Rose Petroleum #ROSE – Less Manure more Miracle Grow.

Rose Petroleum #ROSE – Less Manure more Miracle Grow.

Reading through the internet, it’s easy to find lots of good articles written on ROSE, before any asks these are not necessarily articles that predict 10p in a weeks time, but they are articles that give a reasoned and thoughtful view point. There are however some which are rather manure in like. For this reason I’ve been thinking hard about whether to write anything on ROSE as most of it has been said. Now I just to need to confirm that I am a holder of ROSE.

The history of  ROSE has been written about elsewhere, so I’ll  mostly skip that for now, as most know ROSE came out of the ashes of a previous company with a bit of baggage, a few exploration sites, a working  and profitable mining unit in Mexico and unfortunately a Convertible loan note for 80m shares priced at 1.25p.

The mining unit in Mexico has been doing very well, with higher than predicted grades and better throughput, which has counted rising gold prices to give a 1m+ profit. This is expected to increase further and nicely covers the administration costs of the company leaving money raised to be used for exploration purposes.

ROSE has large exploration licenses in Utah with independently assessed reserves of of 1bn barrels are a great deal of gas. ROSE has committed to drilling and completing in the upcoming quarter into an already proven and producing resource target. Over 100 drills have taken place, over $1bn is being spent by other companies exploring these plays in 2014.

Rose has also committed to producing (using recently raised funds in the next 9 months.

So what does ROSE have going for it..?

Lets start large scale external…The US has a desired aim to be self sufficient in production of oil and gas, It also wants to be a major exporter and finally wants to be self supporting in the event of a 50% increase in consumption in case of a major war scenario. US states, particularly those without a highly educated workforce or high population areas are in need on revenue. Washington although not a firm believer of fracking turns a blind eye due to the national benefits.

UTAH is very much at the forefront of this drive.  Its low population density. Has a need for revenue and has a number of world class oil/gas plays vastly under developed (of which ROSE is very well placed). Utah is currently rapidly activating licenses for auction.

The licenses that ROSE have in UTAH have very good oil and gas connectivity with major pipelines within easy distance to get production up and running quickly.

http://www.bloomberg.com/news/2014-06-27/magnum-hunter-turns-891-million-in-debt-into-138-gains.html

An interesting article above on the state of Shale mining at magnum hunter, it owes, vast amounts of money, has a 1.6bn market cap, has only drilled 5 wells. But importantly its potential is seen as so massive that it can raise money at will…..The boom in US Shale should not be underestimated imho.

So moving down Rose has probably the most impressive OIL BOD and Team of any Oil company with a valuation of less than 50m MCAP imho. Through the end of May the share price rose rather dramatically and importantly for the Note holders shot past the note issue price of 1.25p+ a healthy profit margin. On the 5^th of June the SP was over 3.50p a share, however the companies was forced the on the 6^th of June it was given notice that the note would be converted. As the CEO has mentioned in recent interviews, the only reason the conversion would occur would be in they intended to sell the shares. The Share price started falling on expectation that 80m shares would hit the market and the BOD knew they would need to get a placing in quickly before the SP fell to far. They opened a book, didn’t have to underwrite the placing and received 6 times more interest than they needed. A few comments have been made about the quickness and timing, but in my opinion this was forced on them to do it before the 80m share hit the market. They negotiated a respectable 1.5p. Importantly the information obtained, indicates that the most of the placing went to industry specific funds, with smaller percentages to private individual’s, directors and brokerage companies like Jarvis. The extra money raised above 5m in the placing was solely to industry specific funds.

On the 19^th of June the equity for the note conversion was released, on the 20^th of June the placing was announced. The Share price fell to 1.6p within an hour…… At the same time the 80m shares from the note conversion started to be sold on the open market, by the 24^th of June over 30m of the shares had been sold…

Seems to have been a perfect storm to collapse the share price. However the share price responded. Despite this we now currently sit at 2.275, after having reached over 2.5p.

An examination of the large trades indicates that over 120m has been sold in large quantities, an assumed 60-80m of the notes (although it’s possible that the note holder, sold enough shares to cover the 1m note and the remainder is staying unsold as a free carry). An assumption can also be made that some of the shares from the placing were pre-sold into the market before being released on Monday.

So where does that leave us moving forward…

The laws of gravity normally dictate that the share price will fall whilst a big seller offloads, that hasn’t really happened, although the share has come down from its spike. It’s been very clear that the share has actually risen from the date the 80m shares came on the market. I firmly believe that most of the placing shares from traders that were only looking for a short term profit have most likely sold up. Volumes have been from 30m to 110m over the past 10 trading days on AIM an ISDX combined and its fairly clear investors (both large and small) have been buying all of the available stock on the market.

The questions that most are asking are, is this a spike ?, what will happen when all the placing shares are sold ?

These are totally the wrong questions, investors should be asking, what will happen when the large sells have gone ? (which looks to be  the case very very soon) and why was the placing 6 times over subscribed ?

We are in my opinion on the verge of a liquidity crunch for ROSE this will happen in 3 places to differing degrees.

First crunch before spud, during July, August and September the company will conclude its virgin hole. Prior to this interest will peak allowing a rise to 5-6p, as shares drift to more medium term holders will to wait until after the results are known for the 1^st drill.

Second crunch post spud, pre results. This is likely to be sentiment push, again with minimal selling. Drift to 8p.

Third crunch post results. If Rose hits any kind of decent flow rate, then the money rich mid tier US companies will be knocking, many with a 1-2bn Mcap, spending 400-500m a year on exploration able to raise upto 1bn in short order. If Rose gets a decent first drill, then the chances of rose staying independent for more than 6 months will be tiny. A rise to a 300-400m MCAP is not to be discounted, again who would sell with the knowledge that the US are Shale exploration crazy and ROSE is successful ?

We have to remember that ROSE has the profitable Mexican mining unit. This could, should and hopefully will be sold once a successful production ready drill has occurred for a reasonable price of 10-15m. This would be enough for 10 further drill, expected to cost $1.5m per a drill. So ROSE could well be fully funded to  3000-4000bopd.

As with all investments, ask the right questions, buy at the right price and the opportunity that the offloading of the notes and the funding shares has presented should not be ignored by investors, a very real chance of being the share of the year and at this price a genuine steal.

The importance of Trinidad for Range(RRL) and Lenigas(LGO).

 I made the call on twitter to buy LGO at 2.5 and RRL at 1.2, some found this strange given the recent rise of LGO. Off the back of the LGO rise to 2.5 once I had invested in there I did the obvious and looked around for similar companies that might make the same leap forward…

The question though is why did LGO leap forward and why was it still under valued at 2.5 ?

Well I am pretty sure its got sod all to do with Mr Lenigas. In truth they were looking for 60bopd from the well which would have been nice and sustained a 1.5 to 2.0p share price. However what they actually found was 240(300+ unrestricted), high pressure, top quality heavy oil.

More importantly to the markets this was drilled, assessed and into production in just over one month. This is an incredible achievement and will add directly to this year’s bottom line.

So the key factor was the quality of the field and the ease of the asset into production. For me this led immediately to the other owner of the key resource targets Range Resources(RRL).

RRL at the time had risen upto 1.2 but hadn’t really taken off as it still had a market cap below that of LGO.

RRL has far more assets than LGO both within Trinidad and around the world. With well timed news that the company is now virtually debt free, with the bulk of the assets intact a significant recovery play could well be on the cards.

For RRL, if it can replicate the drill success of LGO with a single drill it will bring a level of surety to its recovery back to a mid player.

As most know, the problems at RRL really stem from the awful decisions of PL. His failure to implement a successful plan for Trinidad, failed exploration around the world, woeful control of costs and one of the final acts; the developed of a crap team of drillers and drill equipment to support in house drilling at Trinidad. Thankfully new management have been addressing this by employing more experienced drills, better training, refitting the rigs and actually ensuring that the in house team is at last fit more purpose.

LGO have shown what can be achieved if the drilling and exploration is done well, this won’t be lost on RRL and I would expect RRL to capitalise on this in the coming week, they no doubt thought to drill in peace and quiet and then surprise the market, but this isn’t the correct strategy now.

So for me the potential of Trinidad is pretty clear it can support a couple of 500m Mcap companies each producing say 10K BOPD in time quite easily. The chances are that one of the companies at least will achieve this over time, so an investment in both at the current low levels would both increase my chances of a significant win and the potential reward…

Why I brought LGO at 2.5p

I am sure we’ve all heard the saying, don’t buy on a spike…..well I did today and I am very happy thank you.

Firstly a bit of background. LGO is an oil producer with various assets, that specialises in the underdeveloped Trinidad oil fields. These oil fields are historically low volume producers and quite old. They are shallow in nature. Previously LGO concentrated on workovers i.e trying various techniques to try and up the older existing holes from 1 BOPD to maybe 5 or so….. Big Deal.

I can remember saying on the LGO board when this was started that I thought it a total waste of time and money and that I wanted to see the drilling of the deeper targets. To be fair to LGO it was always in the plan to do this.

Fast forward and LGO are now drilling the deeper targets  of the Lower Cruse, whilst also encountering 270ft of net pay oil in the shallower targets. Improved extraction and filtering techniques should give a sensible production already from GY-665. Drilling into the Lower Cruse should enhance that BOPD production to similar levels if not higher than GY-664. GY 664 was drilled last month and was already confirmed as a 240 bopd producer under restricted flow and above 300, if some of the restrictions are removed.

The plan is to drill 4 holes from the GY-665 drill pad at various angles.

LGO currently at 2.5p as an MCAP of around 60m, so what is it worth ?

LGO has planning permission to drill 30 new holes, although atm not the finance, so lets leave that aside for now. If we just focused on the near term i.e next couple of months, we have 5 holes in total.

664 = 240BOPD

665 = likely 250BOPD

666,667,668 all from the same pad and likely to be similar to 665.

This gives us an easy 1200BOPD in the near term. At $50 a barrel profit, that’s $60,000 a day in profit. For 300 days a year we get $18m a year profit from just these 5 wells. At a multiple of 10 times profit that’s £110m a year MCAP so a doubling of where we are now with minimal risk. Throw in the exists assets and the other drills planned for later in the year and its quite likely LGO will start to see an MCAP of £150-200m by the end of year.

Sounds far fetched, but all LGO needs to do continue drilling how its drilling.

Well done to those that brought and held at .7 or .8. Focus on the figures and the SP will take care of its self over time….

Thoughts on an Oxus settlement

To add, these are just my thoughts on how its gone,what’s happen/happening and how it might all pan out. These thoughts are of course based on my own research, conclusions, conversations and guesses, but it will be interesting to see how close it is to real life.

So….

The final hearing was held in Feb 2014 in Paris (last week of Feb).

The arbitration panel had a meeting in May to discuss the decision and possible award considerations.

The panel are fundamentally split on a decision. With Pierre Tercier and Marc Lalonde in favour of a decision towards OXUS and Ms Stern against any such conclusion. Ms Stern has been invited by the other 2 members of the panel to draw up an alternative decision. This alternative position is not binding and largely irrelevant. Ms Stern has asked Tim Hart for firmer details in a post hearing memorial statement.

The majority decision of the panel is to find in favour of OXUS, an agreement that the BIT has been broken by the Uzbeks and that OXUS needs to be compensated for its loss.

The decision is released to the parties in a letter dated 11^th of June and decision made public on the morning of the 16^th. Ms Stern releases her minority findings on the 16^th.

In July A figure of $380m is given as an award to OXUS. With an interest rate applied of 4% pa from 2010 and an ongoing interest rate of .5% above libor. In the same declaration costs are deemed to be shared by both parties, with each party paying its own costs as it has been shown that not all points against the Uzbeks have been proven.

Wonder how close it will be…..

Quindell (QPP) the short squeeze continues

Interesting month for QPP, the share price seems to have been pretty static, however the underlies some important aspects as we move forward.

Roble increased their short holding to just over 4% and notified the FCA on the 7^th 8^th of May.  It seems fairly clear that this was behind the decline at the start of the month. QPP also continues to be the only company that Roble has shorted in the last 12 months. Once the Shorting shares had been sold the SP however quickly recovered back to the 20p level.

This gives us a few clues as to what’s happening. Firstly Roble do not want the SP to gain momentum and rise above 25p. Secondly Support seems to exist  around 19p-20p no matter what the shorters throw at the company.

4% of the company means that Roble had 41m now of stock to find, every 10% increase in the SP is an extra £4m they will need to find to fill their order. A few people have said that Roble have hedged against a rise in the SP, by buying their stock at this current level…Not sure I believe that as it would mean a notifiable holding under the FSA rules (even with qualifying instruments).

So Roble are heavily exposed and are struggling to keep the SP where they need it. UK shorting my well known UK shorters, has I am informed been reduced with a buy back occurring mid month.

So Roble have 240m shares now to close their short and don’t want the SP to go above 24p….2+2 does not equal 10, so this isn’t going to happen.

Avg Daily vols last week were around 30m with 15m buys.

Make no mistake if the SP rises to 22-23p Roble will be experiencing a bit of stress. Apart from a collapse of the share price, Roble will have to run the Gaunlet of a short squeeze, up to 3p5 maybe even 40p

I am long btw and happy to be so J