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Published 20 November 2012 06:12, Updated 22 November 2012 05:08
Buying thinly traded micro-cap energy explorers in a risk-averse sharemarket adds another layer of risk, as does backing small IPOs, given the majority over the past five years are trading below their issue price. Photo: MCT
Compared with mining floats, offers for oil and gas explorers have been rare in recent years. Persuading investors to back conventional energy exploration, often in developing nations, is hard work. Finding good local acreage, or buying into strong projects, compounds the problem for junior explorers.
Despite these challenges, a handful of junior oil and gas floats have produced stellar gains in the past few years and there have been surprisingly few flops. Several coal seam gas floats have struggled but unconventional energy plays are another story.
Pura Vida Energy, Kina Petroleum, Maverick Drilling and Exploration have rallied since listing. Jacka Resources is also getting good reviews from broking firms. Service provider Energy Action has been another standout float.
Caution is needed with junior oil and gas stocks. Energy exploration is a high-stakes game best left to experienced speculators. Unlike mining exploration, which can have different shades of success, energy explorers usually have black-and-white results and deepwater drilling requires huge capital.
Buying thinly traded micro-cap energy explorers in a risk-averse sharemarket adds another layer of risk, as does backing small IPOs, given the majority over the past five years are trading below their issue price.
Zeta Petroleum raised $8.35 million to develop Romanian oil and gas assets and capitalise on energy sector opportunities in former communist east European countries. Zeta is confident its Bobucu gas field in Romania can be brought back into production; it produced 33 billion cubic feet of gas over 18 years before operations ceased in 1995. Its 20¢ issued shares are 6¢.
A 2011 IPO, Ambassador Oil and Gas, raised $16.4 million to explore in South Australia’s Cooper and Eromanga basins. It fully owns a petroleum exploration licence (PEL 570) that is prospective for gas and likely to be drilled in 2013; has experienced management; and scope to add other projects. Ambassador’s 20¢ issued shares have recovered from a 52-week low of 7.5¢ to 18¢. Speculators should watch Ambassador in 2013.
Incremental Oil and Gas raised $5.3 million to develop Californian projects. Its 30¢ issued shares rallied after their January 2011 listing but are back at 24¢, despite exploration success at its fully owned Round Mountain lease.
Jacka Resources has recovered from early share price weakness after listing in 2010 to trade near its 20¢ issue price. Its main focus is interests in African oil projects and it has a 15 per cent stake in a Western Australian project. Jacka is receiving plenty of coverage from sharebroking firms, with several valuing its shares well above current prices.
Maverick Drilling and Exploration is among the top IPOs in recent years after raising $5 million and listing in September 2010.
It has leases in established oil fields near Houston, Texas, more than 100 million barrels of proved pure oil reserves and several exploration targets that could boost its production and oil reserves. Maverick has soared from a 20¢ issue price to as high as $1.49 and is now 94¢.
Kina Petroleum stood out when it listed in December 2011 and this column has mentioned it a few times. Kina has a 15 per cent stake in the petroleum retention licence (PRL) 21, which contains the Elevala and Ketu fields, about 50 kilometres east of the port of Kiunga on the Fly River in PNG’s Western Province. Kina’s management team has deep PNG experience, and its 20¢ issued shares hit a 52-week high of 45¢ before easing to 34¢.
Kina this month announced it had successfully applied for a new licence in the Western Papuan Basin (PPL 435). It has a 50 per cent stake and its project partner is a subsidiary of Cott Oil and Gas, an interesting $8 million IPO that also has a 33 per cent stake in a permit in a gas prospect in the Carnarvon basin off WA. Shell is drilling a neighbouring permit. Interest in Palta should see Cott’s offer close and, if Shell’s news is positive, attract post-listing support.
Pura Vida Energy is the second-best performing IPO so far this year. It raised $4 million to develop its promising Mazagan project off the Moroccan coast. The 2007 discovery of the Jubilee oilfield off Ghana, the biggest oil discovery in West Africa in a decade, sparked greater interest in offshore oil exploration in the region. Pura’s 75 per cent owned Mazagan project borders three blocks acquired in 2011 by Kosmos Energy, the Texan explorer that discovered Jubilee.
Pura Vida soared from a 20¢ issue price to a 52-week high of 95¢ after an independent assessment showed Mazagan’s multi-billion-barrel potential. The shares are now 74¢.