Fox Davies Capital Update featuring Gulf Keystone, Avocet Mining, Baobab Resources, Coal of Africa & Max Petroleum

Oil & Gas Corporate News

Gulf Keystone Petroleum (LON:GKP) (BUY, £2.00) (GKP, 166p, ? (0.30%)) provided an update on its active work program in Kurdistan. The Sheikh Adi-1 exploration well is currently at the 13.375 inch casing point at the bottom of the Cretaceous interval after side tracking around a section of the bottom hole assembly that had become stuck in the open hole. The forward plan is to set 13.375 inch casing and drill out into the top of the Jurassic age formations and the first of the primary exploration targets for this well. The Shaikan-2 appraisal well (9 km east of Shaikan-1) is currently drilling 17.5 inch hole at approximately 1,210m. The forward plan is to drill to the bottom of the Cretaceous interval, set 13.375 inch casing and then drill into the first of the Jurassic age target intervals. The Shaikan-1 discovery well and the Shaikan-3 well are both now tied into the extended well test facility and ready to produce from the Jurassic age Sargelu reservoir. To date, the Company has sold over 63 000 barrels of oil into the domestic Kurdistan market, which has yielded valuable commercial and marketing information. The Company has signed an initial quarterly sales contract for 2,500 tons (for Sargelu crude oil, one ton equals 6.7 barrels) of oil per week to be sold into the Kurdistan domestic market. The 3D seismic data acquisition program has been fully completed on both the Shaikan and the Sheikh Adi structures. Data processing and seismic interpretation will continue until at least June of this year. The location for this well, the second deep appraisal well on the Shaikan structure (6 km west of Shaikan-1), has been completed and the Company has signed a letter of intent with AOS for their Discoverer 3 drilling rig. This 2000hp rig will begin moving from Tunisia to Kurdistan in February and well spud is currently anticipated by the end of March. Shaikan-4 is targeted to drill the Jurassic and Triassic age formations and if warranted, into the top of the Permian. Kalegran (100% subsidiary of MOL) is currently rigging up on the Bekhme-1. This well is designated as a Jurassic exploration well with a target depth of 2,900m, depending on well results. The well is expected to spud by mid-March. The Company also announced the completion of an additional third party analysis of the gross oil in place resources resulting from the Shaikan-1 discovery well. The Ryder Scott results, for gross Total Petroleum-Initially-in-Place (PIIP), on the same P90 to P10 basis and using more conservative porosity and water saturation cutoffs, was 1.52 to 7.52Bbl of total PIIP with a mean of 4.04Bbbl barrels.

Comment: There had been questions about the validity of the previous resources assessment by DGA, Ryder Scott being a recognised name we would hope this will settle the argument. Otherwise the Company is making good operational progress overall even though some drilling problems are being encountered, which is usual in Kurdistan. No change to either price target or recommendation.

Max Petroleum (LON:MXP) (BUY, £0.50) (MXP, 22.75p, ? (3.41%)) published an operational update of its activities on the Blocks A&E Licence area, Kazakhstan. The Company has completed initial testing of the UTS-1 well in the Uytas Field, successfully producing 27o API oil at an indicative rate of approximately 40 bopd from perforations in a Jurassic reservoir from depths of 373-377m during a brief clean-up period. The duration of the test was limited due to government regulations and the well will be placed on a 90-day production test after all necessary government approvals are obtained in the next few weeks. Current mapping indicates that the UTS-1 well is approximately 20m below the crest of the structural closure creating the reasonable possibility that additional Jurassic reservoirs will be productive elsewhere in the field. The Jurassic reservoirs in the well are of excellent quality, with porosity averaging 29%. A section in the Triassic Formation was also tested and found to be non-productive. As previously announced, initial test results from the Cretaceous reservoir in the UTS-1 discovery well indicated a 55m oil column with 31m of net oil pay. Perforations at depths of 120-128m and 155-158m produced 26o API gravity crude oil on pump at indicative rates of approximately 24bopd during a brief clean-up period. Based on a probable oil/water contact at 161m as indicated by revised petrophysical analysis and current mapping, the potential oil in place for the Cretaceous reservoir is estimated at 85-135MMbbl of oil. The Company plans to drill three confirmation wells at Uytas over the next several months and has tendered for a shallow rig to drill the wells. These additional wells will give a clearer picture of potential reserves in both the Cretaceous and Jurassic formations. The Company also intends to acquire a high-fold 3D seismic survey over the Uytas structure specifically designed to image the shallow reservoirs in the field as soon as practicable. The Company has also commenced drilling the ALTW-1 exploration well on the West Altykol prospect in Block E, the eighth of 15 post-salt exploration prospects scheduled to be drilled by the Company on Blocks A&E. The total depth of the well will be approximately 1,800m, targeting potential reservoirs in the Triassic.

Comment: Good news on Uytas with resources assessment well in excess of expectations and some possible upside. We also have high expectations for West Altykol that has just spudded. No change to either price target or recommendation as we forecast the play as a whole and on the face of results to date, half-way through the post-salt drilling campaign, there is no compelling rationale for a change either way.

Range Resources (LON:RRL) (RRL, 8.75p, ? (3.95%)) provided its quarterly report ending 31 December 2010. Quarterly production was total of 53MMcf of gas and 2,588bbl of oil net to RRL from Smith #1 well on North Chapman Ranch in Texas. Independently certified 2P reserves net to RRL are: 19.6Bcf of gas; 1.5MMbo and 1.4MMbbl of NGLs. During the quarter RRL acquired an additional 8.19% in the East Cotton Valley prospect in East Texas with new total interest of 21.75%. In Georgia, consultancy firm, RPS, has identified 68 structural culminations across two blocks with 6 structures prioritised as being drill ready with total gross unrisked oil-in-place estimate of 728MMbbl. RRL and JV partners have entered into amending agreements with the Government of Puntland with key features of: extension of First Exploration Agreement to 17 January 2012; and obligation to spud one well in Dharoor by 27 July 2011 and a second well in Nugaal Valley by 27 September 2011. For the quarter, RRL had net operating cashflow of A$(3.1)m and raised A$2.8m from the issue of shares. Cash at the end of quarter was A$7.5m.

Global Petroleum (LON:GBP) (GBP, 10.5p, ? (0.0%)) has entered into a conditional sale and purchase agreement to acquire Jupiter Petroleum Limited which holds prospective oil and gas exploration interests in offshore Namibia and in offshore Juan de Nova, a French dependency in the Mozambique Channel. The acquisition of these interests will enable Global to participate in the prospective and active exploration province of offshore Namibia and position itself as an African focused oil and gas explorer. Global will acquire 100% of Jupiter, a UK registered company which is owned 50% by Mr Peter Taylor and 50% by Mr Peter Blakey who are both also Directors of Global. The commercial terms of the acquisition, which is subject to approval by Global Shareholders, includes the issue of 25 million Global shares at settlement and the reimbursement of reasonable historical expenditure on the Namibian and Juan de Nova interests. The Namibian Project consists of an 85% interest in a petroleum exploration licence covering Offshore Blocks 1910B and 2010A in the Republic of Namibia. These blocks cover an area of about 11,730km2 in water depths of 1,200-3,000m. The blocks lie adjacent to acreage held by Arcadia Petroleum Limited and Tower Resources Limited and to the south west of blocks held by Chariot Oil and Gas. Wells drilled in the area have established the presence of oil and gas-prone source rocks, good potential reservoirs and migrated hydrocarbons in the region, making this an attractive frontier play. Jupiter has a 30% interest in the Juan de Nova Est Permit which was issued by the French Government in December 2008. The permit covers approximately 9,010km2 and is situated to the east of the small island of Juan de Nova in the Mozambique Channel, immediately to the west of Madagascar and about 100km north west of the large heavy oil deposits of Tsimiroro and Bemolonga. The sale and purchase agreement is conditional on the satisfaction of a number of conditions precedent, including due diligence investigations, a report from an independent expert that the transaction is fair and reasonable to Global Shareholders, and Shareholder approval at a general meeting.

Dragon Oil (DGO, 581p, ? (0.26%)) today announces the appointment with immediate effect of Nomura International Plc as Joint Corporate Broker alongside Davy.

Mining Corporate News

Arian Silver (LON:AGQ) (AGO, 45.5p, ? (4.71%)) reports the first batch of assay results from its Phase 3 drilling programme at its San Jose Property in Zacatecas State, Mexico. Best results include 1.83m (true width) at 177 g/t Ag, 4.83% Pb and 9.24% Zn, and 5.47m (true width) with 242.5 g/t Ag and 1.03% Zn.

Avocet Mining (AVM, 212.5p, ? (0.0%)) announces its production and cash costs for the fourth quarter of 2010. Total Avocet Group gold production for the quarter was 70,857 ounces at a cash cost of US$641 per ounce. Gold production for the year totalled 236,396 ounces at a cash cost of US$660 per ounce compared to 109,548 ounces at US$639 per ounce in the 12 months ended December 2009. Further information will be included in Avocet's preliminary financial results for the year ended 31 December 2010, due to be released on 22 February 2011.

Baobab Resources (BAO, 17.5p, ? (6.06%)) announced an update on work completed on the Monte Muande magnetite/phosphorus, base and precious metal project in Mozambique. Work includes compilation of trench and drill hole data from the Geological Institute of Belgrades exploration campaign at the deposit between 1983 and 1985. Significant drilling intercepts include 40.1m at 23.2% Fe and 4.98% P2O5, 44.1m at 33.3% Fe and 3.21% P2O5 and 62.3m at 25.1% Fe and 4.74% P2O5.

Coal of Africa (CZA, 106.5p, ? (0.23%)) provides its operational report for the quarter ended 31 December 2010. The company mined 954,915 tonnes of run of mine and 686,403 tonnes of export quality coal produced at the Woestalleen and Mooiplaats thermal collieries. The Company also entered into an agreement with Rio Tinto to acquire the Chapudi Coal Project and several other coal exploration properties for US$75 million. The Chapudi Coal Project has a JORC compliant resource of 1040 million tonnes.

Red Rock Resources (RRR, 12.25p, ? (9.36%)) reports the results of the drill programme at the Livingstonia uranium prospect in Malawi conducted by its 24.9% owned associate, Resource Star Ltd. Drilling included 13 holes for more than 1,500m of drilling with all but one of the holes being mineralised. Best results include 11.80m at 517ppm eU3O8, 21.65m at 306ppm eU3O8 and 33.95m at 338ppm eU3O8.

Oilfield Services Corporate News

Rig Count News. The Baker Hughes Rig Count the key barometer for the oilfield services industry and in particular the drilling contractors. Last weeks data remained overall positive for the industry. The U.S. Rig Count is up 19 from the previous week standing at 1732, up 415 year over year with the number of Land rigs at 1689. The number of oil rigs was up 11 at 809, gas rigs up 7 at 913 with directional/vertical rig count up 11 at 1,210.

AMEC (HOLD) (AMEC, 1193p, ? (2.37%)) announced a £140M three year services contract with the BG Group to provide EPS work for all of BG groups facilities in the North Sea.

The shares currently trade on 2011 and 2012 EV/EBITDA multiples of around 11 and 10 times respectively, with prospective PE multiple of 18 times. The valuation is fair and reflects the prospects of the group. Amec has a strong competitive position in the energy and power markets with broad geographical coverage. Organic growth prospects are good boosted by a strong order book. The risk reward profile is attractive with the group offering defensive characteristics given its high valued added and asset light energy project schedule. We retain our Neutral recommendation.