The collapse in oil prices in late
2008 put the business plan of oilfield
services group Thalassa on hold but a well
planned cost control programme and a
successful move into other investing
activities during the downturn ensured the
Company's survival and a contract win
announced on 11th June showed
that its core activity remains highly
viable. The BVI based company was founded
on 27th September 2007 and
joined AIM on 29th July 2008 at
50p and with the shares now at 52p, trading
at a 34% discount to net assets, there is
clear investment appeal.
The company's original operating
subsidiary Thalassa Energy Services Ltd is
the owner of Portable Modular Source System
(PMSS) equipment which can be installed on
an oil service support vessel in order to
provide the seismic energy source required
for reservoir monitoring. Reservoir
monitoring allows greater hydrocarbon
extraction by enabling production activity
(i.e. taking out oil) to be precisely
targeted and managed. However when the oil
price fell to as low as $34 oil majors
slashed capex, delayed the introduction of
new projects and thus demand for the PMSS
equipment, which is operated by Thalassa's
partner WGP, was minimal.
Thalassa Chairman Duncan Soukup has
stated that his faith in the core
technology never diminished and hence the
carrying value of the PMSS in the balance
sheet was never written down. And this
faith was vindicated on 11th
June 2010 when a contract win for
WGP/Thalassa was announced to provide
seismic source for BP's Valhall oilfield
Life of Field seismic survey. Essentially
this is an ongoing project of 2 surveys a
year to establish the correct drilling
targets to minimize costs and maximise
output from this large North Sea field.
Although the value of the contract has not
been disclosed it is clearly material and
it is hoped that other contracts will
follow. Whilst the Company will not
disclose contract specifics, the high gross
margins on such work will have a material
positive impact on the Group's
profitability.
While waiting for Energy Services to
deliver on its potential, Soukup loaned
Thalassa circa. $1.3 million in order to
allow it to establish two further operating
units: Thalassa Public Investments Ltd and
Thalassa Private Investments Ltd. The
former invests in publicly quoted
investments, the latter in private
companies. Among the British investments
Thalassa made was a 27% stake in Bella
Media, now called CityPoint Investments
plc, (a delisted cash shell with £
550,000 cash); Thalassa then worked in
concert with CityPoint Holdings Ltd (a
subsidiary of CityPoint Investments Ltd) to
take a 29.8% stake in AIM listed Renewable
Power & Light Plc (RPL) where
shareholders then removed the board in
order to stop excessive cash burn and to
focus on value
realisation.
This policy of aggressive
value investing has worked. In 2009 the
portfolio of public investments returned a
gain of 108% although, only part of that
was recognised in 2009, we expect further
profits to be booked in 2010.
The Company had net debt of
$0.4 million as at 31st May 2010 which
includes cash of approximately $0.8
million, offset by Mr Soukup's loans. The
Company has since sold investments in June
and anticipates ending the half year with a
net debt/cash position that is
approximately flat.
The
Company's balance sheet showed net current
assets of just over $1 million (as at 31
May 2010, net of monies owed to Mr Soukup.
The Net Asset Value at 31st May 2010 was
$6.8 million or £ 4.5 million which
represents 32% premium to the market value.
If further contracts can be won by Thalassa
Energy Services Ltd, the Company intends to
carve out the investment businesses and
leave Thalassa, as originally conceived, as
a dedicated Energy Services
business.
Revenue
and earnings for 2010 will for the first
time reflect contribution from a
shortened shooting program on the Valhall
field in the second half of the year. On
that basis for 2010, we are forecasting
30% top line growth and 60% bottom line
growth. With the prospect of further
contract gains and selling on a price to
book value ratio of just 0.74 we view the
shares as having a clear
investment appeal.
