EUROPA OIL & GAS (EOG)

Previous Stock Tip

These companies are all previous recommendations from the Red Hot Portfolio that I have subsequently recommended and then sold from the portfolio at a later date. By no means are these companies intended to be buy recommendations for you to go out and invest money towards their shares. For the opportunity to start making serious money from the recommendations I am making now, just start your no obligation trial!

EUROPA OIL & GAS (EOG): Out of Luck in Romania - May 2007

RHPS Recommendation - BUY

The shares have dipped on news that drilling at the Radauti East-1 well in Romania has failed to encounter oil or gas. However, it is possible that it could be used as a reservoir for disposal of water from the nearby Bilca-Fratauti development. This is a disappointing development, but Europa has plenty of other prospects and has completed a seismic survey along a stretch of 50kms in Lincolnshire in order to identify a likely spot for drilling. Although Lincolnshire is hardly Saudi Arabia, Europa's well on the Whisby oilfield in this area has produced over 200,000 barrels of oil and has plenty of further production potential.

EUROPA OIL & GAS: (EOG): Licence Francaise - Apr 2007

RHPS Recommendation - BUY

Europa has been awarded a licence to explore a large area of the Aquitaine Basin. Europa hopes to find an extension of the Lacq and Meillon Gasfields that lie directly to the east.

EUROPA OIL AND GAS (EOG): Awarded Two Blocks in the East Irish Sea - Mar 2007-07-05

RHPS Recommendation - BUY

A consortium led by Europa has been awarded two blocks in the East Irish Sea in the UK 24th Round. This adds to Europa's growing portfolio of exploration and production interests.

EUROPA OIL & GAS (EOG): Doubled Oil Production - Feb 2007

RHPS Recommendation - BUY

Sharecall: (0906 812 1210) 2197
The shares have been in a tug of war between the falling oil price and Europa's own progress, which has seen it double its oil production over the last year. Production from the Bilca field in Romania, and a small contribution from the Ukraine, is supplementing Europa's UK production, and the extra income will help Europa to finance its 2007 drilling programme.

EUROPA OIL & GAS (EOG): Annual results confirm progress - Nov 2006

RHPS Recommendation - BUY

Sharecall: (0906 812 1210) 2197
Europa is acquiring 100% of DL001, the UK onshore licence containing the Crosby Warren Oilfield, from Edinburgh Oil & Gas. This currently produces 35 barrels of oil per day (boepd), and is close to Europa's existing West Firsby production facility. Europa has reported a pre-tax profit of £0.91m for the year to July 2006, up from £0.36m in 2005. While production has, as anticipated, declined as Europa works out its UK onshore wells, this has been more than compensated by the higher oil price. Production averaged 240 barrels of oil per day, but this will rise to about 700 boepd as production gets under way in Romania in 2007. Development of Europa's offshore North Sea concession has been delayed by high rig rates, but projects elsewhere have progressed. Europa is looking to increase production from the UK, Romania and the Ukraine in the medium term, while further out it has acquired interests in the Western Sahara, Egypt and Southern France, all of which offer high potential. There was no sign of the asset revaluation that I had been hoping for, but otherwise the results continued Europa's track record of steady, conservative progress.

EUROPA OIL & GAS (EOG): New Production and Exploration Licences - Oct 2006

RHPS Recommendation - BUY

Sharecall: (0906 812 1210) 2197
Europa has received a production licence from the Romanian government for the Bilca Gasfield, from which it will supply the Romanian state gas company. This will take Europa's production from 200bpd to 500bpd. Separately, Europa has been awarded an exploration licence for an area of the Aquitaine Basin in south west France.

A quality oil company with a proven track record is an absolute steal today - buy now for 96% gains - Aug 2006

RHPS Recommendation - BUY

With the price of oil showing no signs of falling, I have been looking for a likely penny share prospect in the oil sector. And the one I like is run not by a financial opportunist, but by experienced geologists. It has a combination of rising production and some interesting development and exploration prospects. And as its forthcoming results will hopefully show, the shares look very cheap.

Europa Oil and Gas is run by the husband and wife team of Paul Barrett and Dr Erika Syba, and was founded back in 1995, long before the oil boom had attracted a host of hydrocarbon hopefuls. Barrett and Syba met while working as consultant geologists for Kerr McGee, where one of Paul's assignments, for Hardman Resources, introduced him to the potential of the Carpathian region of Eastern Europe.

This 900-mile stretch of mountains curves from Slovakia and Poland, through the Ukraine, to Romania. It's the second most important oil and gas producing region in Europe after the North Sea. To date it has produced 5bn barrels of oil and two trillion cubic feet of gas, and yet is relatively under-explored.

While still working as a consultant Barrett bought a licence to the Horodok field in the Ukraine, and today this is still contributing about 25 boepd (barrels of oil equivalent per day) to Europa's total production of 230 boepd. The balance comes from closer to home.

Focused on finding onshore oil in the UK

In 1999 Barrett met William Ahlefeldt, a petroleum engineer who had got rich through backing an internet start-up venture. Ahlefeldt, who still owns 38% of Europa's shares, financed the company and enabled it to drill its first UK production well on the Whisby Oilfield, where at the time oil was trickling out at a rate of only 5 boepd.

Then Europa acquired the West Firsby oilfield, also in Lincolnshire, from Edinburgh Oil & Gas and Tullow, where production was rapidly declining towards 50 boepd. By drilling new horizontal production wells Europa boosted production. These fields are now delivering about 225 boepd, and Barrett reckons that there is another 500,000 barrels of oil in these fields, enough for several years of production.

Europa's big UK play, though, is in the North Sea.

In October 2003 it was awarded a licence in the 21st UK offshore licensing round over two blocks 10kms offshore Scarborough. Gas had already been discovered in these blocks by Total in the 1960s, but with a fractured underground structure flow rates have been unstable.

Groundbreaking technique to extract gas

However, using "underbalanced drilling" - a technique that is relatively new but regularly employed by Shell - Barrett is confident that gas can be extracted in quantity. The potential production rate is 6,500 boepd, dwarfing Europa's existing production, and it is now discussing farm-out deals, with a view to limiting its share of the £8m project costs while leaving it with an interest of 50% or so.

Meanwhile, back in the Carpathians, Europa has found gas in Romania close to the border with Ukraine and expects to bring this field, called Bilca, on-stream at the end of this month. This should flow at about 1,000 boepd initially, before rising to 2,000-3,000 boepd as further wells come into production.

Adding all this together - and, of course, the North Sea play is the largest and most risky element - Barrett expects Europa's production to rise rapidly from 230 boepd today to over 10,000 boepd by 2010. At that point production will start to tail off, so Europa has a number of other exploration projects with which it expects to fill the gap.

In the UK it has entered into a farm-in agreement with the Norwegian company Valhalla Oil & Gas, which is providing new seismic data in return for an interest in any future production. And Europa is hoping to get planning permission to drill its Holmwood licence area, which it describes as "one of the strongest undrilled prospects in the UK".

Europa has several irons in the fire - buy now

In Romania, Europa has a total of four licences covering 1.25m acres, all near to and on the same geological trend line that has produced several giant fields. It has acquired seismic data, which shows numerous prospects, and exploratory wells drilled at a location called Costisa have indicated the presence of hydrocarbons. These could potentially be brought on-stream quickly as they lie close to the Romanian national gas grid pipeline.

Finally, Europa has acquired licences over 80,000 sq kms in Western Sahara and 5,300 sq kms in Egypt, an area that hosted 36 new discoveries last year with modest field sizes but a good success rate.

So, although there is of course a risk that these exploration projects will come to nothing, Europa has several irons in the fire. And, no doubt due to the fact that it has two geologists at the helm, it has an excellent track record, having turned six of the eight wells in which it has participated to date into commercial successes. Allowing for the risks involved, Europa's best estimate of future production is that it will top 20,000 boepd in 2010 and 2011, with any decline thereafter filled by production in North Africa.
Like buying a 10p coin for 6p!

Europa has been a real success story, but this is not reflected in the share price. Now I understand that a research note is being prepared by broker Seymour Pierce. But more significantly Europa is planning to have a "competent person's report" updated in time for the final results later this year. This is likely to support Europa's claim, made in the annual report, that the share price does not "accurately reflect what we feel is the value of the company".

I asked Paul Barrett what he thinks is the real value of the company and he referred me to the report of consultant Scott Pickford, contained within Europa's

AIM flotation document in November 2004.

Back then Scott Pickford's central case valued the development projects at $32m, including $8m for the North Sea project, with a further risked value of $32m placed on the exploration interests. But not only has the company progressed since then, but this valuation was based on an assumed oil price of just $40 for 2004, $35 for 2005 and $30 for 2006.

So today Europa's stock market value of £15.5m ($29m) is below the value of the development projects measured using an oil price which is less than half the current level. And it allows nothing for the exploration portfolio. That's like buying a 10p coin for 6p!

RHPS Verdict: I like the expertise and strong track record of Europa's management team, and the apparent undervaluation of the shares. Production of oil and gas is about to rise steeply, so after doing nothing since its AIM flotation at a price of 25p in November 2004, the shares are ready to make a move.

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The figures refer to the past and past performance is not a reliable indicator of future results. The past recommendation highlighted here is a small company share.By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. These figures do not include the bid-offer spread, unless otherwise stated. Since the service began on 01/12/98 running through to 31/07/07, the average overall performance of the shares recommended is up 19.91%.All gains exclude dividend payments and dealing costs, unless otherwise stated. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances. Full portfolio available on request. Fleet Street Publications Ltd is authorised and regulated by the Financial Services Authority. FSA No. 115234.

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