Antrim’s Q1 2010 results

To run through the report, the key points stated are:

Two new gas wells in Argentina drilled and cased
Conditional sale of 30% interest in Causeway
Average gas price in Argentina increased 29% to $1.85 per mcf over Q1 2009
Financial flexibility with strong cash position of US$ 29.4 million and no debt.

The above all sounds good but truth be told the Q1 results were not as good as hoped, with Argentina being the let down, mixed with the fact that even though they got a currency gain of $0.5m, their cash loss was still quite large at $1.8m.

In terms of how Argentina disappointed, it was not on the production front as that is steady at 1,800boepd as expected (down from 2,000 in the previous quarter), but on the revenue and cash flow front. The reason for this is because of a lower oil mix in production, revenues actually fell in Argentina to $3.1m from $3.2m from the same period last year, with cash flows also falling to just $0.2m from $0.3m.

This means that though Q1 2009 was the worst period in the credit crisis where oil and gas was at its lowest in price terms, and since that even though they have increased boepd by 245. They are in fact worse off now then back then, which is not good.

This is even more disappointing as it means that Argentina is still, rather than being a help, proving to be nothing more than a cash burning (albeit small –Argentina was cash flow negative to the tune of $1.1m last year) distraction, as it is providing little benefit to Antrim, even despite the strong rise in oil and gas prices (Argentina operates its own oil and gas pricing which is a lot lower than the market price, also exports are taxed very strongly). Though just a note, in terms of a comparison with the last period (Q4 2009), though the boepd is down from 2,000, with revenue also being down, in the last period they were cash flow negative thus this period is an improvement over the last.
Of course Argentina is only a small part of Antrim’s operations, and in fact is very small in comparison to their two main prospects, Fyne and Causeway. In terms of what this report highlights about the progress made on these since they last reported on them (which was about a month and a half ago). In reality they just reiterate that everything is going to plan and that they continue to work towards utilising these two assets with Causeway carried to production, and the search for a partner for Fyne and the FDP submission continuing as planned.
One point that was of interest was the mention that they had been active in the recent 26th offshore drilling round, and that they hope to hear the results in the second half. This of course could bring some good news for Antrim as it means that they have the potential to get some new exploration ground in the North Sea to add to their current, and hopefully they will get some good licences that may even complement their current licences.
But the most interesting part of Antrim’s Q1 report actually came via the statement on their current outlook, with the most interesting comments from it being the following
‘With the expectation that Causeway will be funded to production and with the intention to acquire a development partner for Fyne, Antrim's other North Sea activity will be weighted towards adding value by exploring for new hydrocarbons and appraising existing discoveries.
The Company will also concentrate on the high value production assets in Tierra del Fuego with a view to increasing production in a rising price commodity market. The Antrim team intends to grow the Argentine operation primarily through new in-country opportunities using the cash flow from existing Argentine operations.
Antrim is also considering other global exploration opportunities.
Antrim views the bilateral strategy as central to its corporate development, balancing longer term and capital-intensive investments in the UK North Sea with shorter investment cycle on-shore exploration and production opportunities
Antrim's daily production in Argentina is expected to average approximately 1,800 net boepd in 2010.’
The two most interesting comments from the above are that they only intend to use cash flow from Argentina to grow their Argentinean assets, though considering how small the current cash flow from their is it is hard to say how viable this may prove. Also the fact that they state that they are looking at other global exploration opportunities is a very interesting statement, especially as they state that they see shorter investment cycle on-shore exploration as key to their strategy.
Conclusion
To conclude yes the size of the cash burn was slightly disappointing, and yes the Argentina results were not what were hoped for. But the fact is Antrim have $29m in cash still, which even at their current cash burn rate could last quite a long time, Causeway is funded to production which should commence next year producing at first over 2,500 bopd net to Antrim, and if they can get Fyne online as planned then by 2012/13 they could be producing even after farming out a stake in Fyne net near 15,000 boepd. Hence even though there are risks involved for example like the fact that they still have to submit and gain approval for their FDP, and there is of course the risk that they get a poor deal on Fyne, and this does not even consider their troubled history (click here for more on their troubled history) and the normal risks involved in an oil and gas company.

Nevertheless at a market cap of £90m/$130m, the fact that in a few years time that they could be producing near 15,000 boepd, the majority of which oil, as well as potentially having 2p reserves of possibly 100mmboe. Plus if you add the fact that the potential for news flow over the next year or so should be strong. Then risk reward still looks good hence they still warrant a place in the potential company changing news section of ‘Grays Stocks to Watch’ (you can view ‘Grays Stocks to Watch’