Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
Lots of opinions on this BB, some more useful than others. How about the views of Fox-Davies from latest broker note? Yes they are paid by PRD but they also have significant industry experience and are putting their reputation on the line publicly. They also have a direct line to the management team and can add a different insight. I think the latest one helps frame the latest updates very well (and I think PRD and/or FD should have promoted this note better - even a link on twitter to acknowledge it)
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Our view
The share price momentum had stalled since the last placing, due to the continuous delays in the testing programme and the uncertainty about the actual start of testing.
We believe this operational update provides clarity on the timing of the testing programme and certainty that all is now in place for it to happen in timely manner.
This should reassure the market and de-risk the shares somewhat.
The announcement of the MOU with Afriquia is another de-risking event which removes any conceivable commercial risk on the CNG venture up to 50MMscfd and should add further impetus to the share price.
The flexibility around which party will bear the investment into CNG trailers is also a key feature of this agreement as it potentially shields Predator from this capital-intensive part of the business value chain.
Most importantly the transport and distribution of potential CNG production will be carried out by an entity with the relevant experience and expertise in the downstream sector. This will relieve Predator of a significant future operational burden to allow the Company to focus on its core strength of drilling and early stage project development where the scope to capture value in the exploration, appraisal and development cycle is highest.
We have revised the commercial risk ratings for the CNG assets in our sum-
of-the-parts to account for these announcements, with only a residual
commercial risk remaining. As a result, our Total risked NAV is broadly
unchanged at 37.4p (vs. 37.6p previously) and our 12-month target price
remains 35p (Figure 1 for revised NAV and Figure 2 for previous NAV).
There’s a new Fox-Davies note out, sorry no link (someone shared in the TG group)
Summary
• Predator Oil &Gas published two RNS on 30/11/2023, one providing an operational
update and the other one announcing the signature of a Memorandum of
Understanding (MOU) with Afriquia Gas, the Moroccan leader in the distribution
of LPG and a subsidiary of the Akwa Group a large Moroccan conglomerate
company active across a number of sectors.
• The operational update provides clarity on the timing of the testing programme
(January 2024) for the existing discovery MOU-1 and appraisal wells MOU-3 and
MOU-4. It also removes the uncertainty that it will now actually happen on time.
• The operational update also provides visibility on a future drilling programme to
be carried out upon the successful testing of the existing wells.
• The MOU with Afriquia Gas provides commercial clarity for a potential CNG
development up to 50MMscfd of production and removes any conceivable
commercial risk, also upon a successful testing programme.
• Afriquia Gaz last reported revenues were MAD 8.72 billion, approximately £700
million demonstrating gravitas in relation to the potential for CNG in Guercif.
• We have revised our commercial risk assumptions for the various assets in our
sum-of-the-parts and we have also accounted for the higher number of shares
outstanding after the last equity placing in August 2023.
• Our target price remains unchanged at 35p as a result.
There are several intertwined events here:-
1. Flow-testing of the wells
2. Declaration of commerciality
3. Offtake discussions
This is not like SDX which is an existing producer and has an established process for testing.
The above events need to be co-ordinated and in such a way that ONHYM are happy with.
Patience needed I'm afraid, but should be worth it.
My main takeaway from GRH adding more is that the risk-reward at the current share price is better than it has been for some time.
I would imagine a better buy now at 10.5p than at the 1.5p where our Graham started accumulating, give the extent to which Guercif has been derisked.
He did not state that testing would be complete in September. He said it was on schedule, or words to that effect.
There are third party dependencies (item coming from France), the possibility of corporate transaction discussions, it could even be something unexpected going on.
You can only judge PG once we know the reason.
They don't have money allocated to drilling at present. The last raise was primarily for flow testing existing discoveries and CNG project. In the event of successful flow testing, the CNG items can be financed by the alluded-to debt instrument and the money previously committed to CNG is freed up for drilling.
We were explicitly told this in RNS of 30/08/23:
"Subject to rigless testing results, an initial Compressed Natural Gas development can potentially be funded by a debt instrument linked to production thereby freeing up existing cash resources for more high impact drilling."
Testing may not be that important for the ongoing discovery of the basin / potential partners, but if you are financing that drilling with equity placings then you want a higher share price. It's essential to test those discoveries so that the retail muppets (us) can ascribe a value more fitting to what's been found.
Even better - cashflow from CNG to finance drilling would make this share a beast.
I found the comments around commercial vs state-led interesting. When this was mentioned before it seemed an unlikely proposition.
The key drivers behind a state-run LNG appear to be :-
1) An insistence on non-fracked gas
2) it's only there as backup energy source if needed
For 1 - We know PRD have proposed a solution using non-fracked gas (from Morocco and/or Trinidad)
For 2 - Could an agreement be reached for setting up LNG as a backup solution only? I expect minimum service levels would have to be agreed for a commercial entity to engage. I doubt the state has (or can acquire) the expertise to go it alone.
Watching with interest
Back in spring it was deemed lower risk and more cost effective to do a new drill (MOU-3) than to re-enter MOU-2.
It's all about time and money, and realising shareholder value for lowest outlay. I suspect MOU-2 remains down the to-do list for now.
I think priorities are testing MOU-1,-3 and -4; CNG development and planning new drill Jurassic drill.
I don't see them doing anything with MOU-2 short term, but it's there as a future option if time and money allows.
Sound like one month or so to finally get MOU-1 flow rates (after today’s RNS I expect they will release well results individually).
Getting some proven resources will be a major milestone for the company.
Of course, those who have done their research will know the probability of a strong result is much higher that the market would seem to think.
July 11th RNS: “…extensive rigless testing programme details of which will be announced in the coming weeks”
Obviously we are still waiting for any details.
I wonder if our admirers have reopened discussions? There has been significant new information from the two wells, potentially sufficient to force someone’s hand.
Ordinarily I would expect an update next week. If the silence continues I will raise one of my eyebrows even further…