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- Oilman Jim's Letter - 18 February 2024
There was an interesting financing RNS last week from Empyrean Energy (EME.L E1E.F), which announced that it has raised £700,000 through a placing at 0.25p per share. Subscribers are also receiving 1 warrant exercisable at 0.5p for every 2 placing shares subscribed for. Of particular note and quite unusual in the UK, investors have agreed a 3-month lock-in on the placing shares and the warrants will only become exercisable if the placing shares are held for a minimum period of 6 months. The issue was at a 20.6% discount, yet the share price instead of falling (as is the norm) rose substantially on the news to more than twice the placing price.
Holding periods (lock-ins) are required by law in North America, resulting in improved share price performance, and partly due to this I started the International Letter towards the end of last year, covering companies in the United States and Canada - plus Australia. Pulsar Helium (PLSR.V PSRHF Y3K.F), as an example, was featured right at the start at C$0.20 in November and steadily moved up in price as the drill approached. In January, the company announced a C$4.25 million placing at C$0.23, which in the UK would have floored the share price, but instead it rose further on the essentially good news that the company is financed for the future and the share price now stands at nearly C$0.50. Canada, where PLSR.V is listed, has a a hold period of four months plus one day.
Notwithstanding Empyrean’s positive example with a relatively small sub £1 million placing, the difficulty is whether UK companies can raise sufficient finance on such a basis, since genuine investment intent is required. The lack of that means that most has to be raised through the market via “forward selling” of the shares before the placing and the “flipping” of them to other traders thereafter. The “investors” in these placings are mainly anything but, and share prices suffer accordingly. In today’s connected world, though, UK investors don’t need to allow abusive fund raising methods to negatively impact them, when there are North American markets that can be traded later in the day from 2.30 pm to 9.00 pm.
Baron Oil (BOIL.L GHA.F) conducted a usual London placing, announcing a raise of £3.26 million at 0.05p per share. The share price had been run up to 0.175p at the start of this month, before apparent heavy forward selling prior to the placing announcement. The shares are now trading just above the placing price having dipped briefly below it. Investor losses for those lured in by the pre-placing ramp are large. Funds are said to be expected to be applied principally towards a rig deposit, the drilling project team, a site survey, certain long lead items and a bank guarantee. To actually drill Chuditch-2 in Timor-Leste substantial further funds will be required.
Tower Resources (TRP.L TWRFF ULF1.F) announced repayment of the Energy Exploration Capital Partners facility (an effective death spiral type arrangement) and a subscription to raise £600,000 to pay for it. The shares are being issued at a price of 0.018p, a discount of approximately 10% to the closing bid price the previous day (the share price was down from a high of 0.029p a week previously). Tower says it is pursuing multiple asset-level financing discussions and remains confident of spudding the NJOM-3 well in Cameroon this summer.
Back in the UK, a limited future is now seen for domestic oil and gas operations, particularly those onshore, once a Labour government is elected and several hundred new MPs start to have their say. In this regard, Union Jack Oil (UJO.L 1UJ0.F) announced another Oklahoma acquisition, this time of a 75% interest in the Wilzetta Drilling Project. A further two farm-in agreements with Reach Oil & Gas have been entered into: first to acquire a 75% working interest both in a well to test the Footwall Fold Prospect in the Wilzetta Fault play and in an area of associated interest; second to acquire a 37.5% working interest in a 2D and 3D seismic acquisition programme to identify additional drillable prospects along the Wilzetta Fault. The initial Wilzetta well is planned to be drilled in Q3 2024 to a depth of 6,000 feet, with a geological chance of success estimated by the operator to be 35%. Estimated recoverable oil is in excess of 200,000 barrels. Planning and back costs of US$277,000 are payable by Union Jack and costs for drilling and completion of the well are estimated to be approximately US$1,000,000 net to UJO. Costs will be paid from the company’s existing cash resources.
Finally, Europa Oil & Gas (EOG.L EGN.F) announced a two year extension to licence PEDL 343 located in the East Midlands area of the UK, which contains the Cloughton gas discovery. Europa is operator of the licence with a 40% interest. The extension will enable the company to continue its ongoing work on the licence, where Europa estimates Cloughton to have Pmean gross gas initially in place volumes of 192 billion cubic feet. The discovery well flowed good quality sweet gas at rates of up to 40,000 cubic feet per day and the company believes that a well could flow at 6 million cubic feet per day using the correct completion techniques. Europa says it will continue to engage with its various stakeholders required to obtain the necessary permits and consents needed to drill an appraisal well in order to demonstrate the productivity of the field.