With a 0.82p share price and a £31.5m market cap, oil and gas investor Reabold Resources (LSE:RBD) has advanced considerably since we spoke to co-chief executives Sachin Oza and Stephen Williams in June. The period has been a busy one for the business, defined largely by its entry into the US and its subsequent discovery and production of hydrocarbons in the country after a period of intense drilling and workover activity. Here, we once again catch up Oza and Williams to discuss Reabold’s preparations for two prospective drills at its European interests later this year and longer-term plans for a wider roll-out of its strategy.
American dream
Reabold took a significant step forward in June with the acquisition of US-focused oil and gas firm Gaelic Resources for £3m, paid in shares. Through Gaelic, the business was granted the option of participating in three near-term, high-impact Californian oil and gas leases called Monroe Swell, West Brentwood and Grizzly Island. These are estimated to have an NPV of up to $235m net to Reabold.
Alongside its partner Sunset Exploration and operator Integrity Management Solutions, Reabold is targeting more than 4MMbbls of oil at Monroe Swell with a net NPV of up to $100m. Meanwhile, the trio are targeting up to 2MMbbls of oil at West Brentwood and 50-90bcf of gas at Grizzly Island with a net NPV to Reabold of $25m and $100m respectively. Oza says the US leases met all of Reabold’s strict investment criteria, which he and Williams have been pursuing since taking over last year:
‘We had to make a direct investment in the US rather than our normal approach of taking a stake in an operator. However, we felt this was necessary because all three leases met our need for high-quality and high-return projects that are technically de-risked, close to monetisation and can reach production at little expense. The resources here are not massive, but we are looking to maximise the dollars that come out for every dollar put in. On that metric, these are phenomenally good assets for us that can rapidly advance.’
True to Oza’s word, the firm and its partners wasted no time following the Gaelic acquisition, delivering an almost constant stream of newsflow. Firstly, in July, Integrity began a four well workover programme with a net NPV of up to $10m to Reabold. This was completed by August, with all four wells in production at a gross production rate of 70bopd.
Then August also saw Integrity begin drilling a well at West Brentwood, the first of the five wells that Reabold has the option to fund before the end of 2019 in exchange for earning-in to 50pc of the three licences. Days after spudding the well, Integrity announced that it had made a commercial hydrocarbon discovery, and in September it began to prepare facilities for production in excess of200bopd and 60MMcf/d gross.
Moving forward, Reabold expects to spud the second and third wells of its five-well programme at Monroe Swell and Grizzly Island before the end of the year. Integrity is also looking at the possibility of drilling two more wells at West Brentwood to maximise its potential. Thanks to this rapid progress, Williams says the Californian assets are already contributing to Reabold financially while it awaits progress across the rest of its portfolio:
‘California has moved forward very quickly, and it has been useful to get something into production while we wait for the slightly slower wells in the UK and Romania. The successful well at West Brentwood is currently being completed and will soon be producing. The plan is then to drill two more wells in California this year and several more in 2019. The specific programme for next year has yet to be signed, but we are confident that the US will continue to quickly bring in cash.’
Imminent drilling
Although a lot of news has been coming from California in recent months, Reabold has also been reporting progress in the UK and Romania, where it is funding other operators’ appraisal wells.
In the UK, the company owns a 32.9pc interest in UK oil and gas business Corallian Energy. Corralian is the 40pc owner and operator of the Wick prospect in the North Sea. It is also 49pc owner and operator of the Colter prospect, which is based just off the UK’s south coast and adjacent to the prolific Wytch Farm oil field. At $55/bbl oil, Colter has a success case NPV of $180m, of which $59m would be net to Reabold
Alongside its partners at both prospects, Corallian has spent this year gearing up to drill an exploration well at Wick and an appraisal well at Colter in the fourth quarter. In July, the firm announced that authorisation for expenditures had been signed at both projects, marking a final stage of approval. Then, in September, it said that a rig site survey had been completed at Wick ahead of drilling.
With these updates in mind, Oza told us that everything is on track for drilling in the UK over the coming months. He expects the newsflow associated with drilling and any potential discovery to be ‘extremely meaningful’ for Reabold:
‘Hopefully, the newsflow around the wells will be significant. The value case from Reabold’s perspective is extremely meaningful,and the potential value of both prospects is reflected in the huge amount of farm-in interest they have attracted. We are now on the brink of unlocking what could be on offer.’
Meanwhile, in Romania, Reabold owns a 29pc stake in Danube Petroleum, a subsidiary of ADX Energy, which it bought the stake for £1.5m in December 2017. Danube is 50pc owner of the Parta Licence where it is planning a $5m appraisal campaign that will see it re-drill two gas discoveries starting later this year. The wells were first drilled in the 80s but abandoned on weak demand and low gas prices. The wells have an independently assessed contingent resource of 21.6BCF and prospective resources of 28.3BCF. They are expected to deliver a low estimate success case NPV of $29m and upside case of $86m.
In September, Reabold announced that it had released the second tranche of its £1.5m investment in Danube, funding the company for the first well in the programme, which is expected in Q1 next year. Drilling of the second well is currently contingent on Danube securing additional funding, but Williams tells us he and Oza are confident this will go ahead:
‘Danube is working on securing the money for the second well. We think the low-risk nature of the projects thanks to previous production and strong gas prices in Romania that are converging with wider Europe should make it attractive to investors. If the funding is secured, it is likely that the drill contract will have an option to go on to the second well, allowing back-to-back drilling. If not, we will just do the first one.’
Oza adds that the wider Parta block has additional upside potential of up to 300Bcf gas and 45MMbbl oil that could extend even further through the consolidation of nearby licences:
‘In this area, even moderately sized historically de-risked prospects they are highly economical because the situation is very different from the 80s when they were first drilled. The region also benefits from low drilling and operating costs along with robust gas pricing and infrastructure. This could yield extremely profitable production for Reabold and our investors.’
Expansion plans
The last few months have also seen Reabold begin preparations for its future, raising £4.8m in September to extend its strategy into additional high-impact projects. Having proved concept through its work in California, the firm is keen to take advantage of low project entry prices and drilling costs while it can and has already identified several potential opportunities. As Oza puts it:
‘The reason Reabold can invest in low-risk, high-impact upstream oil and gas projects is because we can find opportunities that are significantly undervalued. With the oil price having increased there is a sense in some areas of the world, this anomaly is changing a bit. The difficulty for us comes when we are not able to buy into these technically de-risked projects at very low prices. Each basin moves to its own rhythm, and the window is closing a bit in some area. It remains open in some areas we focus on, which is why we are keen to get after them quickly. We are constantly evaluating opportunities that could meet our criteria and are in discussions with numerous potential projects we expect to create significant value for our shareholders.’
Encouragingly, the placing was cornerstone with a £3m investment by asset management giant M&G Investments. With further institutional backing from the likes JO Hambro and Miton – which increased its stake to 10.1pc in the placing – it seems that Reabold well and truly has the City’s support to fully roll out its strategy.
Thanks to early progress in the UK and Romania and the barrage of news from California, Reabold’s shares have risen from 0.7p to 0.82p since the beginning of June, giving it a current market cap of c.£31.5m. In its results for the six months ended 30 June, released this week, the firm posted net current assets of £9,659,000. Since then, the company has raised a further £4.8m of cash, taking it net current assets to around c£14.5m.
If we subtract admin costs of c.£65,000/month over three months and $1.4m for drilling at West Brentwood (the five-well programme is expected to cost $7m in total) this figure falls to £12.9m. Using this rough calculation, the market is currently valuing Reabold’s portfolio at just £19m, a small portion of the combined net NPV it has predicted for its projects.
This point, combined with the planned period of intense drilling activity in the coming months and longer-term institutionally-backed growth plans, led Williams to argue that Reabold’s shares could rise much further:
‘We are entering an intense period of activity. It will be hectic in both the US – where we are confident we will be able to demonstrate further success– and in the UK and Romania, via our operator stakes. That will be the most fundamental driver for our shares and market cap, but on top of that, we now have the balance sheet capabilities and firepower to execute further transactions. We think these will be exciting and believe the market will also like them. Our job now is to start filling in drilling slots for 2019. I think investors really appreciate this constant stream of wells and we would like to continue that indefinitely.’
Coming together
After a healthy nine months that has seen shares increase significantly, Reabold is on the verge of a very significant period for newsflow that, if all goes to plan, could unlock plenty of upside for its shares. Taking a longer-term view, Reabold is in the unusually strong position for a company of its size of having a significant amount of institutional support and cash covering roughly a third of its market cap. These points bode well for its plans to keep on expanding while it can still access undervalued assets across the world.
