Price for a smooth recovery
- Gas prices have more than tripled from 2020 lows.
- Land sales increase net cash.
- The Platypus and GPA projects provide opportunities for positive news flow.
Shares in Parkmead (PMG: 40p), a small-cap oil and gas exploration and development company, has been on a rollercoaster ride since I suggested buying them, at 37p, in my 2018 trading portfolio. At the time of the annual results (‘Bagging a value stock hat trick ‘, November 23, 2020), I noted that the investment risk, at 34p, was biased upward. It still is.
The value case has never been in doubt: net cash of £ 21.1million was half of the company’s market cap of £ 43.8million at the end of the first half of the year from the company (December 31, 2020) and that amount has since been raised to £ 24.4million. (22.2pa share) following the sale last month of surplus land in Aberdeenshire.
Parkmead still retains Pitreadie Farm – worth £ 6.2million (5.7 per year share) at cost – and has identified a 1,236-acre segment of the site that has potential for a wind farm of 20 MW. The land is adjacent to the Mid Hill Wind Farm which operates 33 Siemens wind turbines with a total generating capacity of 75 MW. FinnCap analyst Jonathan Wright estimates the wind farm could be worth £ 30million at start-up (£ 1.52million per MW) and supports an unleveraged Net Present Value (NPV) of £ 9million sterling (8.6 pa share) for Parkmead.
In addition, Parkmead has interests in a low-cost onshore gas portfolio in the Netherlands, with an average operating cost of $ 9.9 per barrel of oil equivalent, less than one sixth of the current price. current cash. The price of gas plunged to historically low levels of € 5 per megawatt hour (MWh) in the company’s first half, but has since rebounded to between € 16 and € 18 per MWh in the first quarter of this year. Wright values the gas portfolio at £ 15.5million (14.3 per year share).
This is because the combined cash value of the bank, the Netherlands gas portfolio and Pitreadie Farm is worth more than Parkmead’s own market capitalization, even without the development of a wind farm.
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It also means that a zero value is assigned to all of the company’s North Sea licenses, which include a 15% working interest in the Platypus gas field in the UK’s South North Sea, located 10 miles northwest of the West Sole gas field. Discovered in 2010, Platypus was successfully evaluated with a horizontal well in 2012 (flow tested at a flow rate of 27 cubic meters of gas per day).
CalEnergy, backed by Berkshire Hathaway, has a 26% stake in the license and Parkmead and CalEnergy know each other through their partnership in the Skerryvore area. With that in mind, Parkmead is taking over as operator of Dana Petroleum, owned by the China National Offshore Oil Corporation (CNOC), which held a 59 percent stake. With the license set to expire in July, expect some imminent news on both a license extension and a change in ownership.
The field’s development plan, submitted in October 2019, is based on a two-well subsea link to deliver gas through a 23 km pipeline to the Cleeton platform in Perenco and then to the gas terminal. Dimlington for the processing platform, reducing capital expenditure and operating costs. . Platypus is estimated to contain recoverable reserves of 103 billion cubic feet and a potential satellite field, Platypus East, could add 50% more to that figure. It is a valuable strategic asset. FinnCap has a combined NPV at risk of 5.1 pa in both fields.
Greater Perth Area Pro Projectgress
Ultimately, the reason stocks have been volatile is due to the long development process of Parkmead’s Greater Perth Area (GPA) oil hub, which has the potential to deliver 75 to 130 million barrels of oil equivalent ( bep). GPA includes licenses covering the Perth and Dolphin fields in the Moray Firth area.
Obviously, the collapse in oil and gas prices last year had an impact on all operators, but also the rapid rebound means that the economy of the GPA project has improved significantly since last fall. . Parkmead directors estimate that every $ 10 per barrel increase in the price of oil adds £ 130million to the after-tax P50 net present value of the GPA project.
In addition, the Board of Directors is currently examining a draft commercial offer from the Scott field partnership, led by CNOC, to explore the conditions for a subsea connection via the Scott platform located six miles from the oil hub. Parkmead GPA. Parkmead is also in discussions with other operators in the region. FinnCap placed an NPV of £ 112million (103 pence per share) on Parkmead’s interest in the GPA project, making it a significant proportion of the brokerage’s total risky NPV of 161 pence per share.
Stock market catalysts for a reassessment
The catalyst for closing the gap between Parkmead’s reported net asset value of £ 68.9million (63p per share) and its market capitalization of £ 43.8million is likely GPA’s information flow, from Platypus or the Aberdeenshire Wind Farm development. Progress on either of these fronts has the potential to trigger a strong reassessment.
From a technical standpoint, a move above the January 2020 high (50p) would be a strong signal that basic training has ended since last year’s stock market crash. Buy.
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