FirstEnergy Global Energy Conference Report: Pt I

24th Sep '10 by marben100

18 comments 15079 reads

Introduction & Overview

Firstly, I owe Djpreston a big "thank you" for recommending me to the organisers, allowing me to attend this conference, held on 20th and 21st September. I found the event extremely useful, kinda like Oilbarrel on steroids, as there were a total of 29 companies presenting over two days. I caught most but not quite all of them, due to exhaustion & information overload! Given FirstEnergy's origins & focus, it will be no surprise that many of the companies presenting are listed on the TSX (some exclusively there). So, as Mattybuoy has been banging on about for a long time, :0) if you want to get serious about natural resources investment, you need an investment/trading platform that allows you to deal in international markets. He and others have suggested TD Waterhouse and Interactive Brokers for that purpose.

The sheer volume of info prevents me from doing comprehensive writeups, so most of this article will be a bullet list of key headlines & links to data. Each of the eight sessions was themed, so I have broken the list up by those sessions. For manageability, I have split this article into two parts; the first dealing with Monday's sessions and the second with Tuesday's. Where I have NOT provided a link to a company presentation, please contact me via Stockopedia's messaging system for further information. I must stress that due to the "information density" most of my comments are "first impressions" and I apologise in advance where I may have misunderstood or not done a company/presenter justice. Corrections/elucidation warmly welcome! The notes are intended as a springboard for readers to DTOR. Besides the headlines, two presentations stood out for me: Niko Resources and Trican Well Service, so I will go into these in a little more depth in separate articles. Whilst Niko is (possibly) a particularly interesting investment in itself, the facts I learnt from Trican are of general applicability to anyone investing in, or considering investment in, companies with a shale gas or oil focus.

Perhaps readers may care to pick one or two companies, research them more fully and write articles on them? If you fancy that idea, might be a good idea to post your intentions here, to avoid duplication of effort.

Companies covered in this part:

Enquest Plc
Cirrus Energy Corporation
Sterling…

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StrollingMolby

24th Sep '10

Mark, a simple 'thanks' seems woefully inadequate for this article (and the many others) that you spent enormous time and effort researching and writing-up - but I am truly grateful!

Now to settle in with another coffee and digest the info above!

SM

safetyfirst

Thanks mark, excellent work

marben100

Just read djp's excellent report. :0) Realised that I forgot to thank FirstEnergy for organising this event. As djp says, it was very well organised and, as I commented in my article, very useful. A huge amount of work must have gone into organising the event and in preparing the tome that accompanied it.

Thanks also for the kind words above. Motivates me to get the second part done but will have to juggle priorities, as ever. :0( Fortunately, Ed & Dave have saved me some effort with their excellent write up of the Colombian focussed session. I would highlight that Colombia may be an overlooked opportunity, with investors scared by the country's troubled past. This article provides some useful background: http://www.stockopedia.com/content/the-shifting-colombian-equity-story-from-near-failed-state-to-strong-fundamentals-46991/ I had the views expressed in it corroborated anecdotally last year, on meeting a Colombian couple whilst on holiday in the Middle East.

Cheers,

Mark

PS Thanks also to DJP, whose earlier report somehow slipped past me!

djpreston

I only wish I could have done as good a job as Mark.

As he says, the sheer volume of information in such a short period makes writing anything up and the style of such a report, almost impossible.

Id thoroughly endorse his suggestion that people pick a stock (or two?) and then feedback their own views.

Sadly Im snowed under at the moment so any more write up will have to wait.

davjo

Thanks for your splendid write-up Mark...and to djp for his summary too :-)

Having scanned the list, one company jumped out for me - Sea Dragon Energy (SDX.V)

This comprises the old Centurion Energy management who sold out to Dana Gas for $1.2bn, a 10 bagger for me[:-)].

Brief details :-

Shares out fully diluted 419m (options/warrants 43m)

SP $0.25

M/cap $117m

Debt Nil

Cash $18m

Assets (Egyptian)

N.Gemsa 2P 1.7mmbbls producing 940 bopd net sweet crude

Cost oil 30%. Profit Oil 23:77 con:gov

Al Baraka OIP 100mmbbls(gross) 2P 6.3mmbbls producing 1100 bopd net light crude

Cost oil 40%. Profit Oil : 35:65 con:gov

Combined assets expected to increase production to 4600 bopd in 2012

So SDX have an EV of $100m for 2P reserves of 8mmbbls. Not cheap on the face of it at $12.5/bbl. However, the fiscal terms are attractive for Egypt, especially Kom Ombo Block 2 where the Al Baraka field lies. Reserves there are pending review, unsurprisingly, given the OIP. The Kom Ombo licence was in fact part of Centurion's 100% owned assets when they sold out to Dana Gas. SDX bought 50% interest from Dana for $45m earlier this year. The management obviously knows the acreage as well as anyone.

There is decent explo upside in Kom Ombo particularly.

In summary, the management have a proven good track record and pretty decent Egyptian relationships. Downside looks fairly limited. I don't see this company as having much of a multi bag chance but it does seem a steady as she goes outfit with half decent prospects of growth.

DYOR before investing. I haven't taken a position but I might do if the sp dips over the coming months....I'm a bit fussy these days ;-)

ohisay

25th Sep '10

Hi Mark - thanks for the excellent write up .

I picked up this article on one of the companies that you liked - Niko resources.

http://seekingalpha.com/article/226750-niko-resources-the-cash-flow-wave-continues-to-grow
Very interesting reading I must say.

I have an indirect interest here as I have a smallish interest in Vast Exploration*** one of Nikos partners in Iraq which the article mentions.

Niko has an interesting drilling project that is ongoing in Kurdistan where the company is drilling the Qara Dagh exploration well with its partner Vast Exploration. This well is currently drilling ahead with full results expected in the next month. This well has several hundred million or billion barrel potential and would be material to Niko if successful.

(Vast actually indicate end of October /first half of November.)

****
http://www.vastexploration.com/

Hi davjo,

Thanks v much for those comments, which are extremely useful. From a purely technical/analytical POV SDX looked pretty interesting to me too. However, with the limitations of time, one has to make judgements on what to pursue based on impressions, as well as purely the presentation content. Apologies in advance to Said for the following comments.

My impression of the presentation was that it seemed a little "spivvy", so I was sceptical, especially as SDX was so early-stage. Said stated that Sea Dragon was his seventh successful entrepreneurial venture, Centurion having been the last one. He also indicated that the SDX team had high-level Middle East contacts. Your remarks suggest that my impression was wrong, and if so then I'd agree that this is definitely worth further research.

As you suggest, Kom Ombo is the potential medium/longer-term star and the presentation spent some time on it. The theory is that the block may be another East African rift basin, like Lake Albert and the Sudanese Muglad Basin. SDX has a 50% WI in Block 2 which currently produces 700bopd gross. With a frac job and well twinning, this is expected to rise to 2,000bopd. The Al Baraka field within Block 2 is estimated to contain gross recoverable reserves of 10-15mmbbls. 4 wells are being drilled in 2010, with 26 development wells in total planned between 2010 and 2013. A further 300mmbbls of STOIIP is being targeted by explo within the block. Based purely on development drilling, Said is aiming to raise net production from Al Baraka to 3,000bopd by the end of 2012. At $75 oil (Brent -$3.50), contractor netback is US$30/bbl (with cost recovery taking that to $45.75).

SDX is debt free and has $18M net cash. See slide 19 for the forward CAPEX profile. Looks to me (on a scan, without detailed calculation) like that should be covered from current cash + cashflow from production.*

If Said can hit his goal of end 2012 net production of 6,000bopd, without further fund raising, the current market cap below C$100m will look pretty cheap... and there's explo upside on top. May well be worth a medium-sized punt, having DYOR.

*A quick aside: if only more companies would present that data so clearly: forward CAPEX, estimated production & fiscal regime details, as provided by SDX, are what investors really need to value producing oil cos. Boe in the ground and current production just aren't good enough.

PS further risk factors to consider (besides operational & geological risk), which apply to many such investments, and should form part of one's judgement of how much risk to take on, are:

Impact of a sharp fall in the POO, should there be a further economic slowdown (could hedge that risk, at some cost)
Political risk in Egypt

ManSiarad

Mark,

Said stated that Sea Dragon was his seventh successful entrepreneurial venture, Centurion having been the last one. He also indicated that the SDX team had high-level Middle East contacts. Your remarks suggest that my impression was wrong, and if so then I'd agree that this is definitely worth further research.

Here's some background for you:

He's a board member of Dana Gas (the UAE one), having been appointed after it took over Centurion. That should provide links into Kurdistan as well as the UAE, Egypt, Tunisia and the Sao Tome / Nigeria JDZ.

Bloomberg Business Week profile here:

http://investing.businessweek.com/research/stocks/people/person.asp?personId=7372809&ticker=SDX:CN&previousCapId=29646140&previousTitle=SEA%20DRAGON%20ENERGY%20INC

Here's a Business Week map of his connections

http://investing.businessweek.com/research/stocks/people/relationship.asp?personId=7372809

He's said to have unparalleled connections in Egypt

http://community.nasdaq.com/News/2010-09/scott-koyich-oil-gas-upside-potential.aspx?storyid=36384

Scott Koyich of Brisco Capital:

From 2002-2007, we represented a TSX-listed oil and gas company with properties in Egypt called Centurion Energy. Centurion was bought by Dubai-listed Dana Gas (ADX:DANA) in February 2002 for $1.2 billion, or $12/share. Fast forward to today, this management team is attempting a repeat with Sea Dragon Energy Inc. (TSX.V:SDX) . You never want to bet against CEO Said Arrata; his connections with the Egyptian government are second to none and this CAD$0.25 junior may become a great leverage play going forward.

Arrata graduated from Cairo University - presumably of Egyptian origin?

Named as one of Alberta's 50 most influential people in 2008

http://albertaventure.com/2008/07/albertas-50-most-influential-people-2/

Said Arrata
Arts Backer
Among the province’s growing number of modern Medicis, Said Arrata could very well be the one with the deepest pockets. In 2007, The CEO of Centurion Energy International Inc. (acquired last year by Dana Gas) cut a cheque to the Calgary Opera, saving it from near bankruptcy. Though the amount has never been reported, it’s said to be large enough to cover the organization’s operating expenses for next eight years. In 2006, the Globe and Mail named Arrata the 56th best-paid CEO in Canada.

A mover-and-shaker in Alberta, clearly, and I suspect he does, indeed, have good connections in the Middle East.

Mattybuoy

Niko, with its $500m "annuity", is a beaut.

There are N things that could add materially to its stock price and only about 2 which could reduce it, these being a) a repeat of the forced selling fiasco as in 2008 or b) an India-Pakistan war.

As to the N, take your pick:

Big discovery in Kurdistan (seems likely IMO).
Indian govt allows commercial nat gas pricing, or moves towards it (just a matter of time)
Increase in production from the 100+ TCF K-G gas fields (probably dependent on the second item)
World class discoveries in Indonesia (Mr Sampson is optimistic - "17 x 10 TCF targets")

The stock is already a 100 bagger (if you go back 10-12 years) but IMO there is every chance it will 10 bag again over the next 5-10 years, and the risk/reward is just lovely :-)

P.S. To marben100 - with only around 50m shares out Niko is a classic example of dilution avoidance as we discussed elsewhere. I don't know the history as to how that was achieved mind you.

schober

27th Sep '10

This chap seems keen on niko

http://seekingalpha.com/article/226750-niko-resources-the-cash-flow-wave-continues-to-grow

points out that niko gets $4.25/mcf in india but costs are 25/30c/mcf

28th Sep '10

Just a quickie but I had forgotten a company we invested in a couple of years ago and sold out of in June 09 to lock in a gain.

For the more adventurous, this may be an interesting one to look at that brings in some of the elements highlighted by some of those attending the conference.

The company is Groundstar Resources, a $23m minnow but with three main interests:

1. KRG - involved with Niko.
2. Guyana - involved in Cancol
3. Egypt - West Kom Ombo (next door to Sea Dragon/Dana Gas.

Largely farmed down to minimal expense but you would need to DYOR on these as Im somewhat behind the times and forgotten the precise terms of the deals.

There's an awful lot of activity coming up or ongoign for a very minimal market cap. Undoubtedly there will need to be further funding rounds if anythign is successful but the management team will await positive newsflow before tapping up the markets.

Thought it might interest some of the brave souls out there.

I think Groundstar might be a bit dodgy. There were some director resignations a while back due to successful insider dealing prosections.

The assets are nice though.

29th Sep '10

Matty

I don't recall any insider prosecutions. I'll have to have a dig - outside the period I held?

The main director that I deal with there is Stuart Macdowall, the former Canadian Ambassador to the UAE.

The main director that I deal with there is Stuart Macdowall, the former Canadian Ambassador to the UAE

Who is, of course, an excellent fellow (or was as ambassador)

'Twas mid June.

http://www.marketwire.com/press-release/Groundstar-Announces-the-Resignation-of-Vice-President-TSX-VENTURE-GSA-1278591.htm

http://www.marketwire.com/press-release/Groundstar-Resources-Announces-Resignation-of-Director-TSX-VENTURE-GSA-1278803.htm

FirstEnergy Global Energy Conference Report: Pt I

Introduction & Overview

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Marben100

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