Portfolio review of the week - 26th February 2011

On Friday the FTSE 100 finished up 81 points at 6,001, down 1.3% on the week. The Dow Jones Jones Industrials finished up 62 points, or 0.5%, at 12,130, a 2.1% fall for the week and the worst since mid August 2010. Shares rebounded on Friday as the oil price stabilised and the markets began to be reassured that the Libya's 2.5% contribution to global oil supplies could be covered by other oil producers and that Colonel Gaddafi's position was becoming increasingly precarious. The U.K. market declined less than across the Atlantic because of the greater number of oil and defensive stocks in the FTSE 100.


The U.K. market was thrown into turmoil yesterday as the London Stock exchange computer system crashed for 4 hours, meaning trading was suspended for most of the morning.To coincide with the LSE problems, the revised Q4 2010 GDP figures were released by the Office of National Statistics showing a revised 0.6% decline in the U.K. economy (versus previous estimates of 0.5%).


Despite the market panic in the middle of the week, the Contrarian Investor UK portfolio had mixed fortunes but I took some opportunities during price dips to top up on Xcite Energy (XEL) and Weatherly International. I also bought into another North Sea oil company, Encore Oil for the first time (EO.). 


Xcite Energy (XEL) - Xcite had a good rise on Friday and finished the week at 346p, a 1.8% decline. There have been some reassuring noises that a farm in or placing may not be needed to bring the Bentley heavy oil field into production. The interview published by Rupert Cole (CFO) indicates that any fund raising will be on Xcite's terms not on the institutions and that they have several options open to them (http://contrarianinvestoruk.blogspot.com/2011/02/xcites-cfo-cole-confirms-partner-may.html). 


An update from British American offshore (Rowan Companies) who are currently constructing Xcite's rig, the Rowan Norway also confirms delivery of the rig is due June 2011, with operations starting in the North Sea in November 2011 (with the transit time from the Duabi construction site). Looking at the SEDA (standby equity drawdown agreement), there is insufficient funds remaining to complete the final $30 million instalment due on delivery in June. Therefore it would be anticipated that the company would need alternative funds by this date. With the CPR (competent persons report) due early in March, it is inevitable that Xcite will leverage this report to find the funds its needs and this is not necessarily a discounted placing. As I have stated before, using a bank loan or bond offer seems possible. Either way, went it went back below £3.40 this week, it was a great buying opportunity.


http://www.rowancompanies.com/_filelib/FileCabinet/PDFs/Offshore-CM.pdf?FileName=Offshore-CM.pdf
Rig is under construction with delivery expected in June 2011. Contract executed for combined drilling and production operations with an initial term of 240 days followed by a one year priced option in the low $250s. Production fee of $1 per barrel of oil produced is also payable during the initial term. Customer is required to provide security for the initial term totaling $60 million by the date of shipyard delivery of the rig. The first installment of $15 million was received on February 17, 2011. The second $15 million installment is due February 25, 2011, with the final installment of $30 million due upon delivery of the rig from the shipyard. Rig is expected to commence operations in November 2011.
Rockhopper (RKH) - Another bad week the falklands oil explorer, with the shares dropping 12% to 233p. I have covered the fact earlier in the week that the current market capitalisation (£600 million) is daft with what the RKH have already discovered at Sea Lion (http://contrarianinvestoruk.blogspot.com/2011/02/taking-advantage-of-silly-valuations-on.html). But this frontier explorer is out of favour, and the private investor stampede has moved onto pasteur's new for now! With drilling results from the 14/10-4 well due around mid-March, it is inevitable that this share should starting perking up in a couple of weeks time. Hopefully 230p is the new base, but you never know with a Falklands oil stock!


Encore oil (EO.) - I took the opportunity to buy into North Sea oil explorer, Encore Oil this week, given the company prospects and news flow over the next few weeks. There was talk of a takeover this week by Premier Oil, but this seems a bit far fetched.

Encore own a 16.6% interest in the Cladhan North Sea licence with Sterling Resources (73.4%) and Dyas (10%). Drilling is expected to commence within the next few days at Cladhan (Blocks 210/29a & 210/30a) with the flotilla of vessels apparently on its way. The Burgman prospect is expected to spud any day soon using Encore's contracted rig the Galaxy II.

Sirius Minerals - Another terrible week for potash company Sirius, with a 15% to 13p. No bad news, such sentiment. Topped up a little at 12.5p and now we wait!

Bowleven (BLVN) - Bowleven had a good week with the share reiterated as being on Goldman Sachs conviction buy list, despite rumours of issues in Cameroon which now seem to have been largely diffused. Goldman has said that recent share underperformance has created an attractive entry point into the stock - "We view the upcoming drilling campaign offshore Cameroon positively, with recent success at the Sapele prospect helping to de-risk the surrounding acreage,". The target price was cut to 578p from 623p, with drilling at the Cameroon Sapele-1 prematurely halted because of high pressure gas which the drilling equipment was not specified to handle.The shares rose 5% on the week to 335p.

Weatherly International (WTI) - The interim results this week had plenty of encouraging news from this Namibian copper company (http://contrarianinvestoruk.blogspot.com/2011/02/weatherly-international-interim-results.html). Topped up on WTI. I have great confidence that we will see Weatherly shares significantly higher within weeks.