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By Gary Newman | Thursday 8 February 2018
Disclosure: I own shares in one or more of the stocks mentioned. 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.
I can understand why longer term investors in Parkmead Group (PMG) may be somewhat unimpressed with the performance of the share price recently, but the company itself is continuing to make good progress. I hold shares in the company myself, and whilst the share price has generally been trading in the mid-30p to low-40p range, in spite of the strength that the oil price has been showing in recent months, I’m happy to remain invested and see how things unfold in the coming months and years.
With any oil and gas company, things always take much longer to come to fruition than people originally expect, but if a company does have a major project which it is working towards taking into production, and as long as you see a realistic chance of that actually happening, then often the best thing that you can do is nothing at all, or even add more shares whilst the price is supressed.
Parkmead is a company which operates offshore in the UK, as well as having gas assets in the Netherlands, and is run by a team which has form in the oil and gas sector for building a company into something big, with executive chairman Tom Cross having done it all before at Dana Petroleum. Past success isn’t necessarily proof that the next business will perform so well, but I would definitely place some faith in him given what he has previously achieved.
The company has just announced that it has further increased its interest in the licences which make up the Greater Perth Area (GPA), one of the largest undeveloped projects in the North Sea, and with oil prices more buoyant it could well be the perfect time to have done so. Parkmead now owns 100% of the Perth and Dolphin licences, and of the GPA area, and has also signed an agreement with Nexen Petroleum to carry out an engineering study to explore the potential for a subsea tie-back to the Scott platform. Additionally, AGR Tracs has been commissioned to undertake a reservoir study looking at fracture stimulation which could increase both flow rates and the overall recovery factor, and would also mean a reserves upgrade. Both Perth and Dolphin have achieved production test results of up to 6,000bopd from a single well.
The increased stake in GPA has also added significant amounts to the 2P reserves of the company, which now stand at over 46 million barrels and with plenty of upside potential as the whole area could have as much as 500 million barrels of oil-in-place, with the core Perth area alone estimated at 197 million barrels.
Obviously that all sounds very good for a company valued at just £41 million currently – especially when you take into account its other development licences such as the Platypus gas one alongside the GPA hub, plus all of the exploration blocks.
But to unlock any of that value it needs to reach production, and the company is making progress with the FEED (front end engineering design) for the field. At some point it is going to need to find significant amounts of funds to reach production, but with the option of possibly using the Scott tie-back (depending on whether that can be adapted to handle the higher hydrogen sulphide levels) that may now be a lot less than had been expected had the company gone down the FPSO route – a FPSO may still be the only option, depending on whether the existing facilities can be adapted to the type of oil at GPA. I would also expect some form of debt funding rather than anything that diluted equity by a significant amount for current shareholders. The studies currently being undertaken should give a clearer picture on all of this.
Aside from GPA, the Dutch gas assets are enough to keep the company ticking along without burning through its cash reserves too quickly – those stood at circa $34 million at the end of June 2017 – and it is also debt-free. But it has been loss-making on a net basis and everything really revolves around the GPA area and the potential from that, if and when it starts producing. For me, given the amounts of oil and possible production rates, I can see plenty of value at the current market cap when compared to its peers, so this remains a long term buy and hold.
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