No Pain, No Gain: It's worth a gamble on Britain's own oil potential
Saturday 24 September 2005
The sky-high crude price is bound to intensify the search for oil with more exploration ventures arriving on the stock market. Some investors will benefit; others will, as so many black gold enthusiasts before them, end up with little or nothing to show for their speculation.
There is no doubt, unless other fuels are successfully developed, that more oil must be found. With Britain's economic growth predicted to falter because of the runaway price, Chancellor Gordon Brown has urged oilmen to greater efforts. And, ever willing to get involved in popular crusades, Sir Richard Branson has let it be known that he is exploring the possibility of joining the oil rush and may even build refineries.
The major groups, British Petroleum and the rest, are already enjoying a veritable bonanza from the continuing high price. So are many smaller players. Shares of Burren Energy, with interests in such out-of-the-way countries as the Congo and Turkmenistan, have climbed more than sixfold from December's flotation price. It is producing oil and enjoying spiralling profits. But there have been casualties. One that has failed to cover itself in glory is Regal Petroleum .
I'm afraid many of the minor oil (and mining) shares that have cascaded onto the junior Alternative Investment Market (AIM) in the past year or so will be huge disappointments. So will many of those that take up the call to oil in the coming months. Indeed, it is worth remembering that some exploration shares have been drifting around for years, with their success measured by the number of times they have tapped shareholders for more cash.
As readers know, I am not a fan of smallcap exploration companies. Too risky, I feel. Often, only the nimble-footed investor achieves satisfaction. For every prosperous vehicle, there is a clutch of cash-absorbing no-hoppers. However, in the present highly charged climate surrounding oil shares, investors will be tempted to chance their arm. I am, therefore, offering a share for their consideration.
The company is called Oil Quest. In an international business that seems to specialise in the back and beyond, it has the distinction of concentrating its endeavours in and around Britain. David Bramhill, a resources man who has been round the block a few times, is the guiding light. The shares have been as high as 31.25p this year; they are now 16.5p, capitalising the operation at £7.3m.
Bramhill first felt the attraction of the oil industry as a 16-year-old apprentice with Rotork, the engineer. But it was not until 15 years ago that he became directly involved in an oil exploration enterprise, joining the board of Pan Andean, one of the companies in the orbit of Irish entrepreneur John Teeling.
Pan Andean, which produced a £1.2m profit last year, has its own distinct place in recent oil history. Some years ago its shares romped ahead to 138p, as excitement mounted that it had made a rich strike in deepest Bolivia. But the oil had "migrated" and in a few hours the shares crashed to around 30p. The current price is 11.5p.
Later, Bramhill was behind the development of two mining companies - Cambridge Mineral Resources and Hereward Ventures. He has also been involved in resources developments in and around the Falkland Islands. Now Oil Quest, a transmogrified Hereward, is his baby.
So far, it has not found any oil. Indeed, an Isle of Wight venture has just been abandoned. But it has other promising investments in the South (some not far from the highly successful Wytch Farm oil field) and the North-east, as well as a 30 per cent interest in a North Sea block. The Oil Quest policy is to take minority stakes in exploration ventures. Ideally, it likes to become involved when much of the groundwork is completed - thereby reducing costs. In addition to the North Sea block, the company has interests ranging from 5 to 20 per cent in 13 British locations.
It has some £3.2m in the bank and, as a legacy of its gold exploration days, a 7 per cent interest in Cambridge (worth some £500,000). It is a slow-cash-burning and tightly run operation, and could well hit oil long before it is forced to tap shareholders.
Its chairman, Michael Thomsen, also head of Cambridge, describes Oil Quest as a "solid, no-frills junior oil company". One day it should add production to exploration.
With high crude prices likely to be a long-term influence, more home-grown oil would be a bonus for Britain. There could be much more lurking in and around this country, surely one of the safest areas on earth for intrepid explorers. Oil Quest is, I believe, one of the most promising players in this volatile industry and is worth a modest flutter.
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
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