Opinions
Andrew Cook
Sterling Resources
SLG-X
DON'T BUY
May 19, 2011
Stock price when the opinion was issued
You might be interested:
Big fan of this company. In the process of bringing on the Brea field by the end of this year. They own 30% and a big German utility owns 70%. Also, going to start doing some offshore drilling in Romania. Stock has had a bit of strength recently. He has a $2.50 target, based on his view that a year from now they will be ramping up production from the Brea field and then maybe doing phase 2.
Used to be a big fan of this stock 5-6 years ago at around $0.80-$0.90. Then it went into the mid-$4 where he thought anything over $4.50 was a Sell. Have had a number of problems bringing on the Breagh Field offshore in the United Kingdom. The market is saying “show me”. The volumes that come on may be somewhat less than what the Street is looking for. The last couple of wells have not been as prolific on the testing. There should be $0.20-$0.30 of cash flow once they are running in 2014 on an annualized basis, so the stock is pretty cheap. Still lots of reserves to be found in that area. Also, have other assets, especially offshore Romania where they have had some big discoveries. Would be a Buyer on the tax loss pressure. His target is about $1.25.
Stock fell as they were having problems with new production. There is condensate in the play, which is good, because you are going to get a higher value product but they have to get the facilities tweaked to handle that. Feels the company will be doing about 7000 BOEs a day, for the average of next year and doing cash flow of $0.38. There is lots of upside from the exploration in the UK North sea plus you get for free the discovery they made in the Black Sea in offshore Romania. They don’t have the capital right now to move this forward but have found a large amount of gas there, potentially trillions, and they have 65%. Looking for a partner on this play. His target is $1.60.
He owned it in the past. Significant discovery in the UK north sea in 2010. Then he felt there would be delays and recommended selling it. In Q4 2013 they brought it online. They get a rig to start with this month. Under 2 times cash flow. Another field comes on Q2, 2015. The management is on a road show this week in Canada.
(A Top Pick April 14/14. Down 77.08%.) Likes the company and now owns some. Involved in a play in the North Sea and production is now up and running and doing over 6000 BOE’s a day. Pricing in the UK is fabulous relative to Canada where they are getting over $8 Canadian for their gas. Stock came down because they have debt that put on for developing Breagh, and that debt has payments twice a year, April and October. The balance sheet didn’t have the money to make the next payment, so the market was afraid of the debt issue. Sold some assets in Romania, and are going to get paid in June. He thinks the stock 2-3 years from now, could potentially be $1+.
A fabulous story. Had a big discovery in the UK North Sea. They brought it on and volumes ramped up. The problem is that the debt was so significant that they couldn’t work out an accommodation with the debt holders, who are in the process of taking over the company. The remaining equity shareholders will end up with 3%-4% of the company. If you own, just walk away and take your lumps.