The following appeared in this week's issue of the Oil & Gas...

The following appeared in this week's issue of the Oil & Gas Weekly

"Octanex is not your usual micro-cap junior oiler. For a start it only has 152,127,398 fully paid shares on issue and 74,278,910 partly paid shares so no history of frequent capital raisings. The company had some $21 million in the bank at the end of December and no debt which gives it a better balance sheet than most small oilers. It last raised cash in a rights issue in 2010.
Although it has no production it made a profit of over $5 million in the six months to December 2013 on farm in deals. It wasn’t the first time it made such profits. The company actually made a special dividend payment of 4 cents a share in 2011, again putting itself well ahead of the bulk of its peers.
Octanex appears not to have a house broker and we are not aware of any broker or an investment house research notes. The company does not participate in industry conferences nor apparently does road shows. It is off the radar of most investors and the shares trade infrequently.
Melbourne solicitor and Executive Chairman Geoff Albers controls Octanex as part of his Albers Group of Companies a rather complex web of companies holding working interests in some 18 petroleum exploration permits.
Albers has a 65% interest in Octanex and the Top 20 around 80%. Some may say that explains the special dividend and the in specie distribution of the company’s holding in Cue Energy and Orion Petroleum shares in 2011/12.
The Octanex strategy has been to acquire greenfields acreage, put together a package of data including extensive 3D seismic programs, and then seek a farminee to free carry OXX for a reduced interest in an exploration well.
The majority of its permits are situated in highly prospective basins offshore WA and New Zealand. The strategy has worked successfully in so far as much of the company’s acreage is now farmed out to quality partners like Eni, Santos and OMV. What has been missing is a successful commercial well.
Two wells drilled by farminee Eni in Galahad #1 and Gawain #1 in WA 362P and WA 363P on the Exmouth Plateau were dusters in 2011. The permits “described by Octanex as challenging” were renewed for a further five year term in 2012 with OXX holding a 33.333% participating interest. OMV partnered Eni and Octanex in the first five year term but opted not to participate in the second five year term.
Last year Shell spudded the expensive $100 million plus Palta #1 wildcat in WA 384P. OXX had discovery payments and a 1% overriding royalty in the well. But Palta was a duster and the lease has been relinquished.
Santos drilled the Winchester #1/ST1 gas discovery well in OXX’s WA 323P in the Dampier Sub-Basin last year. Although that well discovered 58 metres of net gas pay it was not considered large enough by itself to be commercial. Santos is now reviewing the data from the well and reprocessing the Winchester 3D data set prior to selecting the next drilling target within the contiguous WA323P and WA330P permits.
The two permits constitute a discrete area on what is called the Parker Terrace where a number of interesting plays have been identified. The JV has far from given up on the two Blocks. The potential for additional gas accumulations is evident from the Parker 1 ST/1 well in WA 330P some 3.2 kms to the north east of Winchester #1 ST/1 which encountered gas shows in separate structure over a 211 metre gross interval. These were not logged or tested before the well was prematurely abandoned.
Octanex has a 25% interest in these permits and was free carried for the drilling of Winchester up to the end of the initial wireline logging operations. Deepening the well cost OXX $4.25 million for its 25% interest. OXX is obligated to pay 25% of the costs of a second well. These are not cheap wells so OXX may be looking at farming down further.
Most recently Octanex participated in the Matuku #1 exploration well in PEP 51906 in the Taranaki Basin offshore the north island of New Zealand. The well encountered the target sandstones but no commercial volumes of oil and gas. PEP 51906 is one of five permits in the Taranaki Basin in which Octanex holds varying interests, constituting a substantial exploration position in this demonstrably prospective oil and gas producing region.
PEP 51906 is adjacent to three producing fields. It is a permit shared by farminees OMV (65%) and New Zealand Oil & Gas (12.5%). A 3D seismic shoot has thrown up additional leads. New Zealand Oil & Gas can earn another 5% of the permit by meeting all of Octanex’s costs associated with the drilling of a second exploration well.
Octanex does not have any production but it does have an 18.5% interest in WA 342P in the Browse Basin containing the Cornea oil and gas field. The JV is evaluating the Cornea structure but has applied for a Retention Lease before undertaking any further exploration work. The award of the Retention Lease is imminent.
What impresses us having reviewed recent Octanex reports is the thoroughness with which OXX identifies leases and works up prospects for farm out. For example in its five Southern Bonaparte Basin permits yet to be offered for farm out Octanex has competed no fewer than five seismic surveys the majority 3D. The data is reviewed by the company’s Perth based exploration manager and a group of independent consultants.
More recently Octanex has moved onshore in a variation from its long held offshore permit acquisition strategy. It will acquire a 25% in the Derby Block in the Canning Basin from Oil Basins once that lease is formally granted. The grant is now a matter of completing the paper work given the WA regulatory authority has offered the lease and all appeals against the grant have been dismissed.
The Derby Block is an attractive asset which had previously interested Fortescue Metal’s Twiggy Forrest and Buru Energy.
And the company has moved on tiddler Peak Oil underwriting a rights issue and proposing a merger. Peak has interests in the Cadlao Oil field development project in the Philippines, assets in Indonesia and a uranium prospect. Unfortunately for Albers the Cadlao interests may evaporate as the Philippines Department of Energy looks set to terminate the current lease should the operator of SC6, the Cadlao Development Company fail to meet certain DOE requirements relating to a proposed work program.
Octanex has also opened a representative and technical office in Malaysia “in order to be well located for potential deal flow”.
To be a “besbs” play a company needs to have significant well on the horizon. Octanex has two, a follow up well to the Winchester #1 gas discovery in WA 323P and a second well in PEP 51906 following the Matuku disappointment. That well is most likely to be identified from the recently completed Kaka 3D seismic in the south east of the permit.
But the next well or wells probably won’t be until 2015 at the earliest.
In the meantime developments that might attract market interest include, completion of the acquisition of a 25% interest in the Derby Block most likely by the end of March early April; the award of a Retention Lease over the Cornea field; award of RSC or risk service contracts in Malaysia; approval of extension of drill or surrender date for PEP52593; farm out deals and award of new leases.
Octanex’s share price enjoyed a run up to $0.43 on the Winchester discovery but has since retreated to a new 12 months low of $0.11 in early February. That after the disappointment of the Matuku #1 well in the offshore Taranaki Basin drilled to total depth in January.
The share price has since recovered to $0.14. Those with the patience to stand in the market at these levels to pick up scrip could be rewarded with a run up to 20 cents later this year.
It is probably too much to hope that the recent profit announcement could result in another special dividend though the company did say when making a 4 cents distribution in 2011 that it still had over $7 million in franking credits which had more value in the hands of shareholders than the company. And which “the Company hopes to pass on to shareholders” (media release of 12 December 2011). Well maybe!"