The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
I am grateful to whoever posted the link to this research note. It was comprehensive and much superior to the ever uncritical reports from the house broker. I share the view that the key insights are the review of the worsening depth position and the positive prospects for a rapid growth in income. What was not said directly, is that assuming the key shareholders do not want a dilutive capital raise, Zephyr will need to up development investment as best it can but cut back on exploration expenditure. Another obvious comment is that any further unexpected delays will put more stress on the debt position. Shareholders in Touchstone Exploration will tell you about the damaging impact on the share price of delays, even though the expected wall of cash remains just over the horizon.
exploration costs.
I would welcome clarification from those with a better memory than myself. My recollection is that Shell found gas at Royston but pulled out as it was not what they wanted at the time. Two queries that then follow.
1. Am I correct in assuming that the oil results reported today are from a greater depth than anything that Shell drilled.
2. I have no recollection of TXP checking out the Shell gas discoveries at Royston. Have I missed something or am I mixing this up with another pr operty?
News on non operated assets continues to look good going forward. State36-2 well still being worked on. I had hoped for more detail here and clearer timescales than ‘near term’. Active management of land holdings a positive for the long term but of little immediate relevance. I would have liked some information about progress with sorting out mothballed processing facilities and updated timescales re gas export pipelines. No mention of any other exploration work going forward in the Paradox. The problem with the State36-2 well has clearly led to a major loss of momentum re opening up the Paradox Basin. Still a good long term prospect but I cannot see a sustained rise in the share price before late this year/ early 2024.
A very positive RNS that confirms the promising long term story that we all know about. However, no timeline updates re sorting out our well accident, renovating the processing/pipeline assets we have acquired, or linking up with the existing gas network so that we can sell gas from the Paradox. A presentation by CH would be helpful. In the meantime is anybody going to the AGM and able to report back on anything said beyond the usual formal business?
Northern Magic
1. I assume that Aminex will want to sort out Kiliwani North and perhaps follow up any leads that result from the gratis survey of part of the surrounding area.
2. I think we still have some offshore exploration rights and will presumably need to either do some exploration or give up the rights.
3. I seem to recall that our partner advanced us some money at one point to keep us going until a rights issue was made. I cannot recall now whether this has been repaid, or whether repayment is first call on any cash flow from production.
4. We have cut costs to the bone but will need to re build some in house technical capability, even if it is just enough to be a competent buyer of services from other companies.
I assume that 1 and 4 are probably not very expensive and that 2 may cost more but will presumably be limited initially to doing enough work to attract a farm in partner.
The key statement in the Reserve Report was the comment that no exploration or development wells were drilled in 2022. Given that the broadly static reserve position is hardly surprising. The lack of progress here is simply a reflection of endless delays caused by geographically remote senior management, a government and contractor’s labour forces with a tomorrow will do attitude, difficult negotiations with Shell and cash flow issues due to expected income streams being delayed. Hopefully all concerned will have learned something from a very frustrating period and the start of some decent income streams will help with both exploration and development. Let us hope that the 2023 Reserve Report shows some real progress.
Holding shares in a company has an opportunity cost in that the money could be doing better in another share. Perhaps a lot of shareholders have lost confidence in both the management of TXP and T&T and are cutting their losses. This plus general market turmoil probably explains the rush to sell on the first bit of good news for months.
The lack of clarity about what happens when in the future may also reflect funding issues. The last straw at the moment would be a share issue at a big discount to fund ongoing investment. If funding is a constraint I would rather they worked within it and do the time consuming bits of planning. Holding off investing in exploration whilst the cash position improves will avoid a need to raise funds or sell out on the cheap.
Thebhoys
Personally I hope that nobody buys us until we are further into our multi-well programme. I am not sure about the BP link. My recollection is that the arrangement relates to marketing the oil and/or gas. For all I know BP could do this for lots of small producers of which we are just one. Can anybody cast any light on whether such marketing arrangements are common in the U.S.A?
Setantal
I agree with your disappointment about the company not telling us until the last moment about not being able to follow testing 16-2 by starting production. I do seem to remember all sorts of postings where assumptions were being innocently made by shareholders about the likely level of production and income from 16-2 during 2022. That said, we have 2c reserves from 16-2, the prospect of gas/oil production in the next few months and did not get a duster.
The results from the non operated assets are exactly as expected. It is important to recall that their purpose after repaying the money we borrowed to finance them is to fund our exploration programme. Most but not all of these assets are short lived, so do not expect the cash flows to keep on growing unless we either buy some more wells (possible if the price is right) or the current downtrend in the oil price reverses (possible but not certain).
As others have argued, the key positive share price drivers are likely to be drilling results in the next few months, unless there are unexpected delays or the cryptocurrency mining fails to materialize. A take- over bid is always possible but I would rather put my faith in CH to deliver than see us taken out at a small premium to the current share price. The key defense here is probably the significant blocking stake held but CH and his backers.
The key point here is that TP claim that the CPR wishes expected to be published early next week. As Zephyr’s broker they have presumably already seen the CPR amd should be aware of the RNS/ publicity timescale.
maestro1
I am assuming that drilling is intended to happen towards the year end. In theory at least the partnership will have had time to analyze the survey data and get the equipment into place. That said, investors in oil and gas exploration companies have plenty of experience of dates that slip due to the need for regulatory approval, bad weather, Covid or equipment sourcing/transporting problems. The experience of Touchstone Exploration in Trinidad and the resulting impact on their share price of a failure to meet published deadlines has been a clear. example during the last year. We are not exempt from these risks and they should have been included in my previous posting. That said we do have a good buy-in deal and the survey work is underway - all positive after years in the wilderness.