LONDON (ShareCast) - Weir Group (Other OTC: WEIGY - news) still looks like a good long-term bet on a growth industry, writes the Times´s tempus column this morning. The market earlier this year had its concerns over Weir's exposure to shale. Over the past 13 months the company invested a total of almost $1.1bn on equipment that serves the US shale oil and gas industry, including yesterday's purchase of Mathena. On this last occasion however the share price jumped higher on reaction. This has piqued Tempus´s attention. Not only does Mathera play well with tightening environmental regulations for shale, unlike other of Weir´s purchases this transaction seems to have been correctly structured so as to retain and incentivise the management team.
Furthermore, Weir placed its latest chips on the table on the same day that Chevron formalised a $1bn deal for a programme to drill 100 shale oil wells in Argentina. All of the above comes as the firm looks to build a vertically integrated outfit covering the entire value-chain of the shale process and export its model to other markets, such as China.
Buying companies such as Weir Group may be a good way of gaining exposure to the shale oil and gas boom. But the only direct investment in UK shale gas is IGas Energy, which has a share of the huge Bowland rock formation in the North West, because the only other player there, Cuadrilla, is not quoted.
IGas a year ago bought Star Energy, an onshore oil and gas producer, and is in the process of acquiring other UK conventional onshore assets in West Sussex. These provide cash to allow the company to continue with the shale prospect. The interim figures to end-September released yesterday are largely irrelevant because of all this corporate activity, but they do show positive cashflow of £15.5m.
IGas in the summer indicated that it was seeking a partner among the big oil companies to help to fund the development of the Bowland reserves. It is plainly in no hurry to sell down, wisely waiting until the value of the reserves is clearer. The company may even decide to go it alone with bank debt, if news from test drilling early next year is positive enough. This is a highly speculative punt, but potentially a profitable one, The Times´s tempus column says.
Gulfsands operates an oil block in Syria, with a 50% working interest. However, the contract is currently in force majeure as a result of EU sanctions. The situation in the Middle Eastern country is not improving - if anything, it appears to be on the verge of civil war. It is unlikely to improve any time soon. Management have responded by expanding outside Syria. As part of this strategic shift, the company announced the acquisition of three new onshore licences in Morocco earlier this week. They will be acquired through the takeover of Cabre Maroc, a unit of private company Caithness Petroleum
Regular readers will know that Questor does not usually recommend buying shares in pure exploration plays. They tend to have a way of burning through cash. Gulfsands does have some revenues coming in, but they are not substantial. The security situation in Syria cannot carry on forever - although just how safe is the title to Gulfsands' asset there remains to be seen. Management are doing the right thing in their diversification strategy and the shares could look very cheap if discoveries are made, so some investors may wish to consider the shares for the more speculative part of their portfolio. Questor, however, continues to keep a hold recommendation.
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