Friday, 4 October 2013

#PMG Parkmead looks promising

Parkmeads strategy is “to build a significant new independent oil and gas company, with assets in proven and frontier areas, through exploration, development and innovative commercial transactions in order to maximise shareholder value”

Parkmead is now led by Tom Cross (who formed Dana in 1994 and sold it for £1.9bn in 2010), who became Chairman in 2010. Many of the Parkmead team also held significant positions at Dana (see link)

Parkmead holds assets in the UK and the Netherlands. Parkmead's reserves base has increased rapidly over the past 2 years. It includes 2P reserves of 25.2 mmboe and additional 2C resources of 11.3 mmboe. In addition to Oil and Gas E&P Parkmead has a wholly owned subsidiary Aupec, which provides petroleum economics, benchmarking and valuation expertise to a wide range of government bodies, NOC’s, multinational agencies, and international O&G companies. Parkmead benefits from the relationships and analytical rigour within Aupec as it progresses its strategy throughout the North Sea.

Parkmead also holds a 1.8% stake in Faroe Petroleum. As at 01/10/13 the value of this investment was approximately £4.68 million.The last few years have been busy ones, and Mr Cross has completed a number of canny acquisitions to grow the business at a modest cost.

November 2011
Acquires a 15% interest in the Platypus gas field, located in Southern North Sea. The Dana-operated field is located in Block 48/1a.  It was discovered by Dana in 2010, when the 48/1a-5 well encountered a significant gas bearing Lower Leman Sandstone reservoir, and appraised in 2012 (see below). Parkmead holds a 15% interest in the field.

December 2011
Acquires Stakes in the large Pharos Gas Prospect (Dana 50% & operator) and four UKCS gas basin blocks. The four blocks are in a prolific part of the Southern North Sea, between the producing Amethyst, Ravenspurn, West Sole and Hyde Fields. The blocks also contain the 47/10-8 gas discovery and several significant additional exploration targets.

The blocks are adjacent to Blocks 48/1a, 47/5b and 48/1c, also owned by Parkmead, and which hold the Platypus field and the Possum prospect. Both Platypus and Possum are structural traps containing a Rotliegendes age reservoir, which is the dominant gas producing horizon in the Southern North Sea. The Pharos prospect is also a structural trap with the same Rotliegendes reservoir. This structure has the potential to contain up to 500 billion cubic feet of gas in place and is currently being drilled as I write. The historical drilling success rate within this play has been very good. A discovery at Pharos could be jointly developed with the Platypus field, which is only 14km to the north east of Pharos. This would significantly increase the economic value of all three accumulations at Platypus, Possum and Pharos.

March 2012
Achieves first production by acquiring onshore stakes in four producing gas fields and two oil fields in the Netherlands. These include:
  • A 15% interest in the Andel V production licence, including two producing gas fields at Wijk en Aalburg and Brakel, and the Ottoland oil field development;
  • A 15% interest in the Papekop production licence, including the Papekop oil field development 
  • A 15% interest in the Drenthe III production licence (excluding Vinkega) and Drenthe IV production licence, which together include two producing gas fields (Geesbrug and Grolloo)

At the date of the acquisition production was approximately 2000 boepd (300 boepd net to Parkmead).
The successful extended well test performed on Ottoland during Q4 2011 produced oil at a stable rate from the existing single well on this accumulation. The acquisition provided Parkmead with two near-term development opportunities with the first of these due to come onstream in 2014.

In March 2012 Parkmead raised £8.5 million equity in an oversubscribed placing (61m shares @14p, a discount of 8.5%. Tom Cross subscribed for 24.5m of these shares).

May 2012
Acquisition of DEO petroleum, including it’s principal asset, a 52% interest (and operatorship) in the Perth field in the UKCS. The Perth Field, in licences P218 (Block 15/21a) and P588 (Block 15/21c), is targeting 2P reserves of 21.5 mmbbls (net to Parkmead) from a Phase 1 development. Parkmead is planning to drill an appraisal well targeting a further 50-100 mmbbls of OIP potential. They are seeking to maximise the reserves to be developed through the Perth Field infrastructure including potential tie-in opportunities in the Greater Perth Area. To this end, Parkmead is working with one of its partners, Faroe Petroleum whose acquisition of a 50% stake in the Lowlander oil field (which is located nearby to the Perth Field) means they could potentially put together a joint Perth/Lowlander development study.

Year end June 2012 results
Parkmead generated revenues of £2.95 million and a loss before taxation of £4.9 million.

August 2012
Strong results from the Platypus appraisal well announced. The well reached 14,175 feet on 19 June having successfully drilled a 3,100 foot horizontal section within the reservoir. The well delivered a significant flow rate on test of 27 mcf of gas per day, (4,500 barrels of oil equivalent per day). Parkmead has since been working with its partners to progress planning for the field development. They are hoping for a decision to proceed to commercial development without the need for further appraisal drilling. At the time Tom Cross commented:
"We are delighted to report successful and conclusive results from Parkmead's first well in the North Sea and will be working with our partners to move ahead with the development of the significant gas field at Platypus”
October 2012
Added significantly to its exploration portfolio following the UK 27th Licensing Round. Parkmead became operator of 25 blocks across six licences in three key areas. Parkmead has started its work programme across these blocks, which includes obtaining 2D/3D seismic data and detailed mapping. According to Parkmead they have also had early discussions with potential partners across some of the blocks.

December 2012
Oversubscribed placing to raise £15.9m (130m new shares @12.25p/sh, a 5.6% discount), with a further £3.4m raised through the conversion to equity of loans provided to Parkmead by Tom
Cross himself, providing total finance of £19.9 million. It is good to see Tom’s confidence in his own company reflected in this way.

Half year end 31 December 2012
Parkmead generated turnover of £1.97 million and a loss before taxation of £2.76 million.
  • Revenue increased 48% to £1.97 million (H1 2011: £1.33 million)
  • Total assets grew 199% to £40.0 million (£13.4 million at end 2011)
  • Net assets rose by 247% to £22.0 million (£6.3 million at end 2011)
23 May 2013
Acquires Lochard energy. Lochard owned a 10% interest in the producing Athena oil field, producing originally at a gross rate between 10,000 and 11,000 boepd. Following some pump problems the Athena field is currently producing at a rate of approximately 7,500bopd (750bopd net to Parkmead). The field’s partners (Ithaca Energy operator) are currently assessing the most appropriate remedial actions, which may include repairing or a work over of the existing well or the potential drilling of a new well. It sounds unlikely that production will be restored to its optimum level before Q2 2014. There is therefore the possibility of some remedial work and cost. However, since production commenced in Q2 of 2012 through to the end of the first full year Athena had produced over 3.6mmboe. Lochard's interest generated operating cash flow of £9m in the second half of 2012, so Parkmead’s deal could pay for itself in around a year. The acquisition:
  • increased Parkmead's 2P reserves to approx 25.2 mmboe
  • increased Parkmead's forecast production for H2 2013 by over 400% although this will have been affected slightly due to the pump issue.
  • provides Parkmead with enhanced revenues, earnings and operating cash flow, which in turn will assist  the development of Parkmead's other assets
1 October 2013
Pharos exploration well starts drilling. The Pharos gas prospect has the potential to contain up to 500 billion cubic feet of gas-in-place (86 million barrels on an oil equivalent basis) and is located in Blocks 47/4d, 47/5d and 47/10c. The Pharos structure is located only 14km south west of Parkmead's Platypus gas field, discovered in 2010 and successfully appraised in 2012 (see above). Pharos is mapped as a much larger structure than Platypus and has the potential to contain almost three times more gas-in-place than the targeted amount at the successful Platypus discovery. A discovery at Pharos would be highly valuable because it could be jointly developed with the Platypus gas field which flow tested in 2012 at a rate of 27 million cubic feet of gas per day (4,500 barrels of oil per day on an equivalent basis). This would significantly increase the value of the already economic development at Platypus. Data attained from the Pharos well will also provide a greater understanding of the remaining prospectivity in this area, which includes the Blackadder gas prospect in the adjacent block to the south of Pharos.

Future growth potential
The first share price catalyst is already under way - the Dana drill of Parkmead’s 20% owned Pharos exploration prospect, targeting potential GIIP of 500Bcf that could ultimately be developed in tandem with the nearby Platypus and Possum gas assets. Update on Pharos, November 2013 is that they have made a gas discovery. No news on potential size yet but great news. My blog on what this could be worth to Parkmead is here

Further growth centres on the Perth development. Parkmead’s 52% stake in the Perth field is its flagship asset. Perth offers Parkmead 21.5mmbbl (net) from its initial FPSO-based development phase, with further upside possible from a 14.4mmbbl (net) second stage and other neighbouring assets which may ultimately comprise a wider Perth hub development.  Perth partner Faroe Petroleum recently acquired a 50% stake in the nearby Lowlander field, which could be developed alongside Perth as part of a regional sour crude hub. Parkmead estimates there is in excess of 900mmbbl of sour crude OIIP potential in the fields surrounding Perth. An appraisal well is planned to spud in 4Q13/1Q14 at a gross cost of around £12m.

A recent broker report from Jefferies suggested that Parkmead is undervalued vs reserves metrics. They report that on enterprise value / boe multiples, Parkmead at $7.4/boe 2P looks undervalued versus their peer group (an average $11/boe). The lion’s share of Parkmead’s reserves come from the single pre-development Perth asset (21.5mmbbl). As the appraisal programme advances the valuation gap should close. At average 2010-13 North Sea M&A multiples of $12.7/boe Parkmead would be worth 22p/share.

Personally I see Parkmead as a predator, not the prey, so unlikely to see a takeover of Parkmead at this stage in their development. Jefferies value Pharos at 1p/share plus a 13% upside to SP on a fully derisked basis. They value Perth at 14p/share. The future potential has a lot to do with the reputation of Tom Cross and the board, and the quality of the deals that he is bringing in as Parkmead grows its production, reserves and acquisitions.

Whilst I originally moved across as part of the Lochard acquisition with the feeling that Parkmead was overpriced, and that they had got Lochard on the cheap with expensive paper, I now appreciate the fuller picture and am pleased to be part of a larger, professional outfit like Parkmead. The shares look fair value, but with nothing priced in for the current drill, future potential, or future deals that Mr Cross may be able to pull off and I believe they are unlikely to fall further unless something goes wrong with current production assets.

I do actually think that this could be Dana part 2 and may add on any dips!

Other references for interest:
Article on Parkmead – 12 deals in the mix and talking to far east oil companies:

Article about planning for a Perth field hub

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