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Is Ophir Energy on the verge of breaking out? (OPHR)

Ophir Energy (LSE:OPHR) has seen its share price decline since the end of 2016 when it last peaked at 103p. The company is in the process of trying to turn things around after a frustrating period of investment that is yet to reap rewards for shareholders – a writedown of US$310m against its Fortuna project was a bitter pill to swallow.

In August, the company announced an acquisition of assets in Southeast Asia from Santos Limited. The Transaction is forecast to increase the Group’s 2P reserves by over 40% to 70.4 MMboe, and the company forecasts its production will increase to around 25,000 boepd – this includes 13,500 boepd from the Santos assets. Institutions have been jostling for position, with some buying after a long period of selling pressure from others. There have also been a number of Director buys this month, as the share price slumped below 40p.

With a Market Cap of £266m, Cash of $75m and net debt currently standing at US$110m, there seems to be a good case to highlight Ophir as potentially undervalued.

From a chart perspective, the price action has moved into a wedge pattern that has formed over the summer. The top and bottom of the wedge have been hit the required two-, three-times and it looks likely to break out soon. Typically this pattern is bullish, and The Relative Strength Index (RSI), also reflects this base-forming.

In the event of a move upward, the rise can be as high as the wedge pattern itself, which would put the top of the longer term trend channel in its sights. Adjusting for the time needed to make the ascent, a reasonable initial target might be somewhere around 52p. Should the price dip again there’s support from the previous low at 35p and steadily declining support from the bottom of the trend channel. Whichever way it chooses to move, a decision appears imminent.

Author: Stuart Langelaan              

Disclosure: Stuart Langelaan holds a position in the company mentioned above

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