Icebergshares #AEG Seeing the wood for the trees.

I’ve been following AEG for a few weeks now, it’s a company that I know is familiar to a few of you PI’s.

Quite simply they make products from wood. They use cheap plentiful resources in Ukraine and ship this is fast growing developing countries such as Turkey. So far so good. They have been on a steady progressive restructuring to reduce debt payments, increase margins and grow the core market.

There are two aspects that make AEG particularly attractive as an investment at its current share price.

The first of these are the phenomenal growth rate that it’s currently achieving. AEG produced 67k tons of wood chip bio fuel in 2013, this rose to 280k in 2014 and I have been told will be around 1m tons (estimate) in 2015.

Revenue is set to increase from 8.4m in 2013 to 21.5m in 2014 to an estimated 70m in 2015.

Profit is set to be round 4-5m in 2015.

Unofficial figures for 2016 indicate revenue breaching 100m with profit of 15-20m.

The second reason for wanting to invest into AEG is a particularly good deal in Canada. AEG managed to negotiate the setting up of a new company of which is owns 45% with local tribes owning the other 55%, AEG’s role is to commercialise the forests under the agreement. 250K hectares are in the agreement with 100k been the most prime commercial. This was in July 2014 and by the end of the year full commercial evaluation was undertaken and AEG went on a roadshow across the world to find potential suitors for the forestry licenses.

Three potential suitors were found willing to pay $300m for the rights to the 100,000 hectares. A formal offer is set to be made in the very near future.

Along with the current Canadian forestry deal, there are strong rumours that further tribes within Canada have approaching AEG to help new set up further multi hundred million forestry deals.

AEG has a current Market Cap of £31m currently. It’s currently a profitable, very rapidly growing, AIM company with a strong revenue stream.

I am not a chartist and don’t really put much faith in technical analyst, but its bouncing along a break out imo ready for a rise to 8-9p based purely on continued “no news” but rapid growth expectation.

News of further Canadian deals could push it to 10-12p and news of a confirmed $300m bid would push it to 15-20p.

This is purely my opinion but there is plenty of scope to buy, hold as a long term for good profit with some risk attached to a much larger potential reward. i.e  a win or big win scenario.

Icebergshares: UKOG More than it can chew.

Well I’ve been on holiday and got back to UKOG mania, firstly well done to all those that made a fortune on the sentiment rise. For those that brought in recently on the rise, I wish you the devils luck on making money, leaving with your money, or even not losing too much.

UKOG has commissioned an American company to produce a report on its oil reserves, not only has it done this based on a single drill, but also without 3D. It reported 158m of reserves per a sq mile and even felt it was able to update and come up with a figure of upto 100bn for the entire weald across Southern England.

It has been interesting to watch the media reaction to start with we had newspaper style headlines, however as the day progressed the BBC received information that questioned the massive figure and a more sceptical reporting angle was given.

http://www.bbc.co.uk/news/business-32229794

Quotes such as “CIBC strategist Jeremy Stretch says we should treat the estimates with caution. He said: "There remains a considerable divergence between estimates of reserves and the potential degree of extraction”

And let us not forget “Last year, the British Geological Survey (BGS) produced a report suggesting there were 4.4 billion barrels of oil trapped in shale rock under southern England - which would need fracking to get it out.”

So within a year based on a single drill an American company paid by a rampty ramp company came up with an estimate that’s 25 times higher than the estimate by the BGS which was based on hundreds of drills and samples.

We need to get Nutech in perspective, it’s been ramping the hell out of Shale production in the UK for a couple of years. However lets ignore that and look at the actual figures.

Nutech compares the Weald with Bakken, Wolfcamp and Bazhenov in Russia. In all of those areas TOC’s of 4% or so are the commercial minimum’s.

If we look at the UKOG figures produced by Nutech we only get 17.4m down from the 158m where the TOC is higher than 4%, so a pretty big drop then.

As mentioned in a previous blog, reports from British Universities generally support the idea that TOC’s of 10%+ are needed to support natural extraction in the Kimmeridge layer with a sweet spot of 20%+ needed.

Given an actual recovery rate of say 5% that gives us 850k per sq mile.

Now let’s play a little more…..Kimmeridge is known for good fracturing exactly as UKOG have mentioned, what they haven’t mentioned is that the fracturing tends to be heavy but with small lateral expansion, ie a fracture might extend 5-50cm, this is unlike some other sandstone and mud stone types where the fractures can extend 100’s of metres. 

This means to extract even a fraction of a sq mile, very large laterals (probably 5-10km) will need to be drilled. If UKOG get permission to drill these kinds of laterals in the populous areas around Gatwick then I am a monkey’s uncle.

The final point is the pressure. As mentioned by David in a BBC interview the weald has no pressure…..

This means flow testing will be problematic and will require industrial level permission. Any flow will likely be measured in the 10’s of barrels a day imho. With no guarantee that the hole is commercial.

This morning UKOG had an MCAP of £50m after rising up from £5m. This is a madness figure. The news released doesn’t really change anything. A tremendous amount of poor quality posting is on the forums showing a total lack of geological understanding. Personally I put a realistic mcap of around £5-8m on UKOG at the moment, this will change in Q4 depending on the success or failure of any flow test.

Well done again for those that made money on sentiment, but whenever money is made on sentiment and not on real added value 4 out of 5 investors lose money. Personally I prefer to make money on value adding news….