5 or 12 bags sir?

Apologies for the rather rampy headline, if you are part of the twitterati you’ll probably not be offended and used to it!

Photo by Zukiman Mohamad on Pexels.com

Anyone who has been watching junior oil and gas plays recently will have seen that some have started responding to the recovery in oil price.

In fact COPL (Canadian Overseas Petroleum) has managed to put in a sterling 1200% rise in just little over a month (see chart below) and hence the blog headline!

And only today has UKOG booked an impressive 55% rise!

This is how mad or shall I say surprising the AIM market can be and when a stock gets truly oversold and interest picks up by whatever means the returns can be silly – silly good! Remember things can also get silly bad too!

So I think I’ve found another junior O&G play that could offer similar upside after some discussion with others, namely, ADM (ADM Energy)!

Before I go on, I’m not doing a full detailed research note on this as it doesn’t fit into my more conviction investment type play, this for me is a higher risk play that I’ve put a smaller stake into but the rewards are potentially very high too, call it a trade if you like.

So here is my take…

The company is trading at £2m cap and is the previously known MX Oil. This has been a very popular retail stock in the past. The company last year brought in a new CEO Osamede Okhomina who has a lot of experience in African O&G – check out his BIO on the company website. He has a lot of experience on the financing side too.

Osa provides an update on company operations and aspirations in the video below – its worth a listen.

The company is actually a producer and producing circa 150-250boepd from its Aje stake and I believe this is break-even at $28 barrel following recent cost reductions circa 37%.

The company and partners plan to double production with a drilling programme in 2021.

Along side this base production with expansion upside the company are looking at other opportunities given their extensive network in Africa. This is backed by an up to $100m financing facility (strategic alliance with the second largest commodity trader in the world) and any new deal that could land could likely use this facility with perhaps off-take embedded, clearly at £2m cap any deal will likely re-rate the company rapidly and this is the main appeal !

The company recently provided an operational update and are well placed, with no production downtime due to Covid-19 and cashed up for the remainder of 2020.

There is some more detail in this short research note from Align who see a possible 700% risked NPV upside from the current market cap.

Like I said this is a higher risk play so if you like the risk v reward profile like I do, just manage your risk accordingly.

I certainly think at £2m cap, previous raises at 7-16p per share (pre oil crash), producing assets that produce at premium to brent, doubling of production planned along with the new Management teams connections to potentially secure a transformational deal using the financing facility and oil back on the up, this looks cheap and could possibly see some nice short and/or mid-term upside, certainly if positive sentiment comes in or a strategic deal lands!

or perhaps if it just goes up !

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