November 25th, 2014

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The Looming Uranium Crisis: Strategic Implications for the Colder War
Doug Casey  Nov 15  

Is US Oil Production Set to Plummet?
Keith Schaefer  Nov 11  

The Madness of the EUs Energy Policy
Doug Casey  Nov 08  

Oil Market Update
Clive Maund  Nov 03  

Total War over the Petrodollar
Doug Casey  Oct 28  

»» more editorials in the archives

market data

Ux U3O8 Price (Uranium)Nov 17th, 2014
$44.00 +$2.25 www.uxc.com

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expert analysis & newsletter briefs


"One of my favorite small-cap service companies is ENSERVCO Corp. Its forte is heating up oil to improve flow. The company works with hot oil trucks, frack water heating units and acidizing. These technologies are not particularly new or complex, but ENSERVCO is very good at what it does and it performs to customers' timetables. I have listed ENSERVCO as a Speculative Buy, because a lot of small service companies have to fight hard to make their way in a competitive arena. But ENSERVCO's trucks are servicing a lot of basins, and the company is building itself a good reputation, well by well. I have put a $4/share price target on it." (11/25/14) - The Energy Report Interview with Rudolf Hokanson

Hemisphere Energy Corp.

"Hemisphere Energy Corp.'s Q3/14 production increased 31% sequentially to exceed our expectations, averaging 725 boe/d (86% oil) due to the successful summer drill program at Atlee Buffalo. . .strong netbacks despite softening commodity prices resulted in quarterly cash flow of $2.3M, or $0.03/share, a 46% sequential increase and 36% above our expectations. . .with four more wells coming online at the end of the month, we expect the company to exit the year well over 1,000 boe/d and be in a solid position to continue to grow production, cash flow and reserves organically in 2015 with over 100 drilling locations in inventory." (11/19/14) - Michael Charlton, Industrial Alliance Securities

Manitok Energy Inc.

"Manitok Energy Inc.'s Q3/14 is in line, and its production guidance reaffirmed. . .Entice production is slated to be tied-in in December and in Q1/15 following the completion of the multi-well battery. There is enough behind pipe production that management expects South Entice will keep the 7 Mmcf/d gas plant at capacity (~1,800 boe/d, ~40% liquids). . . at Stolberg, one well is currently planned for Q1/15. As a result, H1/15 capex is expecting to be only 6070% of cash flow, which should see ~$9M in debt reduction." (11/17/14) - Chad Ellison, Dundee Capital Markets

Enterprise Group Inc.

"Enterprise Group Inc. reported Q3/14 revenue of $18.8M. . .at quarter end, the company had cash and equivalents of $8.6M. . .we continue to rate Enterprise a Buy." (11/14/14) - Russell Stanley, Jennings Capital

Enterprise Group Inc.

"Enterprise Group Inc. reported Q3/14 revenue increased 88% to $18.8M; EBITDA was $4.6M compared to $3.9M last year and EPS was $0.01. . .the Utility/Infrastructure division increased revenue by 25% to $12M, and the Equipment Rental Services division increased revenue by $6.4M to $6.7M. . .management has maintained its capex plan for FY/14 which includes $3M for underground and tunneling equipment, $2M for hydrovac trucks and $15M for flameless heaters and well-site rental equipment. . .we are maintaining our Buy rating; the company will benefit from pipeline construction, expansion of utility infrastructure, and oil and gas activity." (11/14/14) - Jason Zandberg, PI Financial

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from the publisher
  Robert J. Moriarty

Welcome to 321energy.

Mid-Sized Oil Companies Poised for Growth in West Africa

Executive Report with ISA Intel
November 24th, 2014


In 2013, the continent of Africa produced 9.3 million barrels per day (bpd), or about 10% of global supplies. Africa's oil production is concentrated in a relatively few number of countries, namely, Nigeria (2.3 million bpd); Angola (1.8 million bpd); Algeria (1.7 million bpd); and Libya (production fluctuated, but averaged 0.98 million bpd). Those four countries account for somewhere between two-thirds and three-quarters of the continent's oil output.

Nevertheless, there are other countries that are starting to make waves in the oil sector. Many of them are located in West Africa.

Nigeria is the leader in this region, but other countries like Ghana, Senegal, Congo, Gabon, and Cote d'Ivoire are seeing a flurry of investment as oil companies begin to learn more about their oil reserves. To be sure, they are still the minnows, each only producing fewer than 400,000 bpd.

But that is why so many companies are interested - the region is largely underdeveloped and underexplored. Much of the new drilling is taking place offshore, where the Atlantic waters hold vast reserves of oil.

This report focuses on West Africa. But while the region is often dominated by the oil majors - Royal Dutch Shell, Chevron, Eni, etc. - there are also a few small and mid-sized companies drilling in West Africa. This offers the greatest opportunity for gains in a still emerging oil region.

West Africa Rising

Let's start with Congo. Congo has not traditionally been a major source of offshore oil production. But Eni (BIT: ENI, NYSE: ENI) has had quite a run there lately. Admittedly, Eni is not a small company by any means, but its success warrants attention. The Italian oil company announced on October 30, 2014 that it has discovered a field that may hold 1 billion barrels of oil equivalent (boe), with 80% of the resources in the form of crude oil.

Eni's Marine XII block is located in shallow water off Congo's coast and holds an estimated 3.5 billion boe. But the well that Eni just drilled - the Minsala Marine 1 - could hold 1 billion boe by itself. It was drilled in just 75 feet of water depth, and Eni says it encountered 420 meters of oil payzone, located beneath a layer of salt. Between Congo and Gabon, Eni's Chief Executive said that it has logged over 4 billion boe in discoveries over the last 4 years.

Speaking of Gabon, a week before Eni's announcement, Royal Dutch Shell (NYSE: RDS.A) announced a discovery at its Leopard-1 well off the coast of the West African country. Shell says it encountered 200 meters of a gas column and that it will conduct further appraisals to assess with more certainty the extent of the resources. Shell is a huge international company, and while it has a heavy presence in West Africa, a single gas discovery will not move the needle much.

Also operating in Gabonese waters is Ophir Energy (LON: OPHR), which just purchased two more large blocks in October. Ophir already had acreage in four blocks in the North Gabon basin, two of which it has 100% working interest, and the other two it has a 50% working interest. Ophir now has over 15,000 square kilometers in offshore acreage in Gabon. It is considering farming out drilling for some of its offshore acreage to other companies to reduce capital risk. The company is also working on a floating LNG facility in Equatorial Guinea that will come online in 2019.

Further west Cairn Energy (LON: CNE) is exploring off the coast of Senegal, where on November 10 the company announced a major discovery. The Scottish company said preliminary estimates peg its contingent resource at 150 million barrels (P90). Cairn has a 40% working interest in North Fan-1 and SNE-1 wells (pictured) with ConocoPhillips (NYSE: COP) controlling 35%, FAR Ltd 15%, and Senegal's national oil company the remaining 10%. Cairn's stock jumped more than 12% after the news was published on November 10. It says it will conduct an appraisal drilling program in 2015 to delineate the extent of its recoverable resources.

Still Risky Business

While there are budding success stories, not everyone is having good luck in West Africa. Tullow Oil Plc (LON: TLW), a British oil explorer in West Africa, has seen its share price fall by half since the summer.

Tullow has run into some problems. It originally made a name for itself with Ghana's flagship Jubilee field (pictured). Discovered in 2007, the Jubilee field came online in 2010 and is now producing over 103,000 barrels per day and the field is Tullow's bread and butter. Tullow has a 35.4% stake in the field with its partners Kosmos Energy (NYSE: KOS) controlling 24.1%, Anadarko (NYSE: APC) 23.4% and Ghana National Petroleum Corporation with 10%.

But Tullow has drilled a bunch of dry holes lately, notably in Mauritania. It should be noted that most of its failed wells occurred elsewhere - three in East Africa, and five in the North Sea - but Tullow's financials have taken a hit. It still hopes to drill 12 wells in Cote d'Ivoire through 2016, 6-8 wells in Equatorial Guinea, and 4-6 wells in Gabon. But Tullow significantly slashed its capital expenditures for 2015, budgeting just $300 million for exploration, down from $1 billion this year.

Reuters reported in early November that India's ONGC (NSE: ONGC) is considering acquiring a stake in Tullow. Mimicking China's “going out” strategy - acquiring assets overseas for various political and economic objectives, which China pursued with vigor over the last decade - Reuters says that India is pushing its oil companies to increase foreign oil production to enhance India's energy security. That may not be the primary motive for ONGC, but it is reportedly very actively seeking a stake in Tullow, although the details of the talks have not been disclosed. This could significantly impact Tullow's share price in the near future.

Taken together, analysts don't know what to do with Tullow. It has been the subject of intense interest and has seen its ratings upgraded and downgraded quite a bit in recent weeks. Investor confidence has taken a knock due to poor drilling results and low oil prices, but there is still an upside for the company. Investors may want to take some time for this stock to settle down, and once Tullow gets back on track, take another look.

Elsewhere in Congolese waters is Soco International (LON: SIA), a junior company from the U.K that recently reported very promising test results from an offshore well. Soco said the well had an average flow rate of 4,800 barrels of oil and 3.5 million cubic feet of natural gas per day, and is very optimistic about the progress. While the company is investing heavily in the Congo, Soco's onshore activities in neighboring Democratic Republic of the Congo have created more buzz lately.

The release of a documentary, “Virunga,” has cast Soco in a very poor light, as it sought to develop oil fields in the Virunga National Park. Soco says that it has since agreed to not move forward with development plans, hoping to limit the fallout, but the PR damage has been real. Still it may be the company's own missteps that could do more damage. On November 12 it revised downwards its full year production target due to “higher-than-anticipated shutdowns.” Soco's share price has dropped by more than 30% since the summer on lower oil prices, but dropped 3.5% alone on November 13 when it released the production figures.


The snapshot above may give investors a window into the rising confidence in corporate boardrooms about the prospects of West Africa. But even though there is huge opportunity - particularly offshore - there are still as many obstacles as there are prizes. Small and mid-sized companies, although they often provide the biggest upside potential, are the most exposed to low oil prices.

On the other hand, many of them have already suffered huge losses, offering a better bargain for investors. If oil prices climb once again, their share prices will rise quickly. And especially since a few of these companies have exciting growth prospects in West Africa, now may be a good time to get in

Executive Report with ISA Intel
November 24th, 2014

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