LHD - Lochard Energy (was Rheochem)

[Lizard]

Have any of the O&G investors had a look at this one?

They have two aspects to their business - the "Oilfield Services" drilling services business (some specialist stuff in geothermal and CBM drilling included) and the Explorer/Oil & Gas assets. Longer term they seem likely to split the business once they get the O&G side self-funding.

I was interested in the Oilfield Services side. The current market cap (approx 40m at 16cps) seems a reasonable reflection of the value of this part of the business. However, the O&G side possibly has greater risk/return so would be interested in any opinions.

They have some reasonable interests in a couple of reserves in the North Sea that can/will probably be brought into production over the next 1-2 years. They also have just-announced interests in some additional blocks. My O&G valuations are a bit rusty at the moment, so thought I'd see if anyone else was willing to put some numbers on this part.

Some more info/background articles on Rheochem:

Rheochem Swing Back to Profit (Sep 2010 - grayshares.co.uk) (http://grayshares.co.uk/graysinvestmentbloguk/2010/09/05/rheochem-swing-back-to-profit-thanks-debt-deal/)

Curates Egg From Rheochem (Sep 2010 - investorschronicle.co.uk) (http://www.investorschronicle.co.uk/Tips/Buy/MiniTips/article/20100903/20e722d6-b685-11df-ac4f-00144f2af8e8/Curates-egg-from-Rheochem.jsp)

[Lizard]

The current market cap (approx 40m at 16cps) seems a reasonable reflection of the value of this part of the business. However, the O&G side possibly has greater risk/return so would be interested in any opinions.

Just announced sale of the drilling services business for up to $45m. Upfront payment of $23.75m, with future payments dependent on EBITDA. The upfront payment will clear debt and pay for the rest of their share of Athena development, from which they are entitled to 2000 bopd, with production due late 2011. Estimated revenue $60m per year. Expect funds from this to go towards follow up other interesting North Sea projects in their portfolio.

Still would like an O&G investor to tell me what they think the O&G side is worth, but happily, at current 26.5cps, my small parcel is in the black.

[Corporate]

Hi Liz, I've just come across RHE (just changed it's name to LHD) and think it compares quite well with OEL. Assuming that they bring Athena into production without any problems and they hit the 2000bopd to LHD then I think LHD could be capped at $100m. For me it really comes down to how well they use the cash from Athena to develop the rest of their portfolio. I've copied what I posted on HC below:


Hi eer,

Thanks for the website address. LHD looks like it could be a gem. I've just been reading the latest broker notes and the following key points jump out:

(1)Sale of fluids business for $45m seems like a good price. $24m up front and the rest id contingent. LHD intends to pay down debt of $6.4m and has $14m set aside for the development of Athena - is this enough? $140m gross seems like a reasonably cheap 5 well offshore development (4 production, 1 water).

(2) LHD have further set aside $3.75m in working capital. This isn't a huge amount. Do you have a feeling for how many staff will be left after the sale of the fluids business and what potential admin costs are expected to be?

(3) The graph on page 2 is a great reminder of how 22,000bopd is only sustainable for a very short time. The key for me is how they plan on utilising the cash produced from Athena to further their other projects. LHD do have an exploration block adjoining the Athena discovery that could potentially be tied in, if proved.

(4) Thunderball looks exciting having been flow tested at 34mmscfd and 200 bcpd

(5)Some big potential reserves in their exploration portfolio. It would be nice if the company put together a thorough presentation once the fluids business is gone.

All in all, I like what I see and will do some more research. I'm quite careful with these types of plays and won't forget what happened with Nido and their "given" development of Tindalo which turned into a huge car wreck.

Do you have a feeling for managements credentials? Do they have any skin in the game?

Cheers,

C

[Corporate]

obviously the other big issue is the contingent liability noted in the last set of financial statements



Zeus Petroleum Limited
Zeus Petroleum Limited (“Zeus”), a subsidiary company, has been notified that Senergy Limited, a UK
based drilling Company, has, on 1 April 2010, commenced proceedings in the High Court in London
claiming US$11.907million and £1.938million (approximately A$17.307million) in respect of alleged
contracted works not carried out in accordance with the terms of a Letter of Commitment dated May 2008
(“L.O.C”). The claim also includes a rectification agreement claiming an alleged error in the L.O.C. The
management of Zeus intend to vigorously defend the claim. The management of Zeus believe that they will
successfully defend the claim and that it does give rise to a contingent liability in the Zeus financial
statements. No provision has been made for any settlement.
Were the contingent liability in Zeus Petroleum Limited to crystallise the Directors estimate that a
significant portion of the A$24.626million loans due from Zeus Petroleum Limited would be irrecoverable.
There is no legal liability attributable to Lochard Energy Limited or Rheochem Plc

[Lizard]

Hi Corporate,

Thanks for the comments. I'm not very knowledgeable in O&G, and am open-minded with Lochard at this point - just hold a small parcel.

There are a few relinquishment reports (https://www.og.decc.gov.uk/UKpromote/relinqs/UKPrelinqs.htm) available for their north sea blocks. Moby looks a possible. PGS farming in seems an interesting move, though presumably they will want another farm-in partner to drill any. And I wonder why they would find any of these blocks easier to get farm in on than they did with Metis (relinquished). Maybe if they have funds behind them.

Don't see much happening in the next 6 months while Athena development is completed and with court case scheduled October I think. Maybe 2012 will be their year? Management have seemed quite good so far and fingers-crossed they are an emerging oiler, but early days.

[Corporate]

Slowly picking up a few of these :-)

[Corporate]

Slowly picking up a few of these :-)

Bids up to 24c, no sellers of significances at all. I picked up quite a few at 16.5c :-)

[drillfix]

Ahhh stop gloating Corporate LOL :P

Good stuff mate, there ain't no feeling like knowing that your on the right side of the trade and upwards hey :)

[Corporate]

Ahhh stop gloating Corporate LOL :P

Good stuff mate, there ain't no feeling like knowing that your on the right side of the trade and upwards hey :)

Got to keep accountable Drilly. I always post my losses!

LHD is still cheap.

[Lizard]

Hi Corporate,

Been a bit of a wait for me and expect it will take a bit more patience until they have Athena production and the litigation issue behind them, but 2012 could be a good year. For now, I presume it is the broker note that has got some interest up?

Hope they have more success getting farm-ins for Thunderball and Moby than they did with Metis - which also sounded like a good prospect, but didn't seem to have much pulling power. But perhaps having an income stream will up their attraction as a partner.

[Lizard]

Oh, okay... possible takeover... it was more than just a broker note!

[Corporate]

http://www.asx.com.au/asxpdf/20110902/pdf/420vh8jts9lyjn.pdf

Crazy!!

Possible takeover

[drillfix]

Got to keep accountable Drilly. I always post my losses!

LHD is still cheap.

Your Ok Corp, just hacking with ya bud.

Tell ya what, you are in the drivers seat now mate, Well done.