This morning, Ophir Energy (LSE:OPHR) released positive news on a number of fronts, namely an extension of its Reserve Based Lending Facility (RBL) and a reduction in previously forecast net debt for the year-end.
We have covered the company on a number of occasions recently. In October we released a special report on Ophir Energy analysing its new strategy after the acquisition of assets in South East Asia from Santos Limited.
While the threat of a possible further writedown related to the ill-fated Fortuna project continues to overshadow the share price, there is plenty to be positive about with the shift in company strategy – much of the potential write-down appears to be already priced in.
The company adds further good news today announcing its existing RBL facility has been increased by US$100m to US$350 following the completion of the acquisition from Santos. The increased RBL enables Ophir to fully repay an 18-month bridge facility, signed in August this year, which was used to partly fund the newly acquired production and development assets. In addition, the maturity of the RBL has been extended by 18-months, with the facility now maturing at the end of 2025.
Ophir also reports that it expects a significant reduction in year-end net debt due to a combination of strong production performance, higher than budgeted commodity prices, and lower capital expenditure (Capex). Current net debt estimates are now US$65m, a substantial 45% reduction from previous guidance of US$110.
In addition to the strong fundamentals and the possibility that year-end numbers could beat expectations, the stock also looks promising from a technical analysis perspective.
We covered Ophir as a potential buy based on technical analysis back in September when it was similarly priced to today, at 36.5p. The stock subsequently broke out of the Falling Wedge pattern highlighted on the chart, hitting 45p before retracing. Oil stocks have suffered across the board with the sharp decline in oil prices from the highs of $86 Brent in October to the lows of $58 less than 2 months later. Ophir was no exception, although it fared better than many other stocks.
Looking at the daily chart, the stock had been consolidating with a rising Relative Strength Index (RSI) over the past 4 weeks. Tuesday’s strong 5% rise tested resistance around 35.3p and today the share price has broken up and is on the verge of potentially confirming a new bottom. I would like to see a close over 38p, after which the recent high of 45p is next target, followed by the top of the current trend channel, currently 50p. If Ophir can continue to impress with its new focus, potentially offsetting any further Fortuna writedowns, the almost relentless downward trajectory endured by shareholders over recent years could finally be broken.