Interactive Investor

Best of boards: Gulf Keystone, Afren and Caza Oil & Gas

19th December 2014 16:00

Harriet Mann from interactive investor

As oil prices continued to fall this week, oil companies dominated the discussion boards, with Afren, Gulf Keystone and Caza making this week's best of the boards.

There was some good news for Gulf Keystone as it announced that plans to double production were on track, as well as its strategy to cut costs. Caza excited the market on Thursday by bringing two of its wells into production, but Afren's oil discovery failed to inspire after a turbulent year.

Afren

What happened: To say Afren has had a difficult six months is an understatement. It's lost a trio of senior management, temporarily suspended operations in a Middle East war zone and watched almost 80% of its value go up in smoke. Finding oil in two holes onshore Madagascar certainly helped prop up the share price on Tuesday, but Afren will need bigger news than this to switch the City's attention away from corporate governance issues to the job of getting oil out of the ground?

Afren has drilled four wells in Block 1101 to an aggregate depth of 2,000 metres. From the 1,760 metres of core sample recovered, two holes have encountered hydrocarbons and "potentially" good quality reservoir sections over multiple zones. Management reckon the holes could be intersecting at least three rocks in Triassic, Jurassic and Cretaceous zones, but more analysis will be needed in the first quarter of 2015.

Deutsche Bank appears unexcited by the find. "Given that this region is largely known for heavy oil with low recovery factors and the cores were taken adjacent to a previous heavy oil discovery (Ankaramy-1) this appears to be a technical discovery and we expect limited impact to consensus NAVs," it said.

Industry expert Malcolm Graham-Wood is more upbeat about the "very positive"news. "I think that Madagascar may be an interesting place to keep an eye on next year," he says.

What users said: On the Interactive Investor discussion board, 'hel x' wasn't impressed by the update, calling it "usual waffle to try and get the share price up".

'PoliarityMan' looked at the news in a wider industry context: "That is just such a stupid statement. Anybody would think the whole industry is falling apart because the OPEC wants to compete a little! They are only pumping 1% more oil than they need to. Lower oil prices are good for everyone and will strengthen the industry. Just like shorting can be good. Just hope the ecosystem can take it!"

'Shugg1e' reckoned the statement was positive for the company, and while 'AUDIRS6' agreed, the user added: "Taking into account oil prices at the moment and by all indications, for a very long time to come, we might be better off praying for water than oil."

Gulf Keystone

What happened: Providing a welcome respite to bad sentiment, Gulf Keystone Petroleum has won over investors with news that it will soon nearly double production at its key producing asset Shaikan in the Kurdistan Region of Iraq. Cost savings and plans to drill an additional producer are on track, too, but with oil prices plunging, does this signal Gulf's turnaround?

Gulf has finished connecting the Shaikan-7, -8, and -10 wells to its existing production facilities and they are currently being hydro-tested. First oil is set to flow to production facilities this month and should increase total production from between 23,000 and 25,000 barrels of oil per day (bopd) to 40,000bopd by the end of the year, as promised.

"Providing the recent positive developments regarding payments continue to work in the company's favour things really are looking up for GKP, with the infrastructure in place and the local environment as benign as can be expected there are genuine grounds for optimism," said industry analyst Malcolm Graham-Wood. "Whilst I am expecting a grim time for oil stocks as the commodity remains weak not all will be tarred with the same brush and this stock will definitely make it to the bucket list."

Gulf shares shot up 12% on this news, but are still down 69% on a year ago. However, despite a slump in the price of Brent Crude to just $59.29 a barrel currently, Gulf Keystone is not among the hardest hit.

What users said: "Looking good," said 'opentula' on the Interactive Investor discussion board, "for a small exploration and producing oil company, they have done a remarkable job, given the circumstances."

While 'Vanquish13' wondered why Gulf had not tried to transition to gas fuel to make the savings before, the user was upbeat.

"After all the issues in Kurdistan this year, fair play and respect to achieving 40,000 bopd by year end. Most of the knockers said it wouldn't be achieved or would only be achieved late 'as usual'. Well, they've done it, and I guess JG [John Gerstenlauer] won't stand still. I wonder what the next near term target will be?"

'Miny' reckons chief executive John Gerstenlauer is eager to spend money for quick returns and believes Gulf's production will be ever increasing.

"It looks like we certainly won't be standing still at 40,000 bopd perhaps settling at 45,000 bopd once SH11 flowing. Who knows we might even get to 50,000 bopd, which would be the max production figures JG reckoned we could get from PF1 & PF2.

"This is an impressive attempt and satisfying result from GKP despite the very difficult conditions, politics, war and lack of money to pay us etc. The obstacles will in due course be removed and perhaps then GKP can be realistically valued, if not sooner. At some point in time takeover or major farm in talk will surface and we will re rate quickly.

"It's a Xmas present well received even though our share price has been hammered to the gutter levels of 50p or thereabouts. How can an asset like this be valued so low, oh yes off course we all know, extreme short term viewpoints firmly embedded in Mr Markets mind."

'Mr reliable' is sure that an increase in oil prices will see a significant move in Gulf's share price.

Caza Oil & Gas

What happened: Plummeting oil prices are causing havoc on the markets, with reports that the North Sea oil industry is close to collapse as companies slash investment. That's hyperbole, but clearly times are incredibly tough. There has at least been some relief for bombed-out Caza Oil & Gas.

Two of Caza's Bone Spring wells in New Mexico are now producing and the company is thought to be cash positive at current oil prices. Many now think it will weather the storm.

An extra 560 barrels of oil equivalent per day (boepd) has been added to Caza's production with its Marathon Road 15 OB Fed #1H development well producing nearly 2,000boepd under controlled flow back and its Igloo 19 State #2H well producing 1,356boepd. With total production now reaching 1,400boepd, the additional production comes from both the Marathon Road and East Marathon Road plays in New Mexico.

What users said: Users were happy with the news on the Interactive Investor discussion board, and 'great bull' said: "Another great result even in these challenging times feel even more at ease with my investment just a matter of time when Caza's profits will be showing in the share price. Increased reserves and cash flow what's not to like. Well done Caza."

'Dany suko' agrees, "Another CAZA well success more success at bone spring. CAZA state even at these oil prices the wells are commercially successful."

The user added: "Caza can't do an awful lot about the price of oil but if they can keep costs down and ride the storm out, they will get back to 16p-20p range which is fair value at $80 - $90 barrel of oil."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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