EnCore Oil ..

TO DEL/SG/PAUL/BOXER: YOU HAVE ALREADY SEEN THIS BUT A NICE REMINDER ESPECIALLY WHEN THINGS HAVE IMPROVED DRAMATICALLY:

Publication title: Investors Chronicle. London: Oct 13, 2006. pg. 1



23p - Aim - Encore's shares haven't done particularly well over the past six months. But it's often the way with exploration companies that when the market perceives activity is low, share prices fall - even though there's no intrinsic change in the company's value. Shares then tend to pick up again ahead of drilling, and drop away before drill results are released.

And there's no reason to assume that Encore's shares will be any different, especially since the team behind the company was responsible for discovering the prolific Buzzard field in the North Sea. Encore's management has delivered in the past, and in some style, so the market may well bet on that happening again.

What's more, the prospect of further success is enhanced because the company's key Golden Eagle offshore asset is only 50km away from Buzzard, in the Inner Moray Firth. Drilling, at no cost to Encore, is due to get under way on Golden Eagle in December and, according to broker Peel Hunt, a success here could add 150p a share of value. That's based on Golden Eagle delivering 300m barrels of oil to Encore, an outcome that would be an instant company maker.

It's not that easy in the oil and gas industry, though, and there's plenty of scope for exploration failure, too. To that end, Encore is in the process of creating a balanced portfolio of North Sea exploration properties. The company has picked up licences in the recent UK offshore licensing round, it owns two small onshore UK gas discoveries, and it has also just farmed into Island Oil & Gas's property off the west coast of Ireland.

Island has also been generating its own fair share of success this year, so the partnership looks a strong one. In the current geopolitical climate, the UK and Ireland are safe addresses for oil companies, too. As a result, Peel Hunt values Encore at 22p a share, based on the discoveries already under licence, and the company's GBP18m cash pile. Putting a discounted valuation on the exploration properties adds a further 60p a share, but, of course, if Golden Eagle comes in, it could be multiples of that. Buy.

bull points - Low political risk

bull points - Strong management team

bear points - Shares are difficult to trade

bear points - Exploration risk

Ord price: 23p__ Market value: GBP46m

[Table]
Touch: 21-24p__ 12-month High: 36p Low: 12p
Dividend yield: nil__ PE ratio: na


Net asset value: 13p*__ Net cash: GBP18m

*Including intangible assets of 8.9m, or 4p a share

Year to 30 Jun__ Turnover (GBPm)__ Pre-tax profit (GBP000)__ Earnings per profit (GBP000)__ Dividend per share (p)

2006**__ -__ -947.75__ -1.0__ nil

% change__ -__ -__ -__ -

**14-month period

Beta: 1.73

Market makers: 6

Normal market size: 10,000

Last IC view: Buy, 29p, 21 Apr 2006