Joel’s Resource Report – Letting experts allocate capital at #RBD

Joel’s Resource Report – Letting experts allocate capital at #RBD

Earlier this week, I3 Energy’s announcement that they’d drilled a duff well (with a 90% chance of success) caused the shares to immediately tank by almost 50%. I decided this was overdone and bought a few, expecting a bounce. Unfortunately, this didn’t materialise and I therefore cut my losses.

Whether appraisal or exploration, every well drilled contains some level of risk. I wonder how many investors in I3E really understand the technical and other risks involved with drilling wells – I suspect not many.

Rather than investing in monte carlo stocks or bust drillers, investors could consider a company which I’ve been invested in for some time – Reabold Resources. Reabold is a speciality financing business and “strategic investor in upstream oil and gas projects”. Reabold’s market cap at an ask of 1.30 pence is £53 million (4,063,963,810 shares in issue)

(source: google)

Reabold has a number of attributes that I believe will deliver out performance:

Lean operation, quality management

Reabold is a lean operation with two co-chief executives, four non–executives and an advisor. Sachin Oza and Stephen Williams are co-chief executives and both ex-M&G analysts who were frustrated with analysing company prospects correctly and not seeing any shareholder returns.

Focus on stranded assets

Reabold’s focus is on finding ‘stranded assets’ – those that have been materially de-risked and need access to capital to move them along the value curve:

(source: Reabold)

Reabold’s stategy is outlined in more detail here:

Institutional Support

Reabold enjoys strong institutional investment and upon success at its projects has successfully raised funds and is able to put them to use, for example by investing in companyies at a discounted price to their next raise.

Reabold enjoys multiple institutional investors:

(source: Reabold)

Diversified Portfolio

Reabold has a multi country, multi asset portfolio of projects.

(source: Reabold)

West Newton – company maker

West Newton is arguable Reabold’s ‘company maker’. It’s a gas discovery with a 72% chance of success and pre-drill, estimated NPV of $247 million for gas.

The deeper oil target had an estimated 24% chance of success and an NPV of $850 million. West Newton is “potentially the largest UK onshore gas field”. The drill results exceeded expectations (meaning that estimated NPVs could be increased) and the operator will look to update the CPR (competent persons report) in time – additional testing needs to be done.

Co-chief executive Sachin Oza discusses the result here.

Parta – Romanian oil & gas

Reabold’s partner, Danube Petroleum, recently drilled the IM-1 well. This is a twinning of an existing gas discovery and illustrates the type of projects that Reabold are attracted to.

The well exceeded expectations, including having oil at depth. Anecdotally, Romania has historically been a large oil and gas producer which I believe bodes well for future Parta drills.

Reabold recently provided a corporate update here.

Reabold has on-shore Californian assets where successful production wells have been drilled. The company has been quiet on current flow rates and work is likely going on in the background.

Reabold’s other investment is in Corallian Energy who own offshore UK licences with a target due for drilling in H1 2020 which has a “best estimate 2C contingent resource of 38.8 mmboe”.

Reabold has a strategy which I believe should result in excellent return on equity employed. By having a diversified portfolio of assets, many of which are de-risked, Reabold shareholders are able to expose themselves to the upside of drilling wells without the portfolio-busting drops experienced by companies such as I3E.

Shareholders especially in small companies are often nervous about an increasing share count. With Reabold, I’m not concerned by this as share issues have in my opinion have been value accretive for shareholders and not simply keep the lights on, as is often seen.

As as aside, I’m not saying that I3E doesn’t potentially offer interesting risk versus reward at the current level. Rather, I just prefer to invest in Reabold’s business model long term.

 

At the time of writing the author holds a long position in RBD.

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    The way to make money using oil stocks on AIM is to buy three months pre drill and always exit prior to TD so as avoiding duster announcements .

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