Xcite maintains positive momentum

The third straight day of gains looks to be on the cards, with Xcite Energy currently up 8p at 397p to buy. A few more pence and it will be the 52 week high (though it hit 425p intra day on the flow test results).

Looking at the timing of RNS releases, the company does not necessarily release them at 7am so news could be anytime and lets not forget the deadline for the signing of the rig contract is the 15th.

Position in significant profit but not even thinking of selling one.

Bowleven looks to be selling on news but opportunity beckons

After this morning's RNS which to me looks positive, although not "transformational", the Bowleven share price initially spiked up to 415p but profit taking has swiftly taken it down to its current  381p, down nearly 4% on the day. A case of "sell on the news". But I am taking this opportunity to top up my position since I believe there may be further good news to come with the sidetrack well. Current market cap is around £820 million, $1.2 billion, which implies that each barrel is valued at around $5 with potential upside. With crude selling for over $90 a barrel, looks a good share to tuck away for a few months.

Further good news from Bowleven

A drilling update from Bowleven (BLVN) this morning has confirmed further drilling success at its Cameroon Sapele 1 well. They have now drilled to a current target depth of 4,539 metres and has drilled through the Cross-cut event and into the Cretaceous.Estimates of oil in place have increased from 40 -290 million barrels to 65 to 430 million barrels in the Deep Omicron, mean 217 million barrels.

Also further upside possible by the look of it, "it is believed that the well has encountered additional sands at the current TD. Further Cretaceous targets have also been identified and consequently, drilling is planned to continue upon completion of current logging activities."

Looks like the last minute spread bet punt will start to pay off this morning. Should ease the tension/anticipation of waiting for news from Xcite Energy, which has no RNS out today as yet.

Angel Mining Black Angel Mine just featured on BBC2 "Arctic with Bruce Parry"

Just been watching BBC 2's "Artic with Bruce Parry". Brucy spent some time in the summer of 2010 with Tim Daffern (resigned to be CEO of gold miner Hambledon Mining (HMB) in September 2010) at the Black Angel mine owned by Angel Mining (ANGM) in the Disko bay area of Greenland. Tim confirms that there are reserves of $1 billion of  lead and zinc with1000 pillars of $1.5 million dollar zinc seams. The programme shows the building of the cable car entrance to the mine. Interesting stuff!

I hate it when the markets are closed

I'm waiting for the markets to reopen tomorrow with great anticipation with the news due from Xcite Energy and Bowleven. Even if RNS's aren't forthcoming on Monday, then its only a matter of time.

Things are nicely primed for positive share price action. I took the decision to close some of my CFD (contracts for difference) positions on Friday and open spread bets on IG INDEX instead since this strategy means any large move up in Xcite will mean no capital gains tax liability. CGT is now 28% for higher rate tax payers and I don't fancy handing over a third of my Xcite gains to the Inland Revenue. On September 2011 spread bet positions the premium was pretty reasonable late on in the week for Xcite. Annoying though that the deposit requirements on both Xcite and Bowleven are high given their AIM status.

A lesson I've learnt with both CFD and spread bet trading is to leave plenty of deposit in your account to avoid any problems if things go wrong and they start closing positions for you because of margin calls. Before the 2008 stock market falls, they used to call you to tell you to deposit more funds. Now they just close them without informing you. I can imagine there were a lot Rockhopper investors caught out when the "flash crash" happened last year and there margin was exhausted when the price collapsed only to be in utter dismay when the share price recovered. This is why I do not use stop losses on AIM stocks, the volatility can be so enormous that you can be caught out whilst you're in a meeting or getting a coffee! Juggling things to maximise your position but leaving yourself some security in case things go wrong can be a tricky balance.

U.S. earnings season kicks off on Monday

Aluminium producer Alcoa (aa.) kicks off the Q4 U.S. earning season next week and expectations are high with most analysts pencilling in average S&P 500 earnings growth of 30% plus.  So the markets should be particularly dynamic next week on both sides of the Atlantic. It seems unlikely that companies will miss their earnings from 2010 and therefore expect some positive momentum in the DOW and S&P 500 which will spill over to Europe.

There is so much to worry about though, the rise in commodity prices will inevitably feed back into higher inflation so interest rates will have to start rising eventually. The combination of rising interest rates and stagnating growth isn't a particularly enticing concept to look forward to. I reiterate my point again that 2011 is about stock picking and trading not buying and holding.

Portfolio review of the week - 8th January 2011

My first week after returning to writing the Contrarian Investor UK blog has been a good one. It was a difficult decision to restart posting given the constraints on my time but I have been encouraged firstly by the portfolio performance, by the significant traffic coming to the site and some of the positive comments left by readers. As with any blog, you sometimes hit the wall of despair, but for now I will persevere with posts and see how the thing goes.

I have thrown my usual rules of portfolio diversification out of the window at the moment with my substantial holding in North Sea oil company Xcite Energy (XEL). Whilst being reckless in some respects, I have not found such a compelling risk/reward ratio on an AIM stock for a very long time and in particular  the share price weakness following the excellent flow test results for the Bentley field was one of those rare"once in a lifetime" investing opportunities.  Despite being massively de-risked at the point that Xcite announced a flow test of 2900 barrels per day i.e. of field commerciality,  I could pick up shares for around 350p, only 20-30 p more than when the shares had a huge risk of failure still hanging over them as investors waited to see if the company could actually extract the 160 million barrels of oil plus from the field. The market makers had a field day, as private investors piled out of Xcite in the New Year in to other stocks. I had not imagined that I would be able to buy Xcite for less than 400p following flow test results this good, but sometimes the markets aren't logical and that's when easy money can be made.

So next week will be an exciting week for Xcite. The oilbarrel.com conference next Thusday the 13th and the deadline for the signing of the rig on the 15th make me believe that it is very likely that we will see at least 2 RNS's - 1) an updated CPR (competent persons report) to upgrade the Bentley field oil reserves 2) signing of the rig contract with a timeline for the start of field commercialisation. The board of directors have been expert in managing the flow of information to investors and I'm sure they won't less us down now. The share price rebound yesterday and Thursday seems to illustrate that I am not alone in expecting some good news update early next week.

Of course we're already seeing rumours swirling of Statoil bids etc. I'm sceptical about these so early in the game but I guess you never know. Perhaps someone is thinking in an M&A department somewhere that they can pick up Bentley on the cheap.

Greenland gold miner, Angel Mining (ANGM) also had a strong week. With the share price close to breaking 7p, up from 5.5p, for most of it. I am awaiting the BBC documentary about Greenland on Sunday night with interest which features their Black Angel zinc mine. Though my holding is far less large than Xcite, I am confident that as the year progresses the share price will continue to move up albeit  with some volatility. This is the way with these sub 10p AIM stocks.

Finally, as I posted yesterday, I have made a speculative investment in Cameroon oil explorer Bowleven (BLVN) as further results from its Sapele 1 well are imminent. Though there is a risk in this investment if the company update is disappointing the downside risk is somewhat minimised by the RNS's already released in November about the size of the existing discovery. The potential upside could be massive, so a cheeky spread bet was placed and though I have less confidence than Xcite the risk/reward ratio looks good.

Once Xcite reaches my target price I will look to move funds into other stocks on my watch list assuming the market corrects enough for me to take advantage of any compelling valuations. However, for now I wait for the arrival of next week with great anticipation with all the potential news flow from all the companies in the Contrarian Investor UK portfolio. Keeping my fingers crossed for a champagne week to ease the winter blues!

Potentially transformational news matter of days away for Bowleven

I have been trading in and out of AIM listed, Cameroon focused oil explorer
Bowleven (BLVN) for the last 6 weeks or so following their Sapele-1 well
discovery in early November. I am always nervous to trade a stock prior to
a major RNS announcement relating to further potential oil discoveries
since there can be opportunities to buy the share after the news with a lot
less risk, assuming it is positive. Just look at Xcite Energy, you could
have bought it for the same price as the pre flow test result without all
the stress.

However, I could not resist a little “punt” on Bowleven today with an RNS
likely on the high potential deeper Cretaceous target. The initial
discoveries in November were the Lower Omicron, which showed light oil and
gas condensate in a moderate quality reservoir but more important was the
Deep Omicron which encountered high quality sands. Initial logging has
shown 31-43 metres of net pay at the point of the last major RNS on 25th
November at a depth of 3,483 metres. Kevin Hart, Chief Exec, has talked of
a potentially transformational discovery.The company announced that it
would drill to a depth of 4,450 metres to test the deeper Cretaceous within
the Douala basin. A process taking 20-30 days, making the drilling process
complete around Christmas Day 2010.

Now we are in early January it is likely that the logging and appraisal
process are taking place which means an update RNS is probably due today or
early next week.

Optimism continues on US jobs data

Wall Street notched up its 5th straight day of gains last night as more evidence emerged that the economic recovery was on track emerged from better than expected jobs and service sector data. The Dow Jones Industrials ended at 11,723. Investors are watching and waiting for Friday’s U.S. non-farm payroll numbers to confirm the strength of the economic rebound. If these figures exceed consensus then expect a very strong day on the markets.

In the U.K., the FTSE 100 is currently up 27 to 6,071 despite some poor retail trading figures from the likes of Mothercare.

As I mentioned on a previous post, when sentiment is this strong, I tend to stay on the sidelines. As Warren Buffett once said “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”. There is a little too much greed in the air for my liking. I know a correction will come, it might be days or weeks, but this is the time I will be buying, not now. Sure opportunities will be missed on these momentum trades, but I know I can sleep at night buying on dips rather than
on peaks. When the Sunday newspapers are telling everyone to get on the equity bandwagon my advice is to be cautious.

Xcite valuation potential from LSE site

I just had to post Thales 1 excellent post from this morning on LSE.co.uk.

referring to Xcite's potential valuation. Yet again underscores the bargain

pricing of this share and the excellent upside.

"2Byron's excellent post yesterday got me thinking. I went back to the RPS
energy N151-101 report on Xcite's website from Feb 2009. Page 11 shows
success case NPV. The upside case had an NPV of $1,535m. This is more or
less £1bn sterling, so divided by 158m shares, the sp should now be £6.30,
as the flow test has confirmed commerciality. Updating the CPR should
however amend some of the assumptions in that table on page 11 - and this
is what the company must be doing now. The first assumption to change is
CAPEX. Gramacho posted (on iii) a readout of a conversation he'd had with
XEL mgt during the delays to the flow test. One thing they said was that
reservoir properties were significantly better than expected (as RNS
confirmed) and this meant they would not have to drill so many main holes,
as they could run more horizontal side drills from each vertical
penetration (I think that's what they meant). So lets assume that CAPEX can
be reduced by 10% to $2.4bn. Can't assume that OPEX will change, but price
per barrel can be moved to $90. I will leave the discount at 15% to be
ultra cautious, but it seems as if this could be reduced. Recovedrable
resources will be increased - the oil column was much higher than expected
- by over 50% as 2Byron points out. But lets be ultra conservative again,
and increase the original upside case of 166mmbbls by 20% - giving
200mmbbls. Filed life and NPV10 calculations I will leave as they were -
super cautious. Run the figures, and you get 90*200=18000, less 15%
discount gives 15300, less CAPEX and OPEX gives 10671. Apply the same NPV
factor as in the Feb 09 report and you get NPV $2.560bn. Convert to
sterling gives NPV £1.662bn, divided by 158m shares gives an sp post CPR of
£10.51. And this values the east Bentley prospects, Jurassic, and new block
allocations at zero. This is using the same valuation model the company has
already used and made public - the same one that Arbuthnot seem to be
using, and making ultra cautious assumptions using the fresh info from the
drilling and flow test. So, IMO, the sp should be £6 now, pre CPR, and
heading over £10 following. Things that will help is bokking some part to
reserves so that they are on balance sheet, and aiming to get a full market
listing - IMO Xcite should be moving off AIM now to become a mainstream
company. I would very much hope that they may give indications at the Oil
Barrel conference next week. Finally, with the company currently trading at
such a significant discount to NAV the prospect of a speculative bid for
the company has to be pretty high - I am sure Statoil for instance have run
these figures too - they look most attractive."

For those suffering from Xcite Energy stress, a little reassurance

Just in case any Xcite Energy holders out there are having sleepless nights worrying about the share price drop over the last couple of days, just a reminder that:

1. They have at least 160 million barrels of oil in the North Sea  Bentley field (no politics, minimal transport issues, no ownership problems)

2. "the reservoir properties to be above the upper end of modelled expectations." Therefore there is a more than reasonable chance of an upgrade in potential reserves - possibly as much as 250 to 300 million barrels with a bit of luck. The CPR (Competent Persons Report) is expected any day. There is an Oilbarrel.com presentation by the company on the 13th January, I personally expect news before then.

3. Flow rate 2900 barrels per day, well above commercial viability range of c. 1200 barrels. Plus added reassurance from this weeks RNS, "In addition to the successful well flow test announced on 21 December 2010, high quality downhole pressure, temperature and sample data has been safely recovered following a 36 hour shut in and build up period after the flow test.'"

4. Estimated production of 15,000 barrels per day in 2011, 60,000 barrels per day 2013 + i.e. massive, stable cash flow for at least 15 years.

5. Bentley Alliance ensures that means to bring oil to market are in place with strong partners e.g. B.P.

6. £60 million Standby Equity Distribution Agreement (SEDA) with YA Global Master SPV Ltd ("Yorkville") to start field development and complete rig hire i.e. no funding issues. SEDA means shares have to be held for 4 months by Yorkville and are not discounted.

7. Oil price likely to be $80-100 range for the foreseeable future (heavy oil from Bentley 12% discount)

8. $100 million cost to bring field into production, but the company estimates only 50% of this is equity.

9. Broker estimates based on existing oil in place estimate of £6. Net present value calculations based on upside scenario indicate £10-15 share price range.

Just like Guinness, "GOOD THINGS WILL COME TO THOSE WHO WAIT". Ignore the derampers and shorters on the bulletin boards. Make your investment decisions based on facts. 

Let me know if I've missed anything! Just bring on that CPR.

Angel Mining share price finally starts to move up

After a sluggish few weeks, Angel mining (ANGM) had its second day of 10% gains to finish at 6.5p. Despite news of the start of production at the process plant at the Nalunaq gold mine in Greenland in mid-December, the shares were struggling to make any headway as new equity was issued through the SEDA ( Standby Equity Distribution Agreement) which allowed Angel to access funds in return for the issue of new discounted shares to the SEDA provider YA Global masters SPV Ltd.. 


News of the first shipment of gold from the plant is expected this week.  The directors expect the Company to produce approximately 65 ounces of gold per day and an annual production of approximately 25,000 ounces. The Company's forecast cash cost per ounce of gold at target production is approximately US$560 which it expects to achieve in Q1 2011. At target production and with an average gold price of US$1,300 per ounce, the Nalunaq mine should produce annualised revenues and free cash of approximately US$32.5 million and US$18.5 million respectively.


In addition to the Nalunaq gold plant, Angel own the Black Angel zinc/lead mine which will be developed from cash flows from gold production. Lots of positive news to come from this company in 2011 after the setbacks and delays of 2009 & 2010.

Xcite Energy - 40th Oil Barrel conference presentation

The Oil Barrel Conference site (http://www.oilbarrel.com/oilbarrel_forums.html) is showing that Xcite are due to present at the 40th conference on 13th January. Now I wonder whether they plan to turn up with nothing new to say or perhaps they'll be keen to talk about the upgraded and confirmed reserves at Bentley and confirmation of the drilling rig. Hmmm....I'm sure the derampers are right and Richard E Smith (or whoever presents) will just turn up to London for a cup of coffee and a cake!! - not

Nice try market makers with the 20p drop today! Some are gullible, but the smart money is staying put.

Xcite Energy - the madness of markets

I have realised how fickle the markets are today! So with an upward revision of Bentley oil reserves and signing of a production rig due any day, I am seeing that Xcite shares are currently down over 4% at 362p. I presume some investors are piling out to buy into other stocks that have been tipped in the press over the weekend and no doubt the market makers are playing their usual games to fill their boots with cheap stock before the RNS's. I reiterate from today's RNS, "....with the intention to update the information in the February 2009 Competent Persons Report potentially enabling a reserves report to be issued in DUE COURSE" i.e. we will have an update in days not weeks! I guess patience is a virtue and some investors don't have it!

Comparing the Market caps of some oil stocks underscores my point:

Xcite Energy (160 mm barrels+) £579m

Desire Petroleum (0 barrels) £128m

Rockhopper (170 mm barrels) £965m

Keep the faith XEL investors and buy on weakness!

Xcite Energy CPR (Competent Persons Report) imminent

Xcite announced this morning that the Bentley 9/3b-6z well had been successfully suspended for potential future use. "In addition to the successful well flow test announced on 21 December 2010, high quality downhole pressure, temperature and sample data has been safely recovered following a 36 hour shut in and build up period after the flow test.

Analysis and interpretation of this data will now commence, with the intention to update the information in the February 2009 Competent Persons Report potentially enabling a reserves report to be issued in due course."

In addition news was also released that the directors & other staff had been issued with additional share options priced at 370p and exercisable over the next 5 years.

The imminent release of the CPR (Competent Persons Report) is the key piece of news and it is reassuring that it will be available shortly with a potential substantial reserves upgrade. Should be a good day for Xcite shares today!