• Mark Watson-Mitchell

Two very interesting oil stocks getting interested – EOG and i3E

Europa Oil & Gas (Holdings) – a couple of neat moves pointing to expansion


It was first thing on Wednesday this week that DNO North Sea (UK) declared that it no longer wished to sell its 100% interest in Frontier Exploration Licence 3/19, offshore Ireland, to EOG.


Late in the afternoon Europa Oil & Gas (Holdings) (LON:EOG), the oil and gas exploration, development and production company with interests in Ireland, the UK and Morocco, announced a couple of major moves.


First move


The first move was the PrimaryBid £7.02m fund raising @ 1.8p per share, at quite a discount to the average price over the previous 30 days. The speed at which the issue was agreed was impressive.


The company stated that it will use the funds raised for the acquisition of a ‘farm-in’ of UKCS Block 13/23c located in the North Sea.


It had the declared intention to acquire an appraisal asset to add to its existing producing assets and high impact exploration assets.


Second move


This second move was an important part of its corporate strategy aimed at providing investors with a more balanced asset portfolio.


The deal is to effectively acquire a 25% stake in the Serenity discovery in the North Sea, with the company paying some 46.25% of the £14m costs of an appraisal well being drilled this year.


Sector experts are really quite bullish about the potential reservoir quality.


Broker’s View


In a note issued yesterday morning analyst Jonathan Wright, at brokers finnCap, described the appraisal drilling to be a ‘needle moving event’ – he suggests that it is a potentially large oil discovery that could happen in the third quarter of this year.


He has a price objective out on the group’s shares at 6.7p, compared to last night’s closing level of just 1.975p.


His estimates for the group’s year to end July suggest revenues of £5.2m (£1.4m) and a pre-tax profit of £1.7m (loss £0.8m). he sees earnings coming out at 0.3p per share


My View


The coming year’s estimates could well leave such figures way behind.


The shares, which touched 3.7p on Monday of this week, are, in my opinion, a cracking speculation upon appraisal success.


I can understand why finnCap rates the shares so much higher.


Last night the market closed with over 14.6 times the normal daily average dealing volume of 3.3m shares traded – at 48.5m dealt.


Hold very tightly.


(Profile 24.01.22 @ 1.57p set a Target Price of 2.25p*)


i3 Energy – always check your resources, especially the peaceful ones


On Thursday of last week this oil and gas company announced its Q4 operational and financial update. It portrayed a certain confidence by its management as it progresses through this current year.


i3 Energy (LON:i3E) has a low cost, diversified, growing production base in Canada's most prolific hydrocarbon region, the Western Canadian Sedimentary Basin, as well as appraisal assets in the UK North Sea.


It was declared that the company was well positioned to deliver future growth through the optimisation of its existing 100% owned asset base and the acquisition of long-life, low-decline conventional production assets.


The group also clearly stated that discussions had continued with potential farm-in partners for the UK North Sea Serenity £14m field appraisal drilling programme.


“Terms have been agreed with one counterparty and we await confirmation of funding before finalising and executing documentation. The market will be updated if and when agreements are reached.”


Well that first ‘farm-in’ is with EOG, which is why both companies issued their releases to the market within minutes of each other on Wednesday evening.


Broker’s View


On the back of the Q4 statement’s figures, analyst Brendan Long at brokers WH Ireland, put out estimates for the current year to end December 2022.


He sees cashflow rising from £27.2m in 2021 to £76.8m this year, with group earnings progressing from an estimated 2021 loss of £1.4m to a positive £42.9m this year, taking earnings up to 3.9p per share against an estimated 2021 loss of 0.2p.


He put out a ‘fair value estimate’ of 37.6p per share, of which 30.6p alone is for its Canadian operations.


My View


I wonder just how much the ‘farm-in’ by Europa Oil & Gas will improve Brendan Long’s fair value view.


I consider that getting a significant contribution towards its appraisal drilling costs is a very sensible funding play by this group.


It still has the balance of a 75% operated working interest in Serenity, some of which may well see further funding out on similar terms, thereby significantly reducing this group’s exposure.


The group’s shares are now on just 5.6 times current year estimated earnings – which is an extremely modest rating.


I believe that the shares, which eased 2.20p on the day to close at 20.60p last night, look even more appealing. And that was on the back of well over three times the average daily dealing volume – at 10.75m traded yesterday.


A very strong hold.


(Profile 13.12.21 @ 11p set a Target Price at 14p*)



(Asterisks * denote that Target Prices have been achieved since Profile publication)

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