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I'm getting a feeling of deja vu with Nu-Oil and Newfoundland

By Gary Newman | Tuesday 11 July 2017

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.

Nu-Oil and Gas (NUOG) is all the rage at the moment amongst PIs, but I’m finding it hard to get quite so excited about its prospects and am getting a feeling of déjà vu when I look back at some of the old Enegi Oil announcements.

Prior to the name change back in October 2015, Nu-Oil was known as Enegi and was a company that had promised a lot but had ultimately failed to actually deliver much, although at the time a lot was being made about an asset in Newfoundland and the re-working of a producing well there.

That was back in 2013, and on July 25 that year the company announced that it had completed a farm-in agreement with Black Spruce Exploration, under the terms of which BSE would pay 100% of the costs of drilling four new wells, as well as re-working the previously producing PAP#1-ST#3 well. At the same time Enegi raised over £2 million from issuing new shares.

Subsequently nothing happened operationally at the Newfoundland licences (covered under PL2002-01(A)) and the company terminated its agreement 15 months or so later.

It now seems as though the whole saga is playing out again, although at least this time the company has actually got to the stage where operations have commenced. Back in October it signed a deal with PVF Energy Services whereby it would foot the bill for all of the costs of the work on PAP#1-ST#3, in return for 50% of the net revenue – so it gets half of any operating profit once all of its costs have been recovered.

The work involves milling out an obstruction that has restricted the flow, and then a 15-30 day flow test will take place. The company talks about the amount of oil potentially in place, and the fact that PL2002-01(A) could holds 21mmbo to 97mmbo.

But there seems to have been far less mention of the sort of flows that could be expected from this well.

Going back to the original RNSs from when it was flowed in 2013, they showed that it was flowed for 214 hours and produced 1,731 barrels of oil during that time, with a 44% water cut. Open hole flow rate was 310boepd, but there were some expectations that might increase once load water had been flowed out. Operations were subsequently suspended due to ‘unforeseen mechanical issues’.

Who knows, the company might have more success this time round, but given that PAP#1 was originally drilled back in the mid 1990s, and even under the Enegi name the company had spent quite a few years, not to mention an awful lot of money as well, trying to get this up and running on a commercial basis, as well as developing the rest of the field, I won’t be holding my breath.

Even if they do manage to get it flowing, then once costs have been recovered by PVF, and assuming similar flow rates to before, that doesn’t suggest that there will be an awful lot left for Nu-Oil, certainly not to justify the 300% or so rise that we have seen in the share price in the last couple of weeks – given that it has added around £12 million to the market cap of the company.

The rise has of course been very convenient for Beaufort Securities though to cash in 29.8 million warrants at 0.4p and a further 40 million at 0.5p over the past few days.

Yes the company may soon be at a stage where it is producing a relatively small amount of oil net to it, but it is hard to see that justifying a market cap of in excess of £16 million.

I certainly wouldn’t even be considering buying at the current share price of 1.6p unless you are purely trying to play the momentum – a dangerous game here given the size of the rise already and it has become a very crowded trade – and if you are basing your decision on anything relating to fundamentals, then it is definitely one to avoid at this level.

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