The Investment Column: Eastern plans at Monument

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The Independent Online
IT TAKES a brave oil company to announce plans for a rights issue in the wake of a huge slump in the crude oil price. But Monument Oil & Gas is growing increasingly courageous.

Many investors will remember Monument as a rather placid North Sea minnow. But the expansion strategy it unveiled yesterday, alongside the planned pounds 100m rights issue, make it clear Monument is turning into a much bigger fish.

It is still interested in pursuing North Sea developments, which should get the go-ahead this year, but the real action is in the Caspian region. There Monument is building on its Nebit Dag development in Turkmenistan. On top of this it is building up its interest in Iran while also pushing for a new development in Azerbaijan.

The four-for-one rights issue is clearly meant to reduce gearing from 120 per cent as well as fund new acquisitions. But the pounds 100m may not be enough if these easterly prospects are as good as Monument seems to be making out. And this year Monument will need around pounds 30m to pay for drilling eight exploration wells.

Even with an oil price hovering around $14.50 per barrel, as it was yesterday, Monument no doubt has enough support to make a successful rights issue. Yesterday it was trumpeting a strong set of results with pre-tax profits up from pounds 12.4m to pounds 19.6m in the 12 months to December. Operating profits rose 92 per cent while production volumes increased by half.

Robert Fleming estimates, on the basis of a $17-per-barrel oil price, that pre-tax profits this year could rise from pounds 19.6m to pounds 28.7m. This would put Monument on 19-times earnings post a rights issue.

This oil group has exciting prospects but the share price, down 5p to 61.5p, adequately reflects the significant risks.