Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Shares in both Wessex Exploration (WSX) and Northern Petroleum (NOP) have moved ahead sharply in recent days. We all know why these AIM listed oil explorers are in demand. Drilling is underway of the Zaedyus well in Guyane. This might well be a monster and both companies have a 1.25% stake in it. But the respective valuations are now insane.
Firstly on Zaedyus, I am reliably informed that the well has not hit its main target yet. It should do so reasonably soon and I would expect an announcement of the results within 14-21 days.
But now to the matter of valuation. At 8.375p Wessex is valued at £60.7 million ( a bit more on a fully diluted basis). At 67p Northern is valued at £63.9 million.
Away from Guyane both companies own a few UK assets which are – in both cases – worth (perhaps) a few million quid. Wessex has enough cash to fund the well underway now and one more well next year and then it is out of cash. Even after this well Northern has £20 million cash and has Dutch assets that will throw off £10-15 million per annum. It also has booked reserves of 52 mmboe in Italy and Dutch shale assets which could be worth a lot or nothing.
If one looks at what each company has it is clear that the respective valuations are just wrong. Do not misunderstand me: if Guyane comes in as some folks hope BOTH share prices will steam ahead. On disappointment Wessex is a one trick pony. I continue to believe that investors should switch out of Wessex into Northern.
Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith
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