North sea oily Bridge Energy recent new issue – worth a look now its 30% cheaper?

One golden rule on AIM, in fact the markets in general in my opinion, certainly coming hard on the heels of the Facebook, Zygna, Groupon et al debacles, is never to buy a new issue. As this has become a rule of thumb for many, traders and investors have stopped looking at new issues altogether. This leads to a self-reinforcing downward spiral in which there is a dearth of new issues. Those few issues that do get away result in small trading volumes in the after market and it is only after the inevitable fall in the share price that interest is rekindled. It happens nearly every time.

There is a time and a place for a debate about whether brokers and banks are doing a sensible job placing shares at the right price (they are not – again greed and vested interest are the culprits behind this broken sector of the public markets), but that is for another day…. One very rare example of appropriate pricing in a new issue is that of Direct Line recently – sadly this stands in isolation.

And so to AIM newbie Bridge Energy. I am a fan of North Sea Oil explorers, there have been some nice M&A takeouts of the minnows in recent years and great success stories like Dana Petroleum. Bridge operates in a safe exploration environment that is politically favourable and with good infrastructure in place. A new find and it is around 18 months only before production could begin – contrast this with the huge hurdles in places like Kurdistan and the Falklands. This means a good drill and a company is made, if it can overcome the inevitable tricky financing hurdle that is be-devilling a lot of AIM oilies at the moment.

Bridge Energy acreage is very spread out and it has a mix of currently operated areas and stakes in others. With a big spread and plenty of licence blocks to look over it is in a good place in my opinion. Throw in experienced ex BP management and also plenty of financial expertise on the board then with a fair wind it should be a good bet.

Prospects

Mid Norway Bridge Energy currently has 1 licence in this area which is non-operated.

Norwegian North Sea Bridge Energy currently has 15 licences in this area, one of which is operated.

UK – Northern North Sea Bridge Energy currently has 3 Licences in this area. All are Traditional Licences and non-operated.

UK – Central North Sea Bridge Energy currently has 3 Licences in this area, all of which are traditional and two of which are operated. This area includes the producing Duart oil field.

UK – Southern North Sea Bridge Energy currently has 6 Licences in this area. Of these, 5 are operated, 5 are traditional and one is promote. This area includes the producing Victoria gas field and future developments in Vulcan East, Vulcan NW and Victoria Phase 2.

As the chart below shows, Bridge has not had a good debut over the last 2 months .  A dry well and a recent announcement of a less than thrilling current drill have dampened the already very weak fervour that there was in September. The price has declined 33% to factor this in. The last RNS sums it up:

Chief executive Tom Reynolds, said: “The Bridge 2012 exploration programme has delivered discoveries for us at Garantiana in Norway and Contender in the UK and whilst the interim results from the Noor horizon at the PL457 well were not as expected, initial results from the Asha horizon indicate the presence of hydrocarbons and we will make a further announcement following completion of drilling operations.”

Nobody said they would hit the black stuff every time. But, with two successes and two probable failures they have had a good year in E&P terms. Also the Duart operating platform is out for a year and this will bolster revenues by around £8m – a decent amount for a company valued at £60 million. A contrarian indicator too is that the big drop in recent weeks has been on poor volume  – as a new issue, the stock is tightly held so low volumes can see swift drops. However the RSI shows the stock is oversold and today’s turnaround could well be the bottom.

On the downside, a bad report from Noor may result in further weakness in the short-term, but the drilling programme for 2013 is strong and an upside surprise from Noor could see a sharp turnaround in the recent price performance. One day too, the PI investors who follow Xcite, Antrium and others will notice this new entrant to their market and the increase in attention will help volumes and the share price measurably we believe.

Cityunslicker