the Jurassic at depths similar to those predicted at Sangaw North. The Butmah formation (Jurassic) and Triassic Kurra Chine have not been penetrated in nearby fields. The Sargelu is organic rich and is both a source rock and a reservoir and flowed 8,000 b/d at the Shaikan-1 discovery of Gulf Keystone. Seal According to Addax, the highest risk aspect of the structure is the degree of seepage – although they conclude that this is most likely related to the shallow Pila Spi reservoir. In the event of success, and early production system could be in place and production could start in 2011. Production sharing contract Sterling's contract follows the KRG Model PSC terms for oil based on an R factor production sharing contract. Terms differ according to the designated risk of exploration (low medium and high. Sterling's block is designated as a "low risk area" and has terms to match. ► Royalty oil is 10% ► Cost oil is up to 40% post royalty ► Contractor's share of profit oil is 30% to 15% after cost oil with R factors based on the multiple of the return on investment. Note that Sterling's interest in the block is likely to fall to 40% from 53% after the Addax farm in and the expected KRG government back-in. Resource estimates and NPV/bbl The evaluation of the resource base and net present value (NPV) of the Sangaw North prospect in Kurdistan has been performed by independent experts RISC using a range of assumptions for the main reservoir target (Cretaceous). The basic assumptions used in the RISC Competent Persons Report are as follows below: Key assumptions - of Sangaw North (Cretaceous only) Gross (m bbls) Net to SEY (40% after full dilution - m bbls) Chance of Success (CoS) (%) NPV (10)/bbl) based on $60- 80/bbl long term Most Likely 804 322 27 $2.4-3.2 Min 179 72 Max 1,664 666 Source: RISC Note that in our view, the chance of success estimated by RISC at 27% is conservative, as the main risk being reservoir productivity and the recent exploration drilling success in the region is 50% or 1 in 2. Key assumptions - of Sangaw North (all reservoirs) Gross (m bbls) Net to SEY (40% after full dilution - m bbls) Chance of Success (CoS) (%) NPV (10)/bbl) based on $60- 80/bbl long term Cretaceous 804 322 27 $2.4-3.2 Jurassic 331 132 10 Triassic 200 80 10 Source: RISC September 09 8 Cameroon – Ntem (SEY 100% before farmout) As mentioned earlier, 3D seismic has identified a number of substantial channel and fan-type prospects on the Ntem licence similar to many other W African discoveries. Four initial drillable prospects (Maxwell, Discovery, Atlantis and Helena) have a total potential of 1.5bn barrels (SEY estimate). For illustrative purposes we have taken a prospect size of 400m bbls and assumed that Sterling farms out a 50% interest in the acreage in return for the costs of drilling an exploration well. The terms of the production sharing contract are more favourable than Kurdistan – as the regional chance of success is much lower. Key assumptions – Ntem, Cameroon Gross (m bbls) Net to SEY (50% after farm out - m bbls) Chance of Success (CoS) (%) NPV (10)/bbl) based on $70/bbl long term 400 200 10 $4 Source: RISC Madagascar - Sifaka (SEY 30% before farmout) The Sifaka prospect in the Ampasindava licence in Madagascar has enormous potential (up to 4.8bn bbls with a best estimate of 1.1bn), but the chance of success is low as the area is entirely undrilled. The economics of the PSC are also favourable due the lack of previous activity. Sterling's effective exposure to the prospect is yet to be decided and depends on retaining the acreage for the third exploration period and farming out to a third party. Key assumptions – Sifaka, Madagascar. Gross (m bbls) Net to SEY (15% assumes further farm out - m bbls) Chance of Success (CoS) (%) NPV (10)/bbl) based on $70/bbl long term 1,100 165 10% $5-10 Source: RISC USA Sterling's USA assets are located in the shallow water Gulf of Mexico and in the adjacent onshore states. The assets consist of a variety of operated and no-operated assets with 2P reserves of 94 bcfe at 1st April 2009. Some 73% of the reserves are gas and 27% oil. Average production in 1H09 was 21 mmcfd. These assets are to be sold to eliminate company debt. The process was put in train in early 2008 but the limited global funding and weak US gas prices have led to a tough M&A market for such assets. Mauritania Sterling has an almost 8% financial interest in the Chinguetti oilfield through a funding agreement with the Mauritanian government. Production, which has been consistently disappointing since field start up is currently around 10,400 b/d gross. Net to Sterling, production in 1H09 was just over 1,000 b/d. Due to poor reservoir performance and high costs of drilling it is likely that the potential phase three development will not go ahead and that the field may be abandoned in 2011. September 09 9 Summary valuation of Sterling Portfolio Valuation of Sterling Portfolio – NAV and risked EMV Assumptions ► US assets valued/ sold for a consideration which offsets remaining net debt ($75m after partial repayment post raise) ► The Chinguetti field in Mauritania (SEY 8% financial interest) is taken as a liability (based on abandonment costs – SEY share estimated at $20m spread over three years) ► The placing ($100m) and open offer ($30m) increases total shares in issue to 8.726bn ► $/£ exchange rate 1.65 ► Long-term oil price $70/bbl (Brent). Kurdistan - Success case: Using the resource estimates produced by RISC (Cretaceous) and Sterling (Jurassic/Triassic), the valuation of the Sangaw North prospect net to Sterling on a risked and unrisked basis is shown below using the mid case for our long term oil price assumption of $70/bbl, using the NPV (10)/bbl at this oil price arrived at by RISC of $2.80//bbl In our calculations below we assume a full dilution of shares to take into account the open offer to take place before mid November. Risked/unrisked valuation of Sangaw North (Cretaceous only), post raise p/share Risked Unrisked Raising price 1.3p 1.3p Shares in issue (post raise and open offer) 8,726m 8,726m Most Likely 804m bbls gross (SEY 40%) $70/bbl (NPV(10) $2.8/bbl) 1.7p 6.4p Source: EVO Securities (FX rate of 1.65) Risked valuation is 1.7p/share. Unrisked valuation is 6.4p/share. Looking at the potential of all the prospective horizons in the Sangaw North well, we can look at the total risked and unrisked upside. Risked/Unrisked valuation of Sangaw North (all horizons), post raise p/share Risked Unrisked Raising price 1.3p 1.3p Shares in issue (post raise) 8,726m 8,726m Cretaceous (322m bbls) 1.7 6.4 Jurassic (132m bbls) 0.3 2.6 Triassic (80m bbls) 0.2 1.6 $70/bbl (NPV(10) $2.8/bbl) 2.2p 10.6p Source: EVO Securities Unrisked valuation Summary valuation of Sterling Portfolio Valuation of Sterling Portfolio – NAV and risked EMV Assumptions ► US assets valued/ sold for a consideration which offsets remaining net debt ($75m after partial repayment post raise) ► The Chinguetti field in Mauritania (SEY 8% financial interest) is taken as a liability (based on abandonment costs – SEY share estimated at $20m spread over three years) ► The placing ($100m) and open offer ($30m) increases total shares in issue to 8.726bn ► $/£ exchange rate 1.65 ► Long-term oil price $70/bbl (Brent). Kurdistan - Success case: Using the resource estimates produced by RISC (Cretaceous) and Sterling (Jurassic/Triassic), the valuation of the Sangaw North prospect net to Sterling on a risked and unrisked basis is shown below using the mid case for our long term oil price assumption of $70/bbl, using the NPV (10)/bbl at this oil price arrived at by RISC of $2.80//bbl In our calculations below we assume a full dilution of shares to take into account the open offer to take place before mid November. Risked/unrisked valuation of Sangaw North (Cretaceous only), post raise p/share Risked Unrisked Raising price 1.3p 1.3p Shares in issue (post raise and open offer) 8,726m 8,726m Most Likely 804m bbls gross (SEY 40%) $70/bbl (NPV(10) $2.8/bbl) 1.7p 6.4p Source: EVO Securities (FX rate of 1.65) Risked valuation is 1.7p/share. Unrisked valuation is 6.4p/share. Looking at the potential of all the prospective horizons in the Sangaw North well, we can look at the total risked and unrisked upside. Risked/Unrisked valuation of Sangaw North (all horizons), post raise p/share Risked Unrisked Raising price 1.3p 1.3p Shares in issue (post raise) 8,726m 8,726m Cretaceous (322m bbls) 1.7 6.4 Jurassic (132m bbls) 0.3 2.6 Triassic (80m bbls) 0.2 1.6 $70/bbl (NPV(10) $2.8/bbl) 2.2p 10.6p Source: EVO Securities Unrisked valuation for best estimate success at all three horizons in Sangaw North is 10.6p/share. September 09 10 Total Portfolio – NAV/EMV Whilst Kurdistan is clearly the most important element of the Sterling portfolio – both in terms of impact and timing, it is important to look at the other elements of the portfolio and see how these stack up to arrive at a full company NAV/EMV. These include the current debt, US assets, Chinguetti interests and exploration acreage in Cameroon. We have omitted Madagascar from our total NAV/EMV at present due to: ► the uncertainty over Sterling's participation in the third exploration phase ► the timing of drilling. The total upside potential of the portfolio is shown below. Sterling - unrisked upside potential - $70/bbl long term Raising price 1.3p Shares in issue (post raise) 8,726m $m p/share Existing net debt ($110m less $35m September repayment) -75 -0.5 Cash proceeds from placing ($100m) and open offer ($30m) less $35m repayment and before other capex outflow 95 0.7 US assets 75 0.5 Chinguetti (abandonment) -20 -0.1 Core NAV 75 0.5 Sangaw North (Cretaceous). RISC best estimate, 804mbbls unrisked 900 6.4 Sangaw North (Jurassic) 371 2.6 Sangaw North (Triassic) 224 1.6 Ntem (Cameroon), assume 50% interest after farm out 800 5.6 Madagascar nil 0.0 Total 2,370 16.7p Source: EVO Securities The upside potential in the event of total success in Kurdistan (but still at the best estimate resource range) and Cameroon, is over 16p/share or 4x the current price. Risk/Reward Risks ► Drilling delay/ drilling problems in Kurdistan ► Discovery could be gas rather than oil – not so valuable In the event of failure at Sangaw North – Sterling would end up with remaining cash resources and a modest amount of value for the remaining portfolio – risked value of Cameroon and Madagascar. Our downside case is 0.5p/share Upside ► US could be sold quicker and for better price ► Cameroon – could get attractive farm out with quality partner ► Madagascar – could get attractive farm out with quality partner If the Sangaw North prospect primary reservoir is successful we see upside of at least 6p/share, with a total success case of over 10p/share. September 09 11 Conclusion With the banks "parked" for 18 months, Sterling can concentrate on the upside potential in its exploration portfolio, particularly the high potential low risk prospect Sangaw North in Kurdistan. With the timing to the primary target by 1Q10, in our view the upside potential over the coming 4-6 months is substantial. In our view, investors should regard the risk reward profile in Kurdistan as one of the best low risk/high reward opportunities in the E&P sector in the next six months.
7kiwi: How should Shareholders Vote? Editorial on the blog: Until now, I have consciously tried to fashion this blog as a place where a great deal of research is assembled and presented in a more or less neutral fashion so that visitors and investors can make up their own mind about the company. However, now that the Circular has been published, the time is rapidly approaching where investors have to make up their minds about whether to accept this 750p bid from Sinochem. So, I have decided to temporarily break my own rules and write an "editorial" about my specific views on the bid, and whether it should be accepted or not. Background There is some anecdotal evidence (for which I can give no reference so I cannot confirm its veracity) that Emerald received a bid approach of ~650p/share either shortly before or shortly after Christmas. As bids for oil companies are generally valued in US Dollars, and the $:£ was about $1.45 at that time, let us say it was the equivalent of $9.40/share. Apparently, this was dismissed out of hand without even consulting the wider board. At the time the oil price was ~$40/bbl, and we were in the teeth of the credit crunch. For several years many investors (this investor not among them) have bemoaned the company's "low-key" approach to PR. However, since the alleged approach described above, the behaviour of the company has subtly changed from prior behaviour. The first example is that in the 2008 results presentation published on 16 March 2009, the company gave Oil-in-Place (P10 of 1.1bn barrels) estimates and contingent resources as well as 2P reserves for the Capella field. This is the first time current management has done such a thing for any of its prospects that I can remember. The second example is in the 30 April announcement of reserves for Block 26, they gave a "life of field" (as opposed to life of contract) estimate of reserves for Khurbet East and a contingent resource figure for Yousefieh. Interestingly, Gulfsands did not give either number in their corresponding release. I cannot recall a prior occasion where Emerald volunteered more information than their partner in relation to Block 26, in fact quite the contrary was often true. One may conclude that this change in behaviour was designed to support the share price, perhaps in anticipation of a further bid coming in. Then, strangely, in April when the share price was starting to rise strongly, the company converted one tranche of the Convertible Bonds, which had the effect of temporarily depressing the share price. The true motive behind this move has never been properly explained, in my view. At the AGM/EGM on 24 April, I was asked, along with another investor, by the senior NED what we thought Emerald was worth. My stance was I wouldn't give a value for what it was worth now, because I didn't think now was the time to sell, but that I would hope for £15-20/share in about 2 years time. I have attended a number of Emerald Energy formal meetings, and I've never been asked a question like that before. I thought it a little strange at the time, but thought no more of it. Operational Progress Since the formal reserves statements made for Colombia in March, and for Block 26, Syria made at the end of April, the company has made very significant operational progress that has not yet been quantified in terms of precise recoverable reserves, but nevertheless will have had a material impact on the value of the company. First, in April, we received the results of the Capella-6 well which encountered a net hydrocarbon interval in the upper Mirador approximately 4 times thicker than other wells and with porosity of ~37% (about that of beach sand). The impact of this well has not yet been formally quantified, but it does not take a geological genius to come to the conclusion it must have made a very material improvement to the oil in place and recoverable reserves. Moreover, it was announced on 20 August that the planned horizontal well planned for the C-6 area had been postponed, that the company had commenced drilling two slim-hole wells to better delineate the extent of the thicker Upper Mirador area, that steam injection was due to start testing and they had received environmental clearance to drill the northern "Romero" section of the field. It seems the main purpose of this work is to prove up more of the field and determine the recovery factors with horizontal wells and steam injection. Given that this work is likely to add significant value to the field, it seems strange to accept a bid at this time when the results are unknown. Second, the Gigante-2 well has been drilling and testing since December 2008. We know partial results from the Caballos horizon that look encouraging so far, and we await results from the Tetuan formation. The pre-drill prognosis for G-2 is 15mmbo from the Caballos and 4mmbo from Tetuan. However, we must also remember that the pre-drill prognosis for Capella was for some 30mmbo recoverable, so the published company estimates may well be conservative. As confirmed positive results from this well will likely have a very material impact on the value of the company, again it seems strange to agree a bid before the results are known. Third, The Mirto-1 exploration well is still being tested, and the bid was agreed before the results were known. Moreover, according to the RNS today from La Cortez Energy – the partner in the Maranta block – indicated that Emerald had also identified several promising leads in Maranta. Presumably, the apparent success in the U-sands confirms the prospectivity of at least some of the play types. So, again it is very strange to accept an uncontested bid when the results of the well are not known, and no estimate of recoverable reserves has been given – pre-drill prognosis 5-15mmbo. In Syria, the reserves statement given on April 30, apparently did not take account of the fact that the KHE-8 well flowed oil, apparently in commercial quantities. That fact that it has flowed, probably increases the recoverable reserves. Further, on 6 August, just before the bid was accepted, Emerald and Gulfsands said that they had just commenced drilling KHE-12; a well designed to further test the Southern limits of the field, and may, perhaps, lead to a further increase in reserves. Moreover, a workover programme on Yousefieh-1 & 2 and KHE-7 has commenced, again the primary purpose appears to stimulate the wells with acid, improve flow-rates and increase reserves. Although this may now be getting repetitive, why accept a bid when there is work going on, that will not take a great deal of time to conclude, that may have a material positive impact on the value of the company. In addition, the Khurbet East Kurrachine Dolomite and Butmah formations have still not yet been appraised, and we have not seen the results of the "Commercialisation Study" due to be completed in 2Q09. And finally, an extensive 3-D seismic programme has recently been completed over the Khurbet East fairway. So, far 10 leads and prospects have been identified, and the formal prospect inventory is due to be published in November – according to a broker note on Gulfsands published today. The Bid First we had the bid "courtship phase" as the approach was announced. As described above, the company embarked upon the furious work programme ostensibly with the purpose of increasing the value of the company. However, at a similar time, an interview with Michael Kroupeev was published where he was quoted as saying 750p was a "good number". Then, before any of this work was concluded and before the results of the exploration wells were completed, the actual agreed bid was announced. It is usual, indeed some would say essential, for any first bid to be re-buffed in a show of mock outrage that the bidder puts such little value on such world class assets. However, in this case, the company seeimgly accepted the first offer, apparently with some board members under a three-line whip, that was made at some 750p/share. Coincidentally at the same level that Mr. Kroupeev had indicated was "good". Just two days later, it was announced that Mr Kroupeev's investment vehicle, Waterford, was making a significant investment in Sterling Energy (SEY) and that Alastair Beardsall was going to take the position of Executive Chairman there. It is difficult to avoid the conclusion that both deals are in some way connected. The 750p/share offer translates into ~$12.30/share (@$1.65/£) or some ~30% above the bid that was allegedly rebuffed out of hand earlier in the year. However, the world economy now seems to be starting to recover from the credit crunch, and oil is nearer $70/barrel. This is in contrast to the 11 June 2009 note from joint broker Jefferies that calculated a core NAV for the company at some 863p/share, with total NAV of some 1,109p/share and unrisked NAV of 1,747p/share. The 1,109p/share is made up of 557p/share for Colombia, 485p/share for Syria and 67p/share of cash. Furthermore, it has been rumoured in the Daily Mail, that Gulfsands has also received an approach (denied by the company, but not by official RNS) from Sinochem valuing Gulfsands at ~£400m. If this were true it would put a value on Emerald's Colombian assets of ~£130m, which given the sheer size of Capella, amongst other things looks way too low. Conclusion I have now come to the conclusion that the company is in rude health and has an impressive array of exploration, appraisal and development projects that can be progressed to add significant further value in the medium term. And the company's own broker has placed a much higher value on the company than has been agreed by the board. Moreover, in the next few months, there are numerous current activities that will also add significant value to the company, namely: a) Full Mirto results, plus an estimate of recoverable reserves and contingent resources and disclosure of the Maranta prospect inventory. b) Full Gigante results and disclosure of estimated recoverable reserves and contingent resources plus disclosure of the anticipated prospectivity of the new VSM-32 block. c) Results of the slim-hole programme in Capella together with results of the horizontal well, steam injection and drilling of Romero. d) Workover programme in Syria e) Prospect inventory for Block 26. Accordingly, I will not accept this 750p/share offer as I think it is far too low and the company is too early in its lifecycle to succumb at this stage. And although I am not qualified to give financial advice, I would urge other investors to vote "No", and either hope for a counterbid or watch patiently as the talented management team continues to deliver. I am running a poll on the advfn thread that gives shareholders an opportunity to collectively express their view about thier voting intentions. However, I hold no grudge against Michael Kroupeev, Waterford or Alastair Beardsall. If Waterford wishes to sell, then in a free-market, it must be allowed to do so. It is not clear whether Sinochem will be temporarily happy with just his stake at 750p. Similarly, if after delivering such spectacular results over six years, Mr. Beardsall has decided it is time for a new challenge, then good luck to him.
7kiwi: Ken, In that La Cortez presentation they have slide 4, which seems to indicate EEN share price hit $30/share last year. We can all hope!
stevea171: A Golden Era for Well-Positioned Junior Oil and Gas Producers by Bill Powers Editor, Powers Energy Investor May 21, 2009 The tremendous volatility of the energy and general equities markets over the last year has caused major upheavals in the energy equity landscape. What is truly remarkable is the absolute devastation the drop in oil and gas prices has had on the share prices of smaller oil and gas producers. It has gotten to the point where many well run small-cap producers are now trading at a fraction of their net asset values (NAV) as defined by the present value of their proven reserves. When companies trade at below the value of their reserves in the ground, a tremendous opportunity exists for patient investors. I believe we have the near perfect environment for today's junior producers to thrive over the next several years. The most important reason well-positioned juniors will grow into much larger companies is that tomorrow's winners have already been chosen. Companies of all sizes, who have access to projects with large inventories of undrilled locations, will grow into much larger companies and the remaining, who are looking for access to projects, are going to have a very tough time finding them. Not only has access to acreage become more expensive, the cost to drill wells has risen dramatically in recent years, even with recent pullbacks in oil service expenses. While larger companies can afford the learning curve of a few misses or disappointing wells early on in a new area, smaller companies must be more selective. Even the costs of pursuing conventional zones have risen dramatically. Diesel (used to power the drill rigs) and steel (used to case wells) are only two of many oilfield costs that are still significantly more expensive than five years ago, even with recent price declines. While the price of oil and gas has risen sufficiently to provide ample rates of return for efficient producers, today's high cost environment has greatly reduced the margin of safety for producers with small production bases. One of the side effects of today's credit crunch is that it has closed the doors of many weak juniors who lacked the capital to develop their projects. Additionally, it has forced numerous juniors to merge in an effort to reach critical mass. The consolidation of the industry, not just on the junior level but at all levels of the exploration and production (E&P) industry, is having a very positive impact on the remaining companies. With fewer competitors vying for investor attention and projects, we are likely to see sharply higher share prices for the remaining junior producers. Probably the most exciting aspect of finding well-positioned junior producers is the large share price appreciation I expect from the group over the next five to eight years. This is truly the beginning of a golden era for those who can identify these opportunities. With current valuation metrics at multi-year lows and significant investor apathy towards small-cap producers, there is plenty of room for share price appreciation. I believe investor apathy towards the group is due in large part to market volatility over the last 18 months, the opinion that current commodity prices will not increase, and a general distaste for small-cap stocks. I have seen this movie before however and I expect well-positioned junior producers to again emerge from this lull in investor enthusiasm in great shape. Consider the following. Since the beginning of the decade, several micro-caps have emerged into large multi-billion dollar enterprises. It was less than a decade ago when Mike Watford took over Ultra Petroleum (NYSE:UPL) and grew the Vancouver Stock Exchange listed company from a market capitalization of under $50 million to over $12 billion without ever issuing a single share in a secondary financing. Most importantly, Ultra Petroleum enjoyed share price appreciation of nearly 100 fold in the span of less than a decade. The story of Ultra is by no means the only company to have seen such a large share price increase. Similar situations unfolded at XTO Energy (NYSE:XTO), Range Resources (NYSE:RRC) and at Canadian Natural Resources (NYSE:CNQ) over the last decade.
7kiwi: Odd - oil price strengthens, EEN share price weakens, albeit on low volume.
bobobob5: I've now done a 'quick and dirty' update of my 15 June 2008 'risked' valuation, to take some account of rumoured Ombu volumes and a guesstimated shift of KHE P3 Reserves into the P1/P2 category. Without 'official' volumetric estimates it's all a bit tenuous, but despite that it does seem to explain why Emerald's recent share price performance has been stronger than that of Gulfsands. Assuming, of course, that I'm not the only one reaching these sorts of conclusions, and that at least some of the large shareholders have already come to, broadly, the same sorts of views, and that those views have, at least to some extent, been influencing buying decisions. What I've found is that the Ombu volumetric uplift, as a percentage of the previous 'risked' Colombian barrels, is much larger than the KHE reserves category shift, as a percentage of the previous Syrian 'risked' barrels, in fact by an order of magnitude. Therefore, insofar as any of this is much more than inspired guesswork, Emerald's overall 'risked' valuation rises by a much greater percentage than does that of Gulfsands, and the P1/P2-ish proportion of the total 'risked' barrels increases more sharply for Emerald. Therefore, more of the Emerald 'risked' value is, as a proportion, underpinned by drilled volumes, rather than by risked undrilled prospects. And if one takes the $ per barrel multiplier down a bit, to reflect the easing of oil prices, Emerald's overall 'risked' value is rather less affected than is that of Gulfsands. Whilst my numbers are not the same as those of Evo, the conclusion I reach is that *if* there is anywhere near as much oil in Ombu as some seem to be suggesting, *then* the current EEN share price is possibly justified by the firm Colombian assets alone. With Syria, and the Colombian upside, more-or-less 'in for free'. but imho DYOR etc as always
Emerald Energy share price data is direct from the London Stock Exchange
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