anyone got any ideas about the block trades that went through today?

website: http://www.sterlingenergyplc.com/



weather: www.nhc.noaa.gov/refresh/graphics_at4+shtml/084938.shtml?50wind120

the clue is r..p!

What? R I P?

Wednesday, October 14, 2009

The Next Great Oil Stock in Kurdistan?

Theres no doubt about it. Kurdistan contains oceans of oil.

If you were among the readers of my newsletter, Red Hot Penny Shares, you might have made many hundreds of percent returns on Gulf Keystone Petroleum (ticker: GKP) when it struck oil there recently.

Well now the hunt is on for the next get-rich-with-oil Kurdistan strike. With few foreign companies willing to risk the wrath of the Baghdad government, the number of candidates is small. But penny share aficionados have alighted upon Sterling Energy (ticker: SEY).

Long-time readers of my free email Penny Sleuth (you can sign up for free by clicking here) may remember that I wrote on Sterling Energy in May. Back then, I wrote of my surprise that this once respected oil junior had managed to get into so much of a mess.

Well, four months on and things have now reached a predictable conclusion. Shareholders have been obliged to stump up fresh capital to keep the business alive. The former directors have been shown the door.

Could this be another Kurdistan success story?

Replacing them in charge of the operation is Alastair Beardsall, whose credits include the successful turnaround of Emerald Energy (ticker: EEN). Here he oversaw a rescue rights issue at 25p per share in 2003 and today Emerald is in receipt of a 750p cash offer from Sinochem. Sterling Energys shareholders would certainly settle for a similar return.

Beardsall likes the fact that Sterling has interesting assets but has been strangled by a lack of finance. He has a reputation for running a tight ship, and for issuing a minimal number of new shares. In a new research note, these are all arguments put forward in favour of Sterlings shares by broker Evolution. But the overriding matter, at least in the short term, is Sterlings drilling program in Kurdistan. What could success be worth?

Ill come to that in a moment. But first, let me tidy up Sterlings other interests and the tricky matter of its relationship with the bankers. For the last year and a half Sterling has been living from one banking review to the next. But it has now raised the hefty sum of 62.5m through an issue of shares at 1.3p.

A further 20.6m may follow, depending upon how many shareholders elect to take up the open offer to buy shares, also at 1.3p, which closed on Tuesday. Given the discount to the prevailing stock market price of 3.6p, one would expect the majority to do so, so Sterlings coffers should be about 80m better off.

With this out of the way, Sterling can now proceed with the sale of its producing assets in the Gulf of Mexico and this could raise another 50m or so. Set against these cash sums Sterling has debt of some 70m and it may have to pay its share of drilling programs off-shore West Africa and Madagascar. Unless Sterling farms out its interests here, these projects could require an investment of 60m, but this will not be until late next year. By that time we should know how Sterling has fared in Kurdistan.

The gamble that investors in Sterling Energy (ticker: SEY) take

Here it has an interest in the Sangaw North Block and drilling is expected to start before the end of this year. It should hit the first potential oil bearing rock in 60 days and complete drilling in 150 days. Sterlings interest is likely to fall as partner Addax farms into the project and the Kurdistan Regional Government takes its share. Even so, Sterling will still be left with 40% and Addax will pay all of the initial dry hole drilling costs, leaving Sterling to chip in only at the point where any oil flows are tested.

So basically Sterling now has a clear run at this prospect, without having to worry about appeasing its bankers or progressing its other exploration projects.

Of course, there is no knowing whether Sterling will strike oil at Sangaw, although the success rate in Kurdistan seems to be pretty high. But as a guide we have an independent report. That gives a best estimate of Sangaws oil reserves at 1.335 bn barrels of oil (Gulf Keystone has estimated 1.5-3bn bbl at its Shaikan strike), with the chance of success given as 27% at the shallower levels and 10% at greater depth. On this basis the prospect at present is valued at 2.2p per Sterling share, assuming a $70 oil price and a /$ exchange rate of 1.65.

But Sterling will not 27%-find-oil. Either it will or it wont. And if it does, then these estimated reserves become worth 10p per share. It is also possible that while Sangaw could contain much less oil than the best estimate it could contain much more perhaps worth close to 20p per Sterling share.

On the other hand it might find nothing at all. If that turns out to be the case, the shares will have, in the opinion of Evolution, a value of just 0.5p. And thats the gamble that Sterling investors take!

Whenever you go looking for big rewards, just be aware of the risks...

Good investing,

Tom Bulford
A Penny Sleuth article for Proactive Investors

http://proactiveinvestors.co.uk/columns/investment_insights/508/the-next-great-oil-stock-in-kurdistan-0508.html

Thanks for that...what did I say about the half penny if the well is dry ...somebody agrees with me !.

Business Financial Newswire
"AIM-listed Sterling Energy plc, has signed a binding sale agreement in respect of it's USA business to a non-USA buyer.

The intial gross consideration is $90m payable on completion and further amounts may become payable depending on future oil and gas prices over the next three years.

The sale consideration is fully funded.The disposal will lead to a book loss of around $80m, which will be recognised in Sterling's accounts for the period to 31 December, 2009.

The net $79m will be used to repay all of Sterling's bank debt "

sounds very much like a forced sale

cynic

re - sounds very much like a forced sale

The company has been trying to sell the US assets for a very long time now


re - and further amounts may become payable depending on future oil and gas prices over the next three years.

that is a good deal, if considering the prices are expected to be on the rise, so further money should be recoup from that.

personally, i shall stay away from this company .... though there may be good profits to make on 0.25p moves, provided you remember to bank them! ..... there are so many tasty fish in the sea at the moment that i see no need to try and pick at the plankton, especially as some will assuredly turn out to be poisonous

Cynic - Please list the tasty fish for us, and let us see your recommendations, rather than passing empty comments.
I'm not trying to put you down but I am looking for ideas.

in such a booming market it's hard to know which still have the most legs, but any of the following are worth a look ....

TLW, AFR, AMEC, CEY, CSR, POG, KAH, PMO, MCRO, WMH, FTSE, DOW

how many do you want?

Thanks Cynic for some ideas - I will trawl through them. I know AMEC was tipped in the Sunday Telegraph. Tullow's oil in East Africa is said to be waxy and may require a heated pipeline, but I shall have another look at it, together with the others. I have not traded indexes before such as FTSE or DOW.
I usually do day trading with CFD,s and Direct Market Access, following the free charts I get when logging into my IG Index account ( although I do not now do spread betting ). I seem to remember that you trade CFD,s.? Thanks again.

i'm certainly not nearly brave enough to day-trade ...... seems to me, that unless you have very sophisticated methods and discipline and a very deep wallet, it is the certain road to perdition

What makes me think that when GKP calms down : there will be a part switch over to this.....I think the only way to play SEY is the "free ride syndrome".....buy a lot : it rises (we hope) and sell half later and leaving the remaining amount on an all or nothing sort of thing....those in at a lower price can do the selling at a lower price of course....risky but Gulfkeystone are pulling this one up.

required field - What you may consider with SEY - They will have the "Open Offer" and probably share consolidation in November, which if you take up the offer you will have 11 shares for every 9 now but at a reduced price, which as I see it may not effect the value much; plus they may start drilling in mid December, and probably get near to the first geological level by about ?? mid february, which means others may buy in anticipation of an oil find. If you do not want the risk sell all or half towards the beginning of february. I think that would be a far play. I don't see any bad news ahead, as the bank problem is now sorted, plus they may get a farm in partner for Madagascar, or clearance with the boarder disute near Cameroon.

the bad news would be a duster, and that would be a disaster for a plankton company/share like SEY

required field - Alas there could be a problem with those guys in Bagdad, and the "illegal" Kurdistan oil drilling contracts, but Kurdistan oil exploration has probably now got too well established, and Bagdad needs the cash !

none of that matters one jot if SEY fail to find commercial quantities of oil with their first try ..... you have or should have read that the odds are about 4/1 which is about the norm

Yes....and today's news is good because selling the USA assets could have gone on for another 6 months or so, perhaps longer...even though I still think this is overvalued,... if the market prices it up : it goes up....the offer will not have any bad effect on the sp at all in my opinion and I reckon we shall see 8 or 9p for the sp way before any oil is discovered.....this does look a lot better than a few months back......we need to check the seimic on this new well....

Evolution says 6p and if they hit oil, many times that.

no wonder that the share have been a bit weak lately .........


Westmount disposes of 15m Sterling Energy shares

Westmount Energy says that it has disposed of 15m shares in Sterling Energy at a price opf 4.7p each.

The Company says that it now holds 65m shares in Sterling Energy and 5.1m shares in Desire Petroleum.

The Westmount Board comments that the next six months should be an exciting time for Sterling and Desire with drilling expected to commence in Kurdistan on Sterling's acreage and the long awaited rig will in November commence its voyage to the Falkland islands with drilling planned by Desire for early 2010.