Morning Mumble: Heavy on the Oil-Providence Resources (PVR)? Afren operations resumed & trying to win a bet of keeping it positive!

Morning, I spent some time yesterday post shorting a significant amount of AIM and a visit to the park with my daughter researching Providence Resources (PVR). Its strange how the market has factored significant risk into the Barryroe development. Its acknowledged there's been limited analysis and exploration of Barryroe and this will factor in to what proportion PVR have to give away for the development / appraisal of the asset. I'll come to the Spanish Point discovery (correct term) in due course, so patience Ian.

PVR have bee promised the advancement of Barryroe for some time. Within the Interim Results for the Half Year ended 30th June 2014 (dated 30th September 2014), there is further suggestions of progress with the Farm Out and if one has their ear to the ground, rumours of deeper pockets are abound. Even with a current partner, Cairn (CNE) whom is in on the Spanish Point (Drilled delayed for common-sense reasoning). CNE have unsurprisingly been kicked in the proverbial with all their issues, I'll avoid highlighting them here. 

The obvious current oil/gas climate with production swelling globally will not be assisting PVR with their farm out, but those with longer-term vision to 2019 and beyond (the earliest by Indiana's estimates). Ian's (Indiana) views, for what its worth, is that due to the unknown variables and the need for appraisal there's likely to either be a significant drop in the percentage of expected carry or further farm out to appraise with a payment of back costs (not currently to hand but circa £55m). These would potentially leave PVR with around 30% interest with an option (pending appraisal) to fund the development plus 3 development wells. 

Its by no means an easy feat with various estimates of CAPEX between £350M-£600M pending how you turn the page/broker notes. The best PVR can hope for is around £55M (approximate spend to date) and development carry with between 15% carried interest remaining. At the current SP, subject to PVR's desperation to raise cash, which shouldn't be an issue if the farm-out is progressing, there's starting to look like some significant upside. Even if one was to exclude the other licenses and potential. Could PVR be about to shine? Its certainly worth some higher risk monies! There's rumours that Cairn are just finalising the rig contracts for the Spanish Point drilling in 2015. One shall await the news....

For those  wishing to update themselves on Spanish Point, read: Chrysaor's update. What one would be wise to do is to compare Spanish Point with Centrica's Chiswick Field (I'm told from various parties). Centrica (CNA) acquired Chiswick field from the BP consortium in circa 2006. The field is far from conventional and required multi-fraccing of long horizontal wells. So for those requiring layman's the process creates fractures in the rock using proppants (wiki link) to increase the exposure of the well to the surrounding formation and to make the gas flow more easily. Chiswick has been in production and has been for around 7 years now. 

Afren Plc (AFR) It was no surprise with most operators returning to operations (for now), that things have now resumed at Barda Rash for Afren. There's a lot of rumour, some of it valid for AFR regarding the recent disclosed interests. The issues regarding the company will blight the SP for some time, with some key appointments being delayed due to some legal jostling its with no surprise that that the company cannot announce new director appointments. One thing that is worth considering is the fact that if the investigation is proven do shareholders have a right to seek recourse on the those directors if they are found to be guilty? For the avoidance of doubt I have no short positions in either of the above currently, and am long. (shocking I know.).

For those shorting ASX Iron Ore producers, one would be wise to reconsider there positions. Fortescue Metals Group (ASX: FMG) benefited from the closure of significant shorts overnight, whereas the market feels Atlas Iron (ASX: AGO) (a feat in itself) has further to go. For myself I elected to take my shorts off the table, not so much because of the risks of being wrong, but simply because the market is likely to do the same in due course. Goldman released a report on Friday which has not exactly helped the SP. For once, I concur with them but having been short from $1, to 0.39.60. Albeit the terminal appears to be robbing parties of potential profit by narrowing the spread and adding a premium for unknown reasons. All the same its good enough for me. Every man and his dog will have "a go" now (I know a bad pun).

The panic was in the precious metals market over in Asia and the US last night with a run up to the European Central Bank (ECB), paltry in effect, bringing some gold positions into immediate profit. Gold, post the ECB's obvious announcement of stimulus for "the Zone" is going to benefit Gold/Silver more so than any precious metals. The ECB appears to be dilly dallying with what is an obvious and necessary action (based on consensus not my views). For those wise to the trades, it was interesting to see the switch on Gold overnight, yet again covering positions on small numbers...the market for gold/gold futures is clearly very nervous/cautious and so they should be. Its very hard even for those perfect enough to know the direction haha.

Now here's a head scratcher for a WTH are IFL doing with the: International Ferro Offer to acquire coking assets. Am I missing something...I did try to be positive, we had oil, we had gold even silver pushed its head above $17.40/oz. (caution for those trading short), albeit it doesn't really benefit Hochschild (HOC) that much as its sub their all in costs. I wish to blame IFL for ruining my bull run. As its ruined, it would be rude not to cover ASOS (ASC), the technical and long holders will have noted the dire struggle to hold £20. One would be wise (as I have done myself) to ascertain whether ASC can hold £20 or not before taking further positions. The same with NEXT (NXT) with regard to 6500, for those decent traders willing to short Leggie's lifetime long:-)

Its best if I leave it to IFL's Chris Jordaan, Chief Executive Officer to comment from the RNS: "This potential acquisition is an important step in executing our strategy of diversifying our product and customer base. The coke can be sold to a distinct customer base which demands high quality and security of supply. We have a long relationship with Portnex working with them on our alternative reductant initiative, and together we have confidence we can return the Pacific Carbon assets to profit."

The item highlighted is to show the concern. I'm aware that given the right headwind, buying distressed assets is a value enhancer, but has anyone told IFL about the current market? Security of Supply is one thing, but one would assume at near to market prices? 

FDI's (Firestone Diamonds)  final results are out, academic but all the same things are progress. With the recent diamond sales and reduction in broker/dealing loans in Belgium + De Beers additional trading requirements the market is about right for now assuming demand or supply doesn't lose any traction (either-way). FDI should benefit, but all the same the companies are leveraging higher than I envisaged, despite myself being bullish on them previously. There's a long way to go for FDI, with a target completion date of June-Aug 2016. One could find it hard to argue holding the stock in its current phase as I suspect better buying opportunities could present themselves. 

So to keep with a negative theme, it would be wise of people to note XAAR Plc's Interim Management Statement. The writing for this company was on the wall near 2 months ago. So to bring parties up to speed, in July 2014, within Xaar's trading statement XAR "normal seasonal patterns the Board expects a higher level of sales in the second half of the year, with full year revenue of approximately £130 million projected for 2014." 

Fair enough, nothing up with seasonal trading but surely one should have been factoring risks in post the Chinese Real Estate/Developer issues you should of been aware of either being a reader here Morning Mumble: London's Burning??? Any old iron! & the rules of 3 warnings (Tesco validating my view), all that glimmers certainly isn't gold (at the moment) (Plus many more in the full blog) or being an investor in XAR. In August XAR announced, "During the third quarter, demand from the ceramic tile decoration sector has softened, which we believe relates to a slowdown in construction activity in China." 

One could be forgiven for missing the obvious due to the font size requiring a magnifying glass to read XAR's august announcement, but all the same its there! Todays IMS does XAR no favours, but to profit one would be wise to follow the Chinese QE/Stimuli to look for a change in trade. However, the outlook for XAR does not look favourable, the knife catchers will be out offering some support but personally speaking the risks are greater long than short. A virtual pair of socks offered as a prize for those guessing my position from August update until this morning. 

Apologies for the length, having the space to go wild without the need to manage positions enabled me to think. Thanks to Ian for inputting even if it's not the LGO Vs. MOG court case and Hugo for the technical elements, its rare for myself to share Hugo's skill set he's worth his weight in Silver!

Atb Freaser....

No proof reading so do your best! (Thanks to Ian for basic typo/grammar corrections.)