Exploration Insights by Robert Tyerman

Investors are looking at companies whose projects are coming to fruition and are fearful of being picked off for a song. Elsewhere, US-focused oil prospector Nighthawk Energy says it expects ‘a major transition’ from development to production in 12 months, and at a depressed 23.5p could now fare better than some others in the sector.

North Sea heavy oil explorer Nautical Petroleum is scouting for acquisitions after nearly doubling potential resources to 92.6 million barrels. Now claiming formal reserves of 23 million barrels, the London-based company, whose ‘cornerstone’ assets are the Mariner and Kraken fields, lost £4.5 million in the year to June, but, having raised £20 million at 10.5p in October 2007, ended the financial year with £20 million cash.

AIM-quoted Nautical’s chairman Ian Williams, says these funds are enough to take Kraken to production in 2012 at costs expected to be less than $30 a barrel. The company suggests it will not need to raise funds until final project approval in late 2009 or early 2010.

Meanwhile Nautical, with reserves rising but no cash flow, is looking at potential acquisitions – ‘not only with cash’. Floated at 40p six years ago, Nautical, which hit 315p in 2006, now trades at 37.75p and could weather the storm better than some.

Timis and Teeling together
Controversial ex-Regal Petroleum boss Frank Timis and activist South African investor Julian Treger have acquired 30 per cent of West African Diamonds. Timis’s African Minerals and Audley European Opportunities Master Fund, advised by Treger, have each bought nearly 15 per cent each of Dublin-based West African, headed by entrepreneurial Irish resources player John Teeling.

The two groups have together paid £1.5 million at an above-market 10p for their combined 29.2 per cent of AIM-quoted West African in a deal expected, by observers, to be the forerunner of a major restructuring and asset swap involving the two companies. Treger and seasoned mining player Roy Pitchford, ex-boss of Zimbabwe Platinum, are joining the board of West African.

Teeling and Timis are vigorously negotiating terms of the next move. A satisfactory outcome might even benefit West African’s shares, at 7.75p, down 30p last year, or African Minerals at a depressed 63.75p, though the prospects remain uncertain.

Reserve hope at Gold Oil
New Colombian reserve figures for oil and gas explorer Gold Oil could revive bid interest, claim bulls. Two seasoned exploration and production men, chief executive officer Gary Moore and chairman Michael Burchell, steer AIM-quoted Gold Oil, which has interests in what they suggest could prove to be more than 130 million barrels of oil in Colombia and 1.25 billion equivalent barrels in onshore and offshore gas and oil blocks in Peru.

The company says drilling will start in December at its 40 per cent–owned Rosa Blanca prospect. Its 20 per cent-owned Azar block to the south is also coming into production.

Gold Oil says it recently received a bid approach from a well-connected local group. The company is also interested in the potentially major onshore oil and gas Block XXI in Peru and has the licence for Peru’s extensive but as yet unexplored offshore Z34 offshore Talara prospect, as well as an option on 35 per cent of a £190 million petrochemical and ammonia plant.

Burchell and Moore contend that Gold Oil, with no debt, £5 million cash and commitments to spend up to £2.8 million, has potential resources of nearly 1.4 billion barrels, worth $690 million (£405 million) at a heavily discounted $5 a barrel. That compares with today’s market value of £19.3 million at 4p.