Hague and London Oil - Transformational acquisition

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Another small cap stock that has released huge news this week is Hague and London Oil (LSE:HNL). The company has interests in the UK, Africa and now Indonesia and with a market cap of £3.5m it is an attractive investment opportunity at current prices.

On Wednesday it announced it has entered a conditional agreement to acquire a material position in the Duyung PSC in the Natuna Sea, Indonesia. In the PSC is contains an undeveloped gas discovery called Mako, it is estimated to have 902 bcf of gas in place. This is a great acquisition and no doubt will become the focus of the company. The company also has interests in French Guyana (Shell operated), North Africa, UK to name a few.

The Duyung PSC is what really excites me though, to have 85% of a 902 bcf undeveloped gas reserve is a great acquisition for the company. The technical data looks good and the company will be able to sell gas into the Indonesian market at fantastic prices well above average. There will obviously need to be a funding round of some sort for the development and Mako South-1x appraisal well but with a current cash balance of £1.8m the company is seriously undervalued.

The company has an able team that have experience in exploitation of low pressure shallow gas which is directly applicable to Duyung. The Chairman and Interim CEO is Andrew Cochran who has a history of buy-outs. Cochran himself led both Dominion Petroleum (bought by Ophir Energy in a $250m transaction) and Coastal Energy (Bought by CEPSA for C$2.3bn) to large takeovers in the last 4 years. He was also a co-founder of Salamander Energy which was bought this year by Ophir Energy for close to $500m.

With a small free float and high percentage insider ownership this could really takeoff with little news as it did on Wednesday. For investors that don’t mind high volatility levels then Hague and London look good value at 13p. The markets at the moment are a tough place to be with large companies being hammered lower by commodity prices. Hague and London offer respite from the markets as it goes through its transformational phase. Buying shares anywhere below 20p in my opinion will be greatly rewarded in years to come.

Read my 1,600 word 88 Energy (LSE:88E) article here. 88 Energy is another stock that has an attractive risk-reward profile and that article should be read by investors looking to make serious returns in the not too distant future.

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