Malcy's 2017 O&G Bucket List

1st Feb '17 by gus 1065

17 comments 12163 reads

Link below to MGW's 2017 bucket list picks for the Oil and Gas sector together with a review of the selections made in 2016.

http://www.malcysblog.com/2017/02/2017-bucket-list-2016-results/

Stockopedia metrics don't really work so well with these kind of mainly exploration and development energy stocks - just take a look at the stock ranks of the top 5 in the list - but together with the mining/other natural resource stocks 2016 was a particularly good year (fully accepting the previous three were pretty dire) for these sectors.

Gus.

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Gus 1065

Premium Member

Ex investment banker specialising in ABS/RMBS and Principal Finance. Now a slightly less stressed house husband, dog walker, long distance cyclist and scuba diving PI.

17 comments

Carey Blunt

1st Feb '17

I followed Malcy's selections last year using a dummy Stockopedia portfolio (I was too chicken to commit any real money). I bought a (fantasy) equal amount of each of the stocks.
Its up almost exactly 100% in the year since then.
The only loser was Pantheon Resources (LON:PANR) which is 4.26% down and has the lowest stockrank. The biggest gainer ( Hurricane Energy (LON:HUR) ) is up 395% and Ithaca Energy Inc (LON:IAE) is also up 394%. Both have ranks between 20 and 45.
I don't think I can post a link to the folio here that people can see but it was an interesting experiment. Mostly I think it was down to timing as oil was at a real low at that point and has steadily gone up since then.
However, i can see that a bucket of Oil shares could work as a geared oil price portfolio a bit like NAPS but horrifically riskier!

gus 1065

1st Feb '17

Hi Carey - thanks for the feedback.

As luck would have it, I was already invested in a few O&G stocks and was looking to find some other investments to allow me to spread the risk through diversification when I came across Malcy's bucket list this time last year. With oil bottoming out at US$25 a barrel it seemed a reasonable call that there would be a recovery at some point - the hard part was trying to separate the wheat from the chaff in a sector that has historically had more than its fair share of charlatans. I found Malcy's bucket list as well as the ongoing daily blog very useful in this regard and have built up quite a sizeable sector holding.

I currently hold nine of the 14 in the 2016 list as well as SDX Energy Inc (LON:SDX) and Jersey Oil and Gas (LON:JOG) of the new picks for 2017. (I hold some other O&G sector stocks too (such as Royal Dutch Shell (LON:RDSB) , BP (LON:BP.) and EnQuest (LON:ENQ) ) as well as a few of the oil service companies). Sods law, my largest individual investment was in Pantheon Resources (LON:PANR) which appears as one of the laggards of the 2016 list. However it did peak at over 180p last summer and I was able to top slice so my average price is below the current level and after a few operational hiccups they seem to be getting back on track so I'm still optimistic for this company's prospects. As you say Sound Energy (LON:SOU) , Ithaca Energy Inc (LON:IAE) and Hurricane Energy (LON:HUR) have all been stellar performers but even the mid table companies have done pretty well (albeit from a very low base).

While I agree with your comment that oil generally had a really good year in 2016, due credit to MGW in that there have been plenty of basket cases - Gulf Keystone Petroleum (LON:GKP) springs to mind - and his list of 14 stocks is remarkably free of them.

Best,

Gus.

Bushranger

1st Feb '17

I hold Hurricane Energy (LON:HUR). and SDX Energy Inc (LON:SDX). Only bought in last month. I was waiting for this years bucket list to decide what I might add to. After going through Malcy's blogs I thought these two would be definate picks, so glad to see they were definately in it. May look at holdings I can dump to shift to one or more extra on the list.

gus 1065

6th Feb '17

Ten green bottles .......

Bid for Ithaca Energy Inc (LON:IAE) announced this morning by significant existing shareholder Delek @ 120p/12% premium. Looks low ball but may tease out others interested in North Sea assets, especially given the recent weakness in £ in a US$ based commodity business.

http://www.londonstockexchange.com/exchange/news/m...

Possibly first of several salvos in a wider O&G M&A shake out?

Best,

Gus.

Carey Blunt

6th Feb '17

I've been range trading Amerisur Resources (LON:AMER) over the past year, buying at around 25p and selling over 30p, fairly predictable pattern. For those interested in doing their own research its about 25p at the moment.

VegPatch

6th Feb '17

I am told the Ithaca bid values the company on $23/boe on a 2P basis (i.e. Proved and probable barrels of oil in .the ground). This high valuation captures the fact that £430m has been spent on developing the Greater Stella field and it is shortly due to go into production.

I wonder what a sensible metric for 2P reserves which have been discovered but not yet had any capital spent on the field infrastructure yet. A bit like buying a piece of greenfield land with planning on it. I wonder if using $5 bbl on a 2P basis is too aggressive?

The reason I ask is that Jersey Oil and Gas (LON:JOG) is drilling the Verbier prospect later this summer. They have farmed out 70%to StatOil and retained 18%. The prospect is hoping to prove up a 117m bbl recoverable field (P50 basis). They are carried for the drilling of 1 well for up to $25m. The prospect is well situated between 2 producing fields Buchan and Tweedsmuir South (Talisman) about 120 miles off the coast from Aberdeen. The Buchan field started producing in 1981 and is only scheduled to close in Sept 2017, so maybe that will free up some pipeline capacity if oil is found at Verbier.

Statoil expect to drill the well this summer. It's a wild cat well, so the chance of success is low, but we know the area is oil prone but any discovery will still need a good trap and for the oil to be mobile to the surface. In a video I watched JOG management put a 1 in 4 chance on a discovery. That is much higher admittedly than the 1 in 10 or 15 that is the normal discovery rate. But it takes into account the 3D seismic that has been shot and the general area productivity.

My VegPatch maths goes like this
100m * $5 / GBPUSD 1.25 * 18% ownership = £84m

Current mkt cap £14m

= 600% upside

And probably >75% downside in the case of a duster.

On a risk basis the shares are worth probably 50% more than where they are trading
25% chance of success * £84m = £21m
75% chance the shares are basically worthless

Current mkt cap £14m

£21/£14 = 50% upside

But to be honest it's all academic. It all depends on the well being drilled.

So it's v high risk and not normally in my comfort zone but I must admit I have bought a few...

gus 1065

6th Feb '17

Hi VegPatch.

Thanks for the commentary - not least your opening comment about the valuation being put on Ithaca Energy Inc (LON:IAE) at 120p as I hadn't seen that.

Your views on assessing Jersey Oil and Gas (LON:JOG) make good sense, the $64,000 questions being the valuation per barrel on the reserves found at Verbier and the probability of success in finding them (and by extension at what cost for extraction). Having StatOil in as a partner gives a good feeling but as ever there is a fair bit of speculation involved as in any game of (Russian) roulette. Likewise, they apparently have other prospects so it is not their only play but probably their brightest prospect at the moment.

I have also taken a small opening position and am watching with interest. Perhaps not one to bet the house on at the moment but the odds seem reasonable.

Best,

Gus.

VegPatch

7th Feb '17

Hi Gus,
never ever bet the house on an oil E&P stock (unless you have multiple houses).
But I like the risk reward and actually think the shares have every chance of rising 50% from here pre drilling which at least would allow me to take out half of my initial stake before we ever know the result
That's the theory anyway...

Bushranger

7th Feb '17

I would agree with you that credit has to be given to Malcom for seperating the chaff from the wheat. He sets out clearly his critera for the list and is open about the risks. I value Paul and Grahams expert opinions on small caps and Malcoms expert opinions on oil companies. None however control the fortunes of companies or, in Malcoms case, where the oil lies. But their opinions are a great starting point.

gus 1065

27th Feb '18

Appreciate it’s not to many people’s taste here, but for those with appetite for the black stuff, here is a link to Malcolm Graham Wood’s 2018 “bucket list” for the O&G sector together with a review of his selections from last year. Pretty mixed bag last year, perhaps surprising given the general strength in the price of oil and gas, but that’s the nature of this particular beast.

http://www.malcysblog.com/2018/02/delayed-bucket-list-2018-six-new-stocks-now-review-planned-june/

(As Basil Fawlty once nearly said “I think I might have mentioned the “oil” word but I think I got away with it”.)

Gus.

willhampson

27th Feb '18

Thanks Gus. Though not my favourite commentator, it is still interesting to read his reports from time to time. I've never quite understood the aversion to the O&G sector exhibited on Stocko sometimes, but that's, of course, what makes a market. I think people tend to lump horror stories of speculative exploration drills going wrong - see recently UKOG and Angus - as being indicative of the whole sector. Whereas, the reality is that producers are a completely different beast altogether (with risks as well of course).

Nice for a little confirmation bias that I own a few of the stocks in the bucket list!

tic_tac_toe

27th Feb '18

Hi Carey. I have some HUR and it swings a lot on news - but seems to be more stable as it nears 1st output.

I met somebody at the AGM who had 1,000,000 shares. I imagine they must have sleepless nights!

AnonymousUser252054

27th Feb '18

I ran a fantasy portfolio from 15.02.17 of Malcy's list, set up with just one share per stock pick to keep it simple. Here's a grab from today.

hayashi22

28th Feb '18

Malcy is much better at sporting stuff compared to oil.

LongValue

28th Feb '18

Malcy has, again, put Amerisur Resources (LON:AMER) on his bucket list. So it might be worth considering some news that was made public a couple of days ago. ONGC and GeoPark announced a “Strategic Latin American Acquisition Partnership”. Bearing in mind, that ONGC are in partnership with Amerisur Resources (LON:AMER) in its CPO-5 Block, I would suggest that this could have major upside implications for the company. Whether or not this had anything to do with yesterday's 4%+ rise in Amerisur's share price, I don't know. However, I do know that yesterday's rise was supported by strong volume. Over the past 12 months the trading volume was only exceeded on two other occasions.

Albertos

28th Feb '18

I have two problems with Amerisur Resources (LON:AMER)

Firstly, there's always something else needs doing when the impression has been given its done. Pipeline now needs a pumping station - OK cost will be recouped - but the pipeline was supposed to be sorted.

The other is royalties - I think Amerisur Resources (LON:AMER) is being coy about these - I don't know what the exact level these represent , but their half year presentation, if I'm reading their charts right, suggests quite a major slug of cash will be paid out. These are not included in their cash costs of extraction but seem to be material in considering their cash profits.

Phil

LongValue

28th Feb '18

Patience is definitely a prerequisite to being an Amerisur Resources (LON:AMER) shareholder. The company has agreed to upgrade the pumping station at Chiritza in Ecuador. However, the costs will be reimbursed by the Ecuadorian Government – it will be offset against the fees that Amerisur Resources (LON:AMER) pays for the use of the RODA pipeline. In exchange, it has gained another 4,000 BOPD capacity. That takes its guaranteed minimum capacity through the pipeline to 9,000 BOPD. The intention appears to be to put the production from its forthcoming drilling campaign through its low cost pipeline system.

As for the royalty regime, my understanding is that Amerisur Resources (LON:AMER) pays a flat rate of 8% to the Government on production up to 5000 BOPD per field. And then a sliding scale up to 20% for production up to 125,000 BOPD per field. In addition, there is an “X-Factor” applicable to some fields won in a bidding process. This ranges from 0% to 29% of gross production after royalties per field – with the majority of its fields at or close to zero but with one at 29%. I would suggest that considering that it's sitting on substantial tax losses, it puts the company in quite a healthy position. Incidentally, at current production levels and at today's oil price, I believe it's adding some US$300,000 per day to its coffers.

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Malcy's 2017 O&G Bucket List

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Gus 1065

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