PROACTIVE NEWS SUMMARY: Solo Oil, Aminex, Shell, Cove Energy, Barclays, JP Morgan, News Corp, FerrexpoReported by Proactive Investors on Thursday, 28 June 2012 (on June 28, 2012)
East Africa focussed *Aminex (LON:AEX) *and *Solo Oil (LON:SOLO)* stole the limelight this morning with both companies surging after getting a boost from a breakthrough testing result at the Ntorya gas discovery in Tanzania.
Project operator Aminex this morning revealed that the Ntorya well flowed gas at a rate that could be commercially viable, peaking at 20.1 million cubic feet per day which equates to 3,350 barrels a day.
Additionally the well also produced condensate (at 48 degree API) at a rate of 139 barrels a day.
Aminex says the successful test will be followed by a seismic programme later this year.
The aim will be to get a ‘fuller understanding’ of the extent of the Ntorya discovery as well as identifying additional drill targets.
The test results were hotly anticipated after a 4 month wait since the discovery was initially made in February. And the outcome has pleased investors.
Aminex shares gained almost 15 per cent this morning trading at 5p, while Solo Oil share gained 10 per cent to 0.5p a share.
“Not only are initial flow rates from a small section of pay very impressive but the presence of condensate enhances the economics of both the well and the wider acreage,” said Barney Gray, analyst at Old Park Lane Capital.
“Ntorya-1 is also located in close proximity to the gas fired power station at Mtwara, less than 25km away, which has significant spare capacity.
“We anticipate the publication of a reserves report in July and we are confident that anything in excess of 100 BCF (gross) at Ntorya-1 will be commercial for Solo.”
A positive result from Ntorya will be a fillip and it may provide a rich reward for the going it alone earlier this year.
Originally Ntorya was a flop. The well failed to hit its primary target. This led, in part, to the withdrawal of Tullow Oil as a major partner in the venture.
At that point the two remaining partners decided to take a calculated risk to drill the well deeper to examine a newly identified target – and within that deeper well section that the gas discovery was made.
Ntorya is part of the Ruvuma venture between Aminex and Solo – owning 75 and 25 per cent respectively.
Proactive Investors dedicated another in-depth to the oil and gas sector, covering a note from French broker Société Générale, which said that mid cap oil and gas stocks should emerge as more robust value propositions next year.
Societe adds, however, that investors holding out for another *Cove Energy (LON:COV)* story, might have to wait until 2013, when he expects M&A activity to pick up again.
Cove has found itself at the centre of a tug of war between two oil majors in *Shell (LON:RDSB)* and state-owned Thai firm PTT Exploration and Production, but analyst David Mirzai reckons a similar scrap for fellow E&Ps is unlikely this year.
“We think there are industry players now able to potentially offer premiums to market valuations for the assets of smaller players, but extensive consolidation or M&A still looks unlikely for 2012,” he told clients in a note on oil and gas E&Ps today.
This morning, Shell revealed it was extending its bid for the Mozambique-focused explorer to stay in the hunt for its lucrative East African oil and gas assets.
Mirzai remains optimistic on the sector’s outlook however, but marks the lower oil price down as a slight concern.
“A lower oil price environment may stress companies’ balance sheets, causing potential delays to investment decisions vital to bringing new production onstream, and deferral of exploration wells,” the analyst said.
“We think that the quickest route for stock re-rating in this sector relates to the ability to demonstrate success in the exploration phase or to be the subject of M&A interest,” Mirzai added.
“However, we believe that the chances of the former are often overestimated by the market, while predicting the latter is unreliable.”
He believes investors have in recent times favoured stocks with near-term exploration catalysts instead of core value plays that maybe offer better risk/reward than chance of exploration success.
The broker highlights *Rockhopper (LON:RKH) *as the pick of the bunch, offering some 80 per cent upside potential to his 450 pence target price.
Mirzai even thinks it “may be subject to a pre-emptive bid by one of the early data room participants” as it looks to farm out its acreage by end of the third quarter this year.
He also sees real potential in *Premier Oil (LON:PMO)*, which offers investors “significant value upside” to his core net asset value with free optionality over its exploration programme.
Elsewhere, *Tullow Oil’s (LON:TLW)* Kenyan results should prove a hit with investors as it confirms its emerging status as a new hydrocarbon basin.
*News Corp (NASDAQ:NWSA)* also was in the headlines today after confirming plans to split into two separate companies - one holding its newspaper business, and the other its entertainment operations.
The idea of splitting the publishing business has been considered for many years but Murdoch had opposed such a plan. Now, it appears to be going ahead.
Shareholders have become increasingly unhappy with the company's publishing assets, which have lower margins than the entertainment assets as well as a phone-hacking scandal.
By separating, the publishing company will be free to pursue acquisitions and other investments, people familiar with the situation have said.
Investors have given their blessing to the split, pushing shares of the company up 10 per cent since the news of the plan broke early Tuesday.
The split remains subject to final board and regulatory approvals and News Corp said it also plans to hold a meeting of its shareholders sometime in 2013. It expects it to be completed in about a year.
Analysts say the faster-growing pay TV segment would be valued more highly by new investors who may not be willing to buy shares in a company being dragged down by a newspaper industry in decline.
Still, analysts had questions about which entity would bear the financial risks of the ongoing U.K. probe into phone hacking and bribery.
Besides legal costs, News Corp. also faces potential fines in the US under the Foreign Corrupt Practices Act, which punishes companies that have bribed officials abroad.
Breaking off the newspaper and book publishing assets into a separate company makes them more "bite size" and ripe for being taken private by a third party, one analyst said.
In the meantime, the banking sector was at the centre of attention today after chancellor George Osborne said *Barclays (LON:BARC)* was “not alone” in its guilt of fixing the interest rates at which banks lend to each other in a statement to parliament today.
The bank has to pay fines totalling £290 million to the Financial Services Authority and US regulators for manipulating the Libor (London interbank offered rate) and Euribor (Euro interbank offered rate) rates.
The chancellor said four global banks are also being investigated: *UBS, (NYSE: UBS) HSBC (LON:HSBA) Citigroup (NYSE:C)* and *Royal Bank of Scotland (LON:RBS) *
Meanwhile Barclay’s chief executive Bob Diamond faces “some very serious questions” said Osborne, with his position under increasing pressure despite him not being the bank's head when the offences took place between 2005 and 2007.
Share prices suffered today across the bank sector as more details of the scandal emerged.
Barclays was at the bottom of the FTSE 100 falling 15 per cent as brokers weighed up the possible ramifications of the scandal.
The Libor rate, which the chancellor described as the “bread and butter” of the UK’s financial system, affects everything from mortgage payments to loan rates.
Broker Cenkos said it reckons the cost of lawsuits from angry customers who may have overpaid as a result of Barclay’s misconduct will “dwarf” the £290 million fines.
Analyst Sandy Chen said: “We are pencilling in multi-year provisions that could run into the billions.”
American bank *JP Morgan Chase & Co. (NYSE:JPM)* is expected to be in the spotlight Thursday as the New York Times reports that a credit derivative trading loss from its London division initially estimated at $2 billion may have grown to as much as $9bn.
The paper quoted an unnamed source as saying a report generated in April showed that in a worst-case scenario, the losses from the trade could reach $8-9 billion, but said some regulators expect something closer to $6-7 billion.
Last week, CNBC had also said final losses would not be more than $6-7 billion, given that the company had moved quickly to unwind the position.
JPMorgan chief executive Jamie Dimon had said the eventual losses from the bad trade could be higher than the $2 billion announced in May.
The Wall Street bank posted a profit of $5.4 billion in the first quarter of this year.
Significantly higher losses would raise new questions about big Wall Street banks, which critics accuse of using their "too big to fail" status to make risky bets that could plunge the limping US economy into further peril.
JPMorgan's sour bet also raised doubts about whether the United States had adequately reformed its regulatory apparatus in the aftermath of the 2008 financial crisis, caused in large part by risky Wall Street trading practices.
The newspaper said JPMorgan would disclose part of the total losses on July 13, when it releases second-quarter earnings.
Another main story by Proactive was dedicated to *Ferrexpo (LON:FXPO)*, which Goldman Sachs said was the “clear leader” on its metal mining and steel top picks list today.
It also added it has reshuffled its list to reflect its preference for mining versus steel, seeing better value in the former.
Ferrexpo mines, produces and transports iron-ore pellets at its Poltava mining asset in Ukraine. It is currently operating at full capacity and is aiming to increase production to 12 million tonnes of pellets per annum in 2014.
“In mining, Ferrexpo remains our top pick on strong industry positioning, a solid balance sheet and attractive valuation,” said analyst Yulia Chekunaeva.
“Global miners have de-rated more than their steel peers over the past 11 months; we see this as unjustified given our constructive outlook on commodities and the resulting improvement in earnings momentum that we expect for miners.”
The broker sees limited scope for further earnings deterioration and believes the de-rating offers an attractive entry point for investors.
“We reiterate our ‘buy’ rating on the stock.”
Goldman forecasts 11 per cent year on year price growth for iron ore prices in 2012 with a projected benchmark iron ore price of US$132/145 per tonne in 2012/13.
However the broker did lower its overall commodity price assumptions by an average of 4 per cent and readjusted its Ferrexpo target price to 400 pence from 500 pence accordingly.
Meanwhile the broker expects China’s real GDP growth to reach 8.1 per cent in 2012, which reflects an expected acceleration in infrastructure spending - the main driver behind the steel industry and iron ore industry which is primarily used to make steel.
In the steel industry Russia-based Severstal is the broker’s top pick on its list due to the company accomplishing a “major business transformation” by disposing of its loss-making US assets and spinning off Nord Gold which closed in early 2012.
Links: Full news story
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