ProActive Investors USA & CANADA
Fastnet Oil & Gas
www.fastnetoilandgas.com
by Philip WhiterowIn terms of undiscovered resource potential, Sub-Saharan Africa now rivals that of the Middle East and North Africa.
Volatile markets have made it a good time to build a portfolio of undervalued, high-risk frontier oil exploration stocks that could pay off handsomely longer term, according to broker Ambrian.
In particular, investors should be looking at sub-Saharan African explorers, where the potential for new petroleum discoveries is being underestimated by equity markets says the broker.
To back this up, the broker points out that USGS World Petroleum Assessment’s most recent estimate of Sub-Saharan Africa was 2.2 times larger (146Bln boe) than its 2000 Assessment.
It was the largest increase among the eight main assessment regions in both absolute and percentage terms.
New technologies have also boosted access to areas deemed too risky just a decade ago, while political, regulatory, corruption and security issues have all eased.
In terms of undiscovered resource potential, Sub-Saharan Africa now rivals that of the Middle East and North Africa, North America and South America, but with better access to licences.
Ambrian adds that most explorers in the region suffer from a relatively heavy concentration of regional, geologic and/or political risk, which is why a portfolio is a better bet than single selection.
By order of market value but not other, the companies it says are buys are Ophir (LON:OPHR), African Petroleum, Pancontinental, Chariot Oil (LON:CHAR), Rialto Energy, FAR, Fastnet, WHL Energy and Tangiers Petroleum.
Two companies highlighted include Fastnet Oil and Gas (LON:FAST) that is exploring and appraising African and Celtic sea basins. Its current most valuable asset is its 18.75% interest in the Foum Assaka licence, offshore Morocco.
The Moroccan fiscal regime is the most favourable of the countries covered in the Sub-Saharan region, and Ambrian believes that the market does not fully understand just how favourable it is.
It estimates that for a 400MMbbl oil field development the NAV/bbl is USS23/bbl, well above the rule-of-thumb US$10/bbl valuation that seems to be put on oil discoveries by the market.
Fastnet estimates that its work commitments to the end of 2013 are just £1.8m, excluding its share of the cost of a well in Morocco, while Kosmos (operator) and Fastnet will farm down their interests in Foum Assaka for carry on the first well.
Ambrian estimates that the current fair value of Fastnet’s share price is 33p, but on a success scenario could be worth 182p by end-2013 or just 9p if exploration is unsuccessful.
Tangiers Petroleum (LON:TPET, ASX:TPT) is also focused on Morocco with its Tarfaya licence. The main catalysts for the stock, which management has some control over, are the successful completion of its farm-in programmes this year.
The company is currently conducting farm-in programmes for both Tarfaya in Morocco and its WA-442-P & NT/P81 licences in Australia.
Ambrian estimates the current fair value of Tangiers’ shares is A$1.10, which is 3 times above the market price. On a success scenario, Tangiers shares could go as high as A$8.64 by end-2013, with the failure scenario A$0.20.
.
