Bull or Bear Independent Analysis
Gripen Oil & Gas AB (publ.)
Value Drivers
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Quality of Earnings
Risk Profile
Minimized default risk investment opportunity:
Gripen Oil & Gas is a debt-free company with limited trading
liabilities perfectly covered by high quality current assets.
Company constantly engaging in new growth opportunities: Gripen Oil & Gas has been awarded with 30 exploration
licenses and permits and is currently pursuing expansion
outside Sweden.
Potential for sales accumulation: The Company signed
Letter of Intent covering future offtake of gas with AGA Gas
AB including support for the planning and construction of facilities to process and compress the gas.
Long-term strategic goals: The cardinal focus of Gripen
Oil & Gas is to replace some of Sweden’s import of oil and
gas from long distances, thereby decreasing transportation costs and related negative side effects to the environment.
Extended production flow results: Sampling tests confirming high quality methane gas resources in
Östergotland.
Production Uncertainty: There is no explicit representation regarding oil production initiation and estimated
exploration volumes.
Analyst
Pavel Lisev
[email protected]
Share price
52wk high / low
Shares
outstanding
Nyckeldata
Market cap (MSEK)
Current Liabilities (TSEK)
P/B (Q1 2015)
Sector
List / Ticker
Next report
Performance
1 month
3 month
YTD
EPS
Major owners
Stephen Crabtree
Brewin Dolph Secs LTD GLBL Cust
JM Finn and Company Limited
Torgny Berglund
UBS Investment BV
Management
Stephen Crabtree
Thomas Häggkvist
Cash+Short Term Placements/Total Assets (%)
Date
13-07-31
13-07-31
13-07-09
13-07-09
13-07-09
60
40
20
0
Gripen Oil &
Gas AB
Lundin
Petroleum
Tethys Oil
Company
Crown Energy Petrogrand AB
Shelton
Ventures
Petroleum AB
Corporation
2014
Quality of Management
Q1 2015
Value Drivers
Minimized
default risk
Potential access to
credit facilities
Innovative and
cost-effective
drilling
technology
-15,00%
-0,05%
+13,6%
-0.04
Ownership (%)
17,20
14,40
14,33
11,47
6,79
CEO
CFO
Insider Transactions
Insider
Shares
No. of Shares
Patric Perenius
-250,000
2,571,183
Tore Hallberg
-250,000
2,110,000
Torgny Berglund +12,280,702
12,280,702
Stephen Crabtree +18,421,053
18,421,053
Stephen Thorn
+15,350,877
15,350,877
Interfox
Resources
Application
for offshore
licenses
0,204
0,78/0,15
107,110,760
21,8
637
1,03
Energy/Oil & Gas
GOG
2015-08-20
Exploration &
production
initiation
refer to important disclosures
at the end
of this document
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våra ansvarsbegränsningar
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2015-06-03
Investment Thesis
Uncertainty regarding revenue generation
Gripen Oil & Gas has signed agreements for future offtake of
extracted oil production and gas deposits. The pricing for the
former reserves will be based on an international crude oil index such as the North Sea Brent, whereas for the latter competitive Swedish market pricing will be used. Despite the promising
results obtained from drilling and sampling tests, there is an
uncertainty regarding the exact production commencement and
exploration volumes. Organic growth is the preferred alternative to acquisition integration and this requires significant initial outlays. Operating Income and Net Profit for the period of
2014 comprise a total of -4.1MSEK. Gripen Oil & Gas is expected
to expand its margins as long as initial sales flow to the company. Nevertheless, for the moment Net margins remain on a negative territory.
Balance Sheet position
Gripen Oil & Gas maintains strong current assets account that
fully covers the short-term liabilities. Moreover, intangible assets component on the company’s Balance Sheet represents
more than 95% of total fixed assets. This confirms the notion
that Gripen Oil & Gas has entered a development phase, with
intellectual property rights being the driving force behind future growth accumulation.
Company Description
The Current Ratio for the first quarter of 2015 hovers around
5.1 which is a clear indication of the strong financial position
maintained by the company. The main liquidity source is the
cash balance. The figures for cash and short-term placements is
concentrated around 15% of total assets. The cash burning
period is estimated to be approximately 12 months. The Net
debt of -14.55 % for first quarter of 2015 is indicative of the
augmented liquidity position maintained by Gripen Oil & Gas.
(TOTAL ASSETS - TOTAL LIABILITIES)/NUMBER OF
SHARES
Q1 2015
2,27
1,81
16,79
14,94
2,61
2,05
8,98
7,72
2014
47,12
53,12
12,48
4,77
0,2
0,19
Industry Attractiveness – Low Entrants Threat
The Energy Supply Security publication (2014) categorizes
Sweden as fully dependent on imports to meet its domestic oil
demand. The country’s total primary energy supply consists of
oil (26%) and gas (2%). This represents a significant opportunity for Gripen Oil & Gas as the company aims to replace some of
Sweden’s import of oil and gas transported from remote countries and thereby contribute to a decrease in transportation
distances and related negative externalities to the environment.
The sustainable market position inherent to Gripen Oil & Gas is
a direct reflection of the 30 exploration permits and licenses
granted to the company (during the first quarter of 2015 Gripen
Oil & Gas has initiated the application for 4 additional production and exploration licenses offshore Lithuania). Initial exploration time-span and concession validity consists of 36 months.
The leading market position in terms of size of exploration
acreage in combination with the pursuit of new ventures, further contribute to the mid-term sustainability and differentiation relative the industry peers. Even though the industry does
not have significant preliminary fixed cost capital requirements,
high exploration and development expenditures could prevent
the already mature industry from new entrants and eliminates
such risk.
Reliance on equity financing
The company heavily relies on equity funding to finance its
variable costs (reconnaissance, development and drilling expenditures). The new share issue in December 2013 (raising
SEK 15.million before costs) in combination with the exercise
of granted warrants during the third quarter of 2014 (29,941
new shares issued) has contributed to the dilution of existing
shares. Nevertheless, the ability and willingness of main shareholders to provide capital until actual revenue generation is
initiated will remain balanced in the mid-term. Solidity ratio of
more than 93% is perceived to be notably high and indicative
of company’s intention to remain debt-free in the near future.
Stock Liquidity and Required Return
Low stock liquidity, undiversified shareholders base, and lack
of market depth would require relatively high liquidity (return) premium which may weaken stock appreciation opportunities.
Summary
The granted exploration permits, application for offshore licenses and strong liquidity position introduce confidence regarding potential growth and cash flow accumulation. Nevertheless, the uncertain production commencement and obtainable volumes introduce cautious sentiment.
Gripen Oil & Gas (publ) is an oil and gas exploration and production company with granted exploration licenses in the Swedish
counties of Östergötland, Öland and Gotland.
Gripen Oil & Gas (publ) has further intention to expand its scope
via application for offshore licenses. The company is considered
the single biggest explorer for Oil & Gas in Sweden in terms of
size of acreage.
The main business goal is to exploit these resources in a safely,
cost-effective and environmentally friendly manner, thus reducing the negative externalities caused to the environment.
Please refer to important disclosures at the end of this document
2015-06-03
Valuation
Investment Characteristics
Gripen Oil & Gas is historically recognized as a company not involved in distributing dividends. The shares are strongly
held by few undiversified major stockholders with relatively blocked portion of around 65% of the outstanding shares.
Stockholder base is rather limited, thus repelling control tending investors. Low liquidity increases both execution and
opportunity cost and could limit price appreciation (capital gain) in case of undervaluation. The stock, by its moderate-tohigh volatility exposure, would not be suitable for risk-averse and long-term cash dividend expecting investors (e.g. pensioners). Active trading is also restricted due to low volume and turnover values. Buy-and-hold strategy is considered the
most appropriate as investors would be able to assimilate valuable information concerning actual oil and gas production
initiations.
Valuation Notes
Gripen Oil & Gas’ P/B has trended upwards when comparing the figures for the year of 2014 and the first quarter of 2015.
The P/B discrepancy relative industry peers will be further intensified if effects of the high level of intangible assets is eliminated. Industry competitors maintain relatively higher level of debt on their Balance Sheet in order to finance the ongoing
operations, thus taking advantage of the available tax shield and avoiding dilution effects. Net Debt for Crown Energy Ventures Corporation exceeds 18% for the last quarter of 2014. The corresponding metric for Gripen Oil & Gas remains negative for the same time period (-19.55) due to solid cash and cash equivalents position. Despite the higher dependence on
debt financing, industry peers sustain relatively stable liquidity positions throughout both time intervals, as demonstrated
by the respective Current Ratios. This emphasizes their ability to meet short-term obligations. Gripen Oil & Gas exhibits a
Current Ratio of 3.15 for the former time period (YE 2014) and 5.1 for the latter (Q1 2015). Shelton Petroleum AB and
Lundin Petroleum are the only companies with positive figures for ROA and ROE for the respective time-frame. Legal resolution concerning offshore filings in conjunction with inshore drilling commencement are expected to affect Gripen Oil &
Gas future sales and consequent cash flow generation. The negative earnings before interest, taxes, depreciation and amortization restrict the calculation of comparable multiples (P/E, ROA, ROE, EV/EBITDA, EV/FCF remain negative in 2014).
Summary and Conclusions
The stock is defensive and value drivers are indicative to the difficult value creation in the near future unless the company
undertakes permanent extraction of oil and gas. This contrasts with the minimized default risk and relatively stable current and fixed assets position. Nevertheless, the uncertainty concerning actual timing of revenue accumulation confines
any deterministic conclusions.
30
P/B Ratio
25
20
15
10
5
0
Gripen Oil & Gas Lundin Petroleum
AB
Tethys Oil
Company
Crown Energy
Ventures
Corporation
Petrogrand AB
Shelton
Petroleum AB
Interfox
Resources
CURRENT ASSETS/SHORT-TERM LIABILITIES
101,84
Q1 2015
GRIPEN OIL &
GAS AB
LUNDIN
PETROLEUM
TETHYS OIL
COMPANY
CROWN ENERGY
VENTURES
CORPORATION
PETROGRAND AB
SHELTON
PETROLEUM AB
0,18
1,78
2,13
5,56
6,1
3,31
4,1
1,04
1,02
5,1
3,15
35,28
70,88
2014
INTERFOX
RESOURCES
Disclosure:
Pavel Lisev – Does not own stocks in GOG
Please refer to important disclosures at the end of this document
2015-06-03
SWOT Analysis
•Minimized default risk
•Experienced management
team
•Cost-efficient technology
used for drilling
•Strong Balance Sheet
position
•Uncertainty regarding
production initiation and
estimated exploration
volumes
•Pricing volatility concerning
future offtake of gas and oil
Strengths
Weaknesses
Opportunities
Threats
•Application for offshore
exploration and production
licenses
•Mature industry with high
entry barriers and
preliminary expenditures
•Potential significant increase
in fixed capital outlays in the
long-run
•Issuance of more stringent
regulatory directives
concerning the energy
sector.
General Implications
It is important that Gripen Oil & Gas captures the available opportunities and triggers the accumulation of profit in the medium term. The overriding interest is to stimulate revenue generation by production initiation (elaborating the existing projects and engaging in new ventures). The innovative focus in conjunction with strong financial position further conceptualize
Gripen Oil & Gas’ potential for future growth and income-generation opportunities.
Bull or Bear
Value Drivers
Industry sector is considered volatile, prone to political and economic instabilities. Application for offshore licenses and inshore extraction commencements are of primary importance. Liquidity premium is required on
holding the stock
Quality of
Earnings
Gripen Oil & Gas has had consistently negative earnings. Other external
costs remain the primary factor eroding the income statement. Fixed costs
are expected to grow as the oil & gas production starts.
Risk Profile
Quality of
Management
& Ownership
Overall View
Low financial leverage minimizes default risk. High industry and oil
price volatility levels. Defensive business strategy during initial sampling tests and development procedures. Granting of concessions, patents and licenses complemented by the signing of Letter of Intent covering future offtake of gas alleviate risk exposure
Despite the recent replacement of company’s incumbent CEO, the management turnover ratio is expected to remain rather stable. Financial
statements are expressed in a clear and indicative manner with no accounting discrepancies. Experienced Board members
Excessive volatility and uncertainty is expected for Gripen Oil & Gas in the
short-run due to unpredictability surrounding oil & gas production initiations. Upside potential exists, but is contingent on external factors. Recommendation is to undertake buy-and-hold strategy in the short term, until more valuable information is revealed to the market
Please refer to important disclosures at the end of this document
2015-06-03
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Please refer to important disclosures at the end of this document