Baron Oil Plc – Vastly Experienced Management Team

Baron Oil Plc (LON: BOIL) is an oil & gas producer company, which is engaged in the business of exploration, development and production of oil reserves, gas reserves and related activities in the region of Southeast Asia, Colombia, Peru and the United Kingdom.

AGM Statement (29^th June 2020)

The share placing done in Q1 FY2020 has significantly strengthened the financial capability of the Company with a cash balance of £1.872 million (excluding Timor-Leste and the Peru performance bonds of US$ 333,333 and US$ 160,000, respectively) in May 2020 end. The Group managed to fund proposed work programmes for FY2020 and FY2021. The Company is not planning to conduct any drilling in Timor-Leste before 2022 and in the UK in the coming days. The Group was trying to facilitate drilling in Peru based El Barco-3X well, but due to covid-19 pandemic, the proposed drilling is pushed to FY2021. The Company’s operations are interrupted by global lockdowns related to COVID-19. The Group witnessed that work programmes in the UK and Timor-Leste are being delayed due to accessing issues for necessary datasets and the problem still continues. The Group expects to accelerate activity across its portfolio once the impact of the pandemic declines and industry activity levels and global economic outlook start to recover. The Group’s work programmes for the financial year 2020 and into 2021 are funded and has reduced capital commitments in the short-term period. The Company will update the shareholders once the activities resume.

Share Price Performance


Daily Chart as of July 21^st, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Baron Oil Plc shares were trading at GBX 0.076 at the time of writing before the market close (at 8:24 AM GMT+1) on 21^st July 2020 and down by 2.56% versus the previous day closing price. Stock 52 week High and Low were GBX 0.5725 and GBX 0.04, respectively.

From the technical standpoint, shares were trading below the short-term support level of 10-day simple moving average prices, which reflects a downtrend in the stock and can move down further.

Key Risks

As the company operates in multiple geographies, its profits can be impacted negatively due to foreign exchange rate fluctuations. Any change in regulations and government policies could affect the overall business of the company. The market conditions in which the company operates is full of challenges and might impact the operation performance and reduce financial performance as well. 

Conclusion

The Group’s operations are disrupted due to the impact of Covid-19 pandemic, and all the drilling activities are put on hold. Despite the uncertain economic outlook, the Company has strengthened its financial capability through a share placing and managed to fund the work programmes for FY2020 and into FY2021. Since the company is in the development phase, it does not generate any revenues, and all the operations are financed through the cash reserves and grants. The bottom-line performance has improved, while the profitability margins remained in the negative zone in FY2019.  The Company expects to accelerate activity once the impact of the pandemic declines and industry activity levels and global economic outlook start to recover.

Based on the above rationale, we have given a "Watch" recommendation at the current price of GBX 0.076 (as on 21^st July 2020, before the market close at 8:24 AM GMT+1), while we look for any upcoming catalysts.

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