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The small cap oil and gas stars to buy as oil bounces back
August 5, 2016

Investing in energy companies involves a lot of trust, and a good dollop of luck. For most, buying an individual oil stock ultimately means putting faith in an asset in a remote corner of the world that you will never see. If that sounds mad, that's probably because it is - albeit with the safeguards provided by management reputation, companies' track records, geological parallels and independent reports.

London's international reputation as a good place to be incorporated, raise money and do business means UK investors are spoilt for choice when it comes to getting direct exposure to disparate geographies and prospects. Of course, that doesn't mean they will make money, and in the case of some stocks there exists an over-reliance on one or two assets. But exploration has long involved taking a punt on parts of the world beyond the reach of most companies.

On the following pages and in the map (below), we've highlighted 27 oil and gas fields - both producing and developing - that have been sufficiently compelling to attract institutional and retail investment in recent years. We'd caution that many of these assets make up just a portion of the owner's total prospects, and as such none should be taken as a full assessment of the company or companies they are connected to. Nevertheless, this guide is intended as a visual tool for any investors searching for a new energy project to back.

1. Throughout the oil price fall, Savannah Petroleum (SAVP) has maintained an enviable track record of attracting funding to develop its interests in the Agadem rift basin in southeast Niger. Most recently, that included a $40m (£30m) fundraising at a 45 per cent premium to the share price, on the back of a near-doubling in the company's resource base to 2.2bn barrels. The money will be used to recommence 3D seismic studies ahead of a drilling campaign in 2017, before which point there is a "high possibility" of a partner coming on board, according to chief executive Andrew Knott.

Type: speculative, frontier

2. You could be forgiven for thinking that Texas's capacity as an oil-producing state was fully understood, but Aim-traded Pantheon Resources (PANR) is proving otherwise. With its joint-venture partner, the company's primary drilling programme has focused on resources in the Eagleford and Woodbine sandstone formation, although Pantheon is opportunistically exploring the Austin Chalk, a trend area that sits across the south of the state. This month, the company received permits to frack a shallower portion of the Austin Chalk as part of its VOS#1 well drilling of the Eagleford sandstone, a move chief executive Jay Cheatham described as an "opportunity...we couldn't pass up".

Type: unconventional, resource builder

3. The investment case for Falcon Oil & Gas (FOG), as it is for many small oil companies, really rests on one key asset: its 30 per cent share of licences covering the Beetaloo Basin in Australia's Northern Territory. Unlike many companies of its size, Falcon's exploration of the asset hasn't resulted in a painful drain on cash, as it is carried through a farm-out agreement that sees partners Origin Energy and Sasol pay for the full cost of a nine well drilling programme. What has got Falcon's team excited about the asset is its geological similarity, in terms of gas density, to North American shale formations such as Eagleford and Bakken. Its location is also critical, as it could provide a much needed source of gas to the Darwin LNG plant some 600km to the north of Beetaloo.

Type: for sale, unconventional

4. Roxi Petroleum's (RXP) BNG licence in the pre-Caspian basin in the west of Kazakhstan covers an enormous region. At 1,561sq km, the block - in which Roxi holds a 58.4 per cent stake - is roughly the size of the area bounded by the M25 in England. Little work was done to commercialise the region when it was first explored by the Soviets, but Roxi's strategy is now to fund deep drilling with the profits from their five shallow wells, which collectively produced at a rate of 825boepd (barrels of oil equivalent per day) in 2015. With some encouraging signs from the deep drilling programme, the company plans to build its reserves and production as much as possible without debt or equity financing, ahead of an application for a full production licence in 2018.

Type: resource builder, development

5. Zoltav Resources (ZOL) acquired its licence to Bortovoy, located in the Saratov region on the Kazakh-Russian border, as part of its purchase of Diall Alliance in 2014. The licence was previously owned by the Russian government, which first explored for hydrocarbons in the region shortly after the birth of the Soviet Union, and eventually auctioned the block in 1999. The area's geology is now well understood, and contains proved and probable reserves of 131.2Mboe, having converted from an oil-producing field to a gas development. Zoltav, which has restored Bortovoy's main plant to 48.4m cubic feet of gas production per day, now aims to develop the eastern fields covered by its licence, where a second gas plant has been earmarked for construction.

Type: gas, cash generator

6. Faroe Petroleum (FPM) has a large number of licences in the North, Norwegian and Irish Seas, spanning a range of prospects and working interests. One block to have generated some positive newsflow is the 50 per cent-owned Brasse discovery, where Faroe completed a successful and low-cost sidetrack appraisal well in July. The discovery of a 25-metre gross oil column led the explorer to revise its total gross volumes of recoverable hydrocarbons to 80mmboe and prompted Faroe to assess "options for monetising this important new asset" given its proximity to the Brage field platform, which Faroe also partly owns.

Type: speculative, offshore

7. Royal Dutch Shell (RDSB) has canned many programmes since the oil price started to drift downwards in 2014, but one survivor has been the third phase of its highly successful deepwater project in Brazil's Campos Basin. Operational since 2009 - during which time the Campos fields have produced more than 100Mboe - the third stream of the Parque das Conchas project came online in March and will now concentrate on five producing wells in the Massa and O-South, both of which are tied back to the enormous Espirito Santo vessel. Shell has now scaled back production from the Campos fields to a peak of 20,000boepd, although whether the super major would approve such a capital-intensive long-term project at depths of 1,800m in the current price environment is perhaps a moot point.

Type: deep water, cash generator

8. Many observers - including this magazine - have voiced concerns about the state of Premier Oil's (PMO) liabilities, but there can be little doubt about the quality of its assets. The North Sea-based Catcher field is set to become one of the most significant when it starts to deliver first oil in the second half of 2017. On current estimates, the project - in which the company owns a 50 per cent stake - will come in 20 per cent under budget at a cost of $1.3bn, and should hit a peak production rate of around 50,000boepd, providing Premier with an additional (and desperately needed) source of cash. Until that point, the company is reliant on new production from its North Sea interests.

Type: development, offshore

9. The Nostrum Oil & Gas (NOG)-owned Chinarevskoye field in Kazakhstan is a prestigious asset, but management's recent expansion plans have struggled in the face of lower oil prices. Last year, amid flattening production, an independent report showed a 19 per cent downgrade in proven and probable (2P) reserves to 383Mboe. This was in large part to a decision to drill slanted rather than horizontal wells in the Biski-Afioninski and Mulinski reservoirs between 2018 and 2021, in an effort to bring down costs and preserve operational margins.

Type: production expansion, cash generator

10. Vietnam may not be a major oil-producing nation, but that's academic to Soco International (SIA), which has always focused on frontier drilling and has been active in the country since 1996. The company's working interests centre on the 9-2 and 16-1 offshore blocks in the Cuu Long Basin to the southeast of the country, which cover the Te Giac Trang and Ca Ngu Vang oil fields. Following first oil from Te Giac Trang in August 2015, Soco expects its working interest in the blocks to produce an average of 10,000boepd-11,500boepd this year, while further production could come from a recently completed logging programme that will inform the next batch of proposals for additional perforations.

Type: frontier, resource builder

11. Exploration companies focused on West Africa are well represented in London. One member of that group, Victoria Oil & Gas (VOG) - which has built and operates a fully integrated gas producing and distribution facility in Cameroon - is more ambitious than its £38m market capitalisation might suggest. That's because through its licence areas in and around the industrial city of Douala, Victoria supplies gas to two government-operated stations for the generation of up to 50 megwatts of power. Drilling is currently focused on its existing onshore Logbaba plant and well site to boost the company's reserves.

Type: gas, resource builder

12. Off the coast of Cameroon, fellow Aim traveller Bowleven (BLVN) is also hoping to boost its reserves, through its 20 per cent share of the Etinde shallow water permit, which covers contingent resources of 58Mboe. Last year, Bowleven sold two-thirds of its stake in the block to Lukoil and NewAge (African Global Energy) for $165m, and could be paid a further $85m in contingent cash payments and covered appraisal costs for a two well drilling programme. Etinde sits within the Rio Del Rey basin, a hydrocarbon reservoir formed following the rift between Africa and South America.

Type: speculative, frontier

13. The nearby Niger Delta complex will be well known to many energy investors, but Ophir Energy (OPHR) has laid claim to be the first independent to develop a floating liquefied natural gas (LNG) project in offshore Africa. This project is the Fortuna block, which is expected to produce 2.2m metric tonnes of gas a year when it comes online in 2020, after front-end engineering and various technical hurdles are overcome. It's a complicated undertaking - and Ophir's 80 per cent working interest could be diluted before the end of the decade - but the prize is a 30-year asset and potential sales of 3.7 trillion cubic feet of gas.

Type: gas, development

14. Despite its size, Indus Gas (INDI) has a relatively low profile in London. That might be due to the domestic focus of its business, which involves selling gas from its field in Rajasthan in the Indus Basin, which straddles the India-Pakistan border. As per a 2012 report, Indus's gas discoveries on the block translate to 5.45 trillion cubic feet, although further exploration is handled by operator Focus Energy.

Type: gas, cash generator

15. Dual Irish and UK-listed Aminex (AEX) believes its gas reserves could one day approach those of Indus, but in the near term its production is concentrated on the Kiliwani North licence in offshore Tanzania. In April, it reached a commercial milestone with first gas from the field, eight years after its discovery, and secured at an agreed price of $3.07 per thousand cubic feet. However, with just 28bn cubic feet of contingent resources, cash flows from the field are set to drop off precipitously between now and 2021.

Type: gas, speculative

16. Naming an oil field after an unpredictable and violent sea monster might seem like tempting fate, but Enquest's (ENQ) Kraken project in the East Shetland basin certainly lives up to its mythical counterpart in terms of size. That's because the development involves 25 wells and a base case of 147Mboe of reserves. The field has several parallels with another long life North Sea project, Catcher (see above), including a minority holding by Cairn Energy (CNE) and an expectation for first oil in 2017. Kraken is also expected to come in $300m under budget, and should break even at around $14 per barrel at peak flow.

Type: deep-water, cash generator

17. Five months after floating on Aim in February 2014, Hurricane Energy (HUR) had successfully drilled a horizontal well at Lancaster, its fractured basement discovery to the west of the Shetland Islands. After a couple of years in the wilderness, the company recently received financial backing to return to the field and capitalise on massive spending cuts in the oil services sector. Following this fundraising, management hopes that the ongoing drilling programme should help to refine its 444Mboe-470Mboe of proven but undeveloped resources, while raising Hurricane's profile in any negotiating position with potential farm-out partners, which is ultimately likely to be one of the oil majors.

Type: for sale, development

18. Canadian Overseas Petroleum (COPL) may have a market capitalisation below £25m, but it has some enormous firepower. That's because it is being carried by ExxonMobil, the world's largest listed oil company, to develop the 2,500 sq kilometre LB-13 concession off the coast of Liberia. Exxon's 83 per cent shareholding in the project is clearly a positive sign, as is the gross petroleum resource report that suggested the top 13 prospects on the block have an even chance of containing 2.6bn barrels of recoverable oil. A drilling programme starting later this year will be the true test of LB-13's credentials and claims that it is analogous to discoveries in offshore Ghana and Sierra Leone.

Type: frontier, speculative

19. It can be tempting to view integrated domestic gas companies as a win-win bet: a captive customer base - so the logic goes - equals stability, long-term pricing and lower transport costs. Wentworth Resources (WRL), which has a 32 per cent production concession in Mnazi Bay on the coast of Tanzania, has recently found that this is not always the case. Despite the successful delivery of first gas a year ago, the ramp up to full production has been checked not only by heavy rains - which have led hydro-generated power to displace some natural gas production - but flattened volumes amid a dispute between one of the gas plants' operators and the national public utility.

Type: gas, production expansion

20. The construction of Amerisur Resources' (AMER) pipeline between Ecuador and its Platanillo field in Colombia's Putumayo Basin has asked a lot of investors, not least patience. The pipeline, which is now finally coming into use, was billed as a way of bringing down the field's operating costs from $27 to $15 per barrel, although delays have ended up hampering production. What cannot be denied is the quality of the 14,341 hectare block, the rights to which are 100 per cent owned by Amerisur, as the Platanillo drilling campaign has consistently produced excellent results at little cost.

Type: resource builder, development

21. Although it does not currently have any producing assets, we recently tipped FTSE 250 constituent Cairn Energy (CNE) for its strong track record of offshore exploration drilling. One of its main focuses is the Sangomar Deep block off the coast of Senegal, which has so far yielded very positive drilling results, and in good time. Having made twin discoveries in the block in 2014, by the end of last year Cairn estimated it had an even chance of recovering 385Mboe from the asset. Now that a trove of data has been collected in the recent drilling programme, this figure should increase when half-year results are published next month. Further upside could come next year, after the company recommences drilling ahead of a commercial decision on the block's fate.

Type: resource builder, for sale

22. In 1998, five of six wells drilled by companies in the North Falkland Basin led to discoveries of oil and gas, although with a barrel of Brent crude at $10 at the time, none were declared a commercial success. Twelve years later, and with prices somewhat higher, Rockhopper Exploration (RKH) hit upon a major commercial discovery at its Sea Lion prospect, now estimated to contain 520Mboe. Despite the subsequent dip in oil prices, the economics of the development should still hold up to first production in 2020. Together with farm-out partner Premier Oil, Rockhopper has committed to an initial outlay of $1.8bn to develop the field, which amounts to just $8 a barrel for the first 40 per cent of the current reserves base.

Type: development, deep-water

23. Ithaca Energy's (IAE) Stella field sits in the Central Graben area of the North Sea, surrounded by large oil producing fields long-favoured by the majors. In fact, it was Shell that first drilled the Stella 30/6-2 discovery well in 1979, since when the reservoir has been penetrated a further seven times. Ithaca drilled an appraisal well and a secondary (sidetrack) wellbore in 2010, encountering light oil and identifying the edge of the field's oil and gas column. Development hasn't all been plain sailing, but despite some issues with the floating production facility, first oil is expected soon and should lead to an initial annualised rate of 16,000boepd net to Ithaca.

Type: cash generator, development

24. Shell's acquisition of BG was taken as a major signal of its intent to go big on LNG, but super major rival BP (BP.) also has its eyes trained on the gas prize. This was underlined at the beginning of July, when BP decided to expand its LNG facility connected to the enormous Tangguh gas field in Indonesia. The project, which already covered six gas fields, should increase the plant's capacity by a third to 11.4m tonnes of LNG production a year, 75 per cent of which will be sold domestically.

Type: gas, cash generator

25. After its success with the Jubilee field, first discovered in 2007, Tullow Oil (TLW) doubled down on its work in Ghana with TEN - shorthand for the offshore Tweneboa, Enyenra and Ntomme discoveries. First production from the field, whose development is estimated to have cost $4.9bn and should eventually hit 80,000boepd, is imminent. What's more, the addition of the TEN project to Tullow's portfolio should bring costs down to below $10 a barrel by 2017, according to chief executive Aidan Heavey. No wonder, then, that Ghana and Côte d'Ivoire are locked in arbitration regarding the maritime border between the two countries - a dispute that has seen further drilling in the field suspended.

Type: cash generator, deep-water

26. Exillon Energy (EXI) doesn't give much away in its monthly production updates, save that just under a quarter of the oil it currently pumps from its licences in oil-rich northern Russia come from its Timan-Pechora field, also known as Exillon TP. Unfortunately, investors have been provided with relatively little news on the deferral of a drilling programme at Exillon TP, which is meant to include seven new wells and infrastructure upgrades. Oil companies are sometimes guilty of flooding the market with operational updates, but in Exillon's case a bit more communication about TP wouldn't go amiss.

Type: production expansion, resource builder

27. The Vaca Muerta (literally, 'dead cow') is the only oil-producing shale outside the US, and - depending on who you ask - the second- or third-largest shale resource anywhere. The US Department of Energy estimates that the shale contains as much as 27bn barrels of oil and 800 trillion cubic feet of gas, and a Goldman Sachs' report compared the resource potential with the Bakken formation either side of the US-Canada border. Past oil production has left a solid infrastructure legacy, although limited pure-play opportunities for UK investors. One exception is Andes Energia (AEN), which holds approximately 250,000 net acres in the formation, currently producing 45,000boepd.

Type: speculative, unconventional

Additional reporting by Noah Laignel