Petrel Resources PLC

AIM-listed Petrel Resources PLC (LON: PET) is an Irish-based exploration and production company, with an existing focus on exploring Ireland’s offshore Atlantic. Its operations are divided into three regions: Iraq, Ireland, and Ghana. The company was founded in 1983 and listed on the London Stock Exchange in August 2000. The group’s preliminary focus was on becoming an Iraqi oil producer, earning risk-adjusted returns.

Recent News
The company announced the heads up regarding regulatory clearance to proceed with the surge in the shareholding of the group headed up by Messrs Tamraz and Fayad to 51 per cent of the issued share capital as reported on 1^st November 2019.

Financial Highlights (six months ended 30 June 2019, €’000)

(Source: Interim Reports, Company Website)

In the first half of 2019, the company has not begun commercial production from its exploration places and therefore has not reported revenue for the period.The company reported an operating loss of €115 thousand in H1 FY19versus an operating loss of €104 thousand in H1 FY2018. The Group reported a loss for the period of €115 thousand in H1 FY19as compared to a loss for the period of €104 thousand in the H1 FY2018. The company’s basic and diluted loss per share was at 0.11 cents in H1 FY2019 versus a basic and diluted loss per share of 0.10 cents in H1 FY2018. Reported Cash and cash equivalents for H1 FY2019 was €237 thousandas compared to €147 thousand for H1 FY2018.

Share Price Performance
 
Daily Chart as at January-03-20, before the market closed (Source: Thomson Reuters)

On 3^rd January 2020, Petrel Resources PLC shares were trading at GBX 13.80 at the time of writing before the market close (at 8:43 AM GMT), down by 1.43% against the previous day closing price. Stock's 52 weeks High and Low are GBX 27/GBX 0.885. The company's stock beta stood at 3.39, reflecting the higher volatility as compared to the benchmark index.

The shares of the company have delivered a negative return of around 3.16 per cent in the last month. On a year to date basis, the company’s stock has given investors approximately 10.97 per cent of a negative return.

Conclusion
While challenges stay, the Iraqi government encourages global investors with Iraqi operating experience. Iraq stays exempt from OPEC quotas, and Iraqi oil output had reached 4.7 million barrels of oil per day. The company and its partners are making slow progress with the Ghanaian authorities.

Since the company is in the development phase, it did not generate any revenues, and all the operations are financed through its cash reserves and grants. The profitability margins have remained in the negative zone for the current period.

The company has decent balance sheet performance with no bank debt, limited decommissioning liabilities, and decent cash build. The company witnessed wide fluctuations in the oil and gas price in the international market and expect the same in the coming future, which might have an adverse effect on the company’s financial performance.

The short-term trend in the stock is quite bearish, as at the current trading level, its shares traded significantly below the long-term support level of 20-day simple moving average price. A significant gap between 20-day SMA and the current trading level reflects that the stock is in long-term bearish trend and recovery in near-term is challenging. The company’s trailing 12 months P/CF and P/E multiple are in negative zone as compared to the trailing 12 months industry multiple. Currently, the stock is trading near the 52-week mid, suggesting that the upside potential might be limited.

The company operates in a challenging environment which requires continuous investment, sometimes at the cost of profitability, to stay ahead of competitors.The oil and gas sector remained volatile for the short term.

Keeping in mind the risks faced by the company, investors are recommended to keep a “WATCH” on the stock at the closing price of GBX 14 (as on 2^nd January 2020), while we look for any upcoming catalysts.

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