Europa Oil & Gas – a ‘penny stock’ due for a further uplift

Continued production and exploration of both gas and oil in the North Sea and the Irish Sea is vital to meet the UK’s energy requirements.

Compared to importing liquified natural gas (LNG), it is obvious that there are massive advantages in domestic gas production, not only from a security angle but also from the 50% lower carbon impact.

A very promising ‘tiddler’

The shares of this £10m capitalised oil and gas company have risen over 75% in the last year and I reckon that they could still more than double in 2022.

The upside for this company comes from the potential for its 30% share in the Wressle-1 well situated near Scunthorpe in North Lincolnshire.

Substantially above expectations

A report out late last week suggested that it was capable of producing 1,543 barrels of oil equivalent per day (boepd).
That new figure is 75% higher than the 884 boepd reported in late September last year.

Europa Oil & Gas (Holdings) (LON:EOG) holds a 30% working interest in licences on that oil field, together with the operator Egdon Resources UK (30%) and Union Jack Oil (40%).

Although the company was founded way back in 1995 it has only shown some real promise since 2014 when the Wressle-1 well was drilled and flowed tested a year later.

During testing, a total of 710 barrels of oil equivalent per day were recovered from three separate reservoirs: the Ashover Grit; the Wingfield Flags; and the Penistone Flags.

The company’s interests

Today the company has a diversified portfolio of multi-stage hydrocarbon assets in the UK, Ireland and Morocco.
Situated in countries considered to be politically stable, these assets are at various stages of exploration, development and production.

The company owns a 99% working interest in the West Firsby; a 100% working interest in the Crosby Warren fields; and a 65% working interest in the Whisby-4 oilfields located in the East Midlands.

The company also has the FEL 3/19 and FEL 4/19 exploration licenses in Ireland. Considered as flagship projects, these interests, which are offshore Ireland, are Inishkea and Edge. These two near field gas prospects are in the Slyne Basin.
They are classified as lower risk infrastructure-led exploration due to their close proximity to the producing Corrib gas field and that associated gas processing infrastructure.

In addition, the company holds a 75% interest in the Inezgane Permit situated in offshore Morocco.  Initial results of technical work on that permit have identified some 30 prospects and leads that have the potential to hold in excess of one billion barrels of unrisked oil resources.

Equity split identifies large private investor interest

There are 566.5m shares in issue.

The larger holders include BGF Investment Management (11.8%), Hargreaves Lansdown Stockbrokers (8.72%), Jarvis Investment Management (8.40%), Hargreaves Lansdown Asset Management (6.49%), William Ahlefeldt-Laurvig, Dir (6.16%), Bo Kroll (4.52%), IG Markets (2.73%), David Newlands (2.35%), Societe Generale Gestion (1.59%) and HSBC Global Asset Management (UK) (1.40%).

Brokers View

Director of Research Jonathan Wright at brokers finnCap has estimated that the company in the current year to end July will see revenues jump from £1.2m to £5.2m.

That should be good enough to turn the previous loss of £0.8m into an adjusted £1.7m pre-tax profit, generating 0.3p of earnings against a 0.1p loss last year.

The broker has put out a price objective of 7.7p on the group’s shares.

My View

I think that this little ‘penny stock’ is a real winner in the making.

The Wressle-1 production costs are said to be around $18 a barrel. So even taking a range for the year of around $70 a barrel that looks really quite appealing.

But if the Russia/Ukraine situation gets a lot worse it is possible that oil will rise to over $100 a barrel.

The margins look excellent – and that is just the EOG interest in the Wressle-1. It has so many other potentially exciting positions, including a growing geothermal play.

Its interest in Wressle-1 will produce sufficient cashflow this year to help the group to further its interests across its portfolio.

Obviously still highly speculative at the current rates of production, I see these shares which touched 2.2p in March last year and are now just 1.57p, as a cracking punt for investors prepared to take a 2022 view.

As stated earlier, I see them more than doubling in price this year.

Quite confidently, I now set my Target Price at an easy 2.25p a share.