Can this cash-rich oil stock smash the Aminex share price?
The Aminex(LSE: AEX) share price is in a slump, losing close to 50% of its value since the start of 2018 — and 75% since a peak in early 2017.
The company is not currently in profit and there’s none on the cards this year or next, and investors need to balance the risk of it running out of cash against Aminex’s potential resources. But I reckon those resources could well tip the balance in favour of shareholders.
Crucially, as my Foolish colleague Kevin Godbold has pointed out, a farm-out agreement with Zubair Corporation looks like it could be what ‘s needed to get Aminex’s Ravuma prospect to the enviable state of production and positive cash flow.
Estimates of gas reserves have been upgraded several times, and revenues could reach $40m per year, with most of the gas being sold to the local market. The farm-out should provide Aminex with an upfront cash payment of $5m on completion (expected by 30 November) and “any shortfall in the carry to be made up to $35 million in cash from Zubair’s profit share.”
Aminex reported a loss for the six months to 30 June of $2.36m, and net current assets of just $3.39m put it in what could have been a precarious position — though there’s no debt, which reduces the risk. But the farm-out should change the liquidity situation significantly.
As Kevin says, there are still potentially tricky formalities to be completed. But should we shortly hear news of the farm-out completion, I wouldn’t be surprised to see an upwards re-rating in the Aminex share price.
Meanwhile, BowLeven(LSE: BLVN) looks to be in a better liquidity position at the moment, reporting a cash balance of $63m at 30 June, with no debt — though, again, we’re expecting to see further annual losses this year and next.
That cash balance might not sound like a lot for a company that reported a pre-tax loss of $53m in 2017, but the current year has seen a major reduction in losses from continuing operations to just $7m.
The focus now is on the next stages of the investigation of the firm’s Etinde prospect, offshore Cameroon, after BowLeven confirmed the likelihood that its licence for Bomono, onshore Cameroon, will terminate in December 2018.
Chief executive Eli Chahin told us: “Our focus in 2019 will be in further progressing Etinde whilst maintaining a robust balance sheet and lean corporate structure to deliver maximum value for shareholders.” For me, the latter part of that really should not need saying — the prime responsibility of a company is always to deliver maximum value for shareholders, and I’m regularly surprised by companies trotting it out as though it’s some sort of new idea.
But, that bit of PR flannel aside, I do see the prospects for BowLeven as positive now.
I won’t be buying any of the shares myself (nor will I be buying Aminex shares), but that’s purely down to my risk profile as I enter my 60s. But if you’re younger and can take the risk, I think both are worth considering.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.