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Fastnet Oil & Gas 31 December 2013

 

 

The Oil and Gas exploration sector is an area that I seldom visit, for perhaps obvious reasons.

Risk, limited visibility and often poor delivery tend to skew the percentages the wrong way for my liking.

That said, I do take a look now and again, the last subjects being Nighthawk and Enquest, where the formers shares have actually performed quite well.

As we still, for now at least, remain in holiday mode, I thought I would take some time to have a quick look at Oil minnow Fastnet Oil and Gas where the shares are currently 12.75p valuing the business at £42m.

There is of course no production income here as of yet, so any valuation and subsequent investment is made on the basis of the company’s assets and any perceived uplift, which doesn’t sit well with the usual criteria I would apply.

But, the company has actually caught my eye, after what has been a fair bit of news relating to some of the larger oil players turning there attentions to Morocco, often considered a poor relation in oil terms to others in N.Africa, such as Libya.  

This is one of two geographical areas that Fastnet is focused on, the other being nearer to these shores, namely off coast Ireland.  

But, concentrating on Morocco for now, there are various factors that come into play as to why the likes of big players such as BP, Chevron, Kosmos Total and Cairn Energy have turned their attentions to this area of N.Africa.

These include a relatively stable political and economic environment, a business friendly approach to developers, along with operating ports and infrastructure which tie in with a relatively close proximity to Europe.

 

Then of course, there is evidence to suggest that the area could be quite lucrative,  having received scant attention in the past.

As for Fastnet, although a tiny player, it nevertheless has license interests in two areas of Morocco which may be worth a look on a speculative basis.

It now has a 9.3% net interest in the Foum Assaka offshore license area, where it has recently completed what looks to be a decent farm out agreement with S.Korean player SK innovation underpinning a future drilling programme of up to $200m.

 

The area concerned, which is located south west of Agadir, sees the Texas based major exploration company Kosmos heading, with  a 29% holding after undertaking its own farm out agreement with  BP which now has a significant 26% net interest.

As with most of these smaller plays the shares are predominantly news driven, which can see short term speculators selling out through the lack of news flow, often anchoring the price.

And on that subject, the shares, although well off the 52 week high of 29p, should have some reasonable news flow in the coming year, with extensive drilling taking place within the area.

Whether these prove to be positive or not, is very much a leap of faith and a case of  wait and see which will no doubt determine the future direction of Fastnet’s share price.

 

But, Kosmos appears fairly bullish concerning exploration within the Adadir Basin where Forum Assaka sits, citing it as being an underexplored area with a variety of exploration plays that is further described as a salt basin that provides significant hydrocarbon trapping opportunities.  

Drilling concerning Fastnet’s interests should commence sometime in the first half of 2014, which should then ensure news either way.

Aside Foum Assaka, the company is also interested in the onshore Tendrara license where it has a 37.5% net interest in association with the Moroccan Governments investment arm in an area covering a range below the Atlas Mountains.  

 

This is a Gas play, which would appear to be ideally located close to an existing pipeline, opening the door in terms of delivery for any future success.

While again, the speculative nature comes to the fore, a recent independent study by SLR Consulting apparently values Fastnet’s stake at $58m based on the 310.5b cubic feet of gas reserves.

That would perhaps imply some potentially significant upside, should an appraisal well due next year prove positive.

Last but perhaps not least, there are significant license interests nearer to home in the Celtic Sea, relating to various blocks off both the West and South coast of Ireland, which are also experiencing renewed interest.

 

 Fastnet could be likely to announce progress relating to farm out partners in this area sooner rather than later, having already previously announced that it is has been in discussions with potential partners.

 

Although as already stressed this must fall more into the speculative bracket, the company does look well funded.

 While it already had cash on the balance sheet, the company strengthened its position by successfully raising a further £10m just last month, via an oversubscribed placing at 14p per share.

While there are a number of major shareholders to note here, it is interesting to see Standard life sitting on just over 6% of the company.

Clearly a heightened investment risk, but nonetheless, could be an exploration play that may be worth watching from the current level.       

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