India is one of the fastest growing economies on the planet and Oilex is an established player providing investors with access to that country’s booming energy market as we detail HERE in our initiation note on the Indian focused oil E&P company.  The company one of a select few foreign entities operating in the Indian energy arena and is focused on a multi-TCF gas resource opportunity.

News released yesterday with regards to Singapore based Republic Investments PTE Ltd making a cash investment of upto £1.33m into the company is tremendous news for shareholders in Oilex as a new and influential cornerstone investor now sits on the shareholder register. These funds will allow the company to press ahead with the works program at its key Cambay block as we go into 2018 & that we have covered fully in our formal note.

Certainly, these funds will allow for rapid progress to be made in the 2018 work programme once the Production Sharing Contract (PSC) licence renewal extension for Cambay is granted. The work programme for the coming year includes as many as nine workovers along with two vertical wells and which ought to generate substantial news flow and present stock price catalysts moving ahead.

Wells drilled in the past at Cambay were plagued with problems however, global oil services companies Schlumberger and Baker Hughes have identified the problems in the old wells and designed a blueprint for success. This means that the new vertical wells will be drilled using state-of-the-art fracking technology.

2018 now looks to us to be the year when Oilex will really make progress as the company has, with this investment, gained increased financial strength to be able to make the most of the tremendous opportunities in India.

The terms of the deal are that Republic will end up becoming a 19.9% shareholder by providing this funding & which comes in two tranches. The first tranche is up to £0.34 million at 0.215 per share. Tranche 2 is a further £0.99 million at 0.283p per share. This represents a weighted average healthy premium to the pre raise price and should serve to lead the share price higher aswell as provide opportunity for shareholders to piggyback on this opportunity at (currently) a modest discount to Republic’s blended price. Importantly too, a near 20% shareholder sitting on the register with room to increase by 10% to the bid threshold of 29.9% should provide comfort to shareholders that heavily dilutive future placings are much less likely to occur now.

Republic is a Singaporean investment company that has recently provided substantial backing to Elk Petroleum and Bathurst Resources – both of which have enjoyed considerable success post the receipt of funds from Republic.

ASX-listed Elk Petroleum is an oil and gas producer in the Rocky Mountains, USA, where it applies enhanced recovery techniques to mature oil fields. Post the investment by Republic it is interesting to see the large acquisitions that management have made with the commensurate growth in forecasts for reserves and production. This company looks to us to have the makings of becoming a A$1 billion concern in 2019. 

The second recent investment by Republic – Bathurst Resources is in a leading New Zealand coal producer with domestic, export coking and opportunities to expand export production. Over the past twelve months, Bathurst has been a major turnaround story helped in very large part by its now single largest shareholder Republic.

We expect the recent track record of Republic’s investments to serve as a pathway as to how the Oilex story will play out over next 12 months. We have a price target of nearly 7 times the current stock price which may seem ambitious but it is our contention that due to legacy problems, Oilex’s share price has been whittled down to effectively that of a shell company valuation. By any yardstick this stock remains heavily oversold and dramatically undervalued to us and we are exceptionally encouraged that such a respected and successful investor in the form of Republic echoes our view in becoming a new cornerstone shareholder.

It does look as though Republic has the Midas touch when it comes to backing exciting resources plays. Moving forward, we anticipate that some of this magic is just about to rub off on Oilex and accordingly reaffirm our Conviction Buy recommendation at a price of 0.24p.

• Oilex