Rose Petroleum plc coverage by Amy McLellan


Rose Petroleum raises £3.5 million ahead of key wells in Utah

Oil and gas start-up Rose Petroleum continues to blossom. October saw the AIM-quoted company complete an acquisition that brought maiden production onto the books and last month it signed a rig contract and secured state approval to drill its first shale well in the Uinta Basin of Utah. Now Rose has raised £3.5 million through a placing priced at 1.75 pence – a 12.5 per cent discount on the previous closing price of 2 pence – to provide the funding to develop its Mancos and Paradox assets in eastern Utah, something of an achievement given current market conditions and the ailing oil price.

The market, however, marked the AIM-quoted company down, with the shares sliding 17 per cent in morning trading after it signposted that discussions are already underway to seek out additional project level funding to accelerate the development of the shale assets. CEO Matthew Idiens admitted he was surprised by the negative reaction, given the fundraise itself, priced at a 17 per cent premium to the £6.5 million raised in June, was a vote of confidence in management’s ability to deliver.

As he points out, the company has delivered, or is about to deliver, everything it said it would at the time of the June placing, including making a strategic acquisition to bring production onto the books: in October Rose paid US$1.5 million for privately-owned SEP, which added mid-stream assets and a collection of producing and shut-in wells known as the Cisco Dome project. Details can’t yet be released about the early stage project level funding plans that spooked the market on Monday although the company says it is “cautiously optimistic” the resulting transaction will result in no “significant further dilution”.

The company had to release news of these talks because they meant the Directors could not participate in the current fundraise “when normally we would have done”, Idiens told The timing of the current fundraise was opportunistic – building on the momentum of recent months, getting in ahead of potential further turbulence in the markets and ahead of the forthcoming wells, which will be a key test of the newbie’s strategy since the former mining outfit reinvented itself as an oil company in March this year.

The London-based company has a rig contract signed for its first well in the Uinta Basin, which will target the Mancos shale as well as a deeper conventional target, believed to be a liquids-rich gas reservoir. This will be a vertical pilot well to a TD of 3,200 feet and will take a full suite of open hole logs; a horizontal leg will be drilled and completed in the Mancos in Q2 2015. The vertical well is set to spud mid-month and core analysis results are expected in Q1. December will also see the company bring in a completion rig to complete the shut-in 16-42 well in the Paradox Basin. It is also permitting for a 3D seismic survey.

And on its recently acquired assets in the Cisco Dome, which come with a dribble of production that generates around US$50,000 a month, there will be workovers, recompletions and development drilling on the next 18 months to push up the production profile. Importantly, the company is well cushioned from the softening oil price.

“Our break even in both cases is around US$20 per boe because of the infrastructure we have in place there so even at US$60 a barrel oil we are still making a lot of money,” says Idiens. Analysts at SP Angel Corporate Finance were unsurprised by the confirmation that additional funding is required but said the important thing was that in the “intervening period between fundraisings, that management delivers value growth such that each successive raising is conducted at a higher valuation.” With a busy work programme in the coming months, it seems there is every intention of doing just that.