ELAND OIL and GAS

Eland Oil & Gas Plc (ELA.L) is a UK-based independent oil and gas company. The Company focuses on the production and development in West Africa, primarily in the Niger Delta region of Nigeria. It focuses on building and developing a portfolio of producing upstream oil and gas assets in West Africa. Its core assets are the OML 40 license and the Ubima field, both onshore Nigeria. The OML 40 license is situated within the Niger Delta, approximately 75 kilometers northwest of Warri and covers an area of over 500 square kilometers. The environment in OML 40 consists of shoreline and coastal mangrove swamps. The OML 40 license includes Opuama, Gbetiokun, Polobo, Abiala and Amobe.

On April 24th 2017, ELA published an operational update. The Company said Opuama is currently producing approximately 8,000 barrels of oil per day, from the Opuama-3 well only, with export through shipping ongoing. Since the last announcement, approx 120,000 barrels of oil have been delivered to the export terminal, with a further circa 40,000 to be injected imminently. The Company also confirmed its Reserves Based Lending facility at Standard Chartered stood at $24m, based on the production performance of Opuama-1 and Opuama-3, shipping export route and outlook. CEO George Maxwell said: “The successful borrowing base review with our bank, Standard Chartered, ensures we are funded for our upcoming work programme at Opuama-7 which we expect to commence in the near term. We are targeting bringing Opuama field’s gross production from Opuama-1, 3 and 7 up to 17,500 barrels of oil a day by early H2 2017.” “There is real momentum in the business as we focus on growing our production sharply and I look forward to updating all stakeholders on our drilling activities at Opuama-7 in the future.” In the run up to the full year results, brokers Peel Hunt, Panmure Gordon and Cantor Fitzgerald have reiterated buy ratings and raised target prices to 100p, 130p and 149p respectively.

As far back as December 2016, the VectorVest GRT (Earnings Growth Rate) metric flagged up the potential at ELA, driven no doubt by the growth in production at Opuama. The GRT reflects a company’s one to three year forecasted earnings growth rate in percent per year, and ELA currently shows forecasted GRT of 20.00%, which VectorVest considers to be very good. In addition, the VST – the VST-Vector master indicator for ranking every stock in the VectorVest database, logs ELA at 1.38, which is very good on a scale of 0.00 to 2.00. From a valuation standpoint, VectorVest is a little more conservative than the Peel Hunt, Panmure Gordon and Cantor Fitzgerald valuations, with a current rating of 81.46p per share. Even so, ELA remains undervalued at its current 65p.

epa

The chart of ELA.L is shown above with the price in candlestick format. The trend (as defined by Charles Dow) is evident by the series of rising bottoms. Recently the share has broken upwards and then tested the breakout level (52) which is shown on the chart by the horizontal line. Tails on the candles at the support line invariably indicate institutional accumulation as it is mainly the latter that have the time, focus and emotional detachment to define the low of the day. After a period of accumulation which lasted from 20th April to the 24th May, the share has again broken upwards and is on a BUY recommendation of VectorVest. Any pullback below 60 should be seen as a buying opportunity for those traders versed in position sizing and risk management.

Summary: Shareholders in this little oil and gas company have already seen the share price double over the past year, but it really does seem that the pace of growth in production at the Opuama well, as highlighted in the CEO’s statement, could continue to drive ELA into midcap territory in the not too distant future. Earnings growth expectations at VectorVest may be modest compared to the basket of City brokers featured here, but there is no doubt that ELA offers investors an exciting growth story to buy into. The opportunity is for aggressive traders only.

 

David Paul

May 30th 2017

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