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Advance Energy to refocus strategy; sees growth opportunities

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There might be some light at the end of the tunnel for Advance Energy (LSE:ADV), the AIM-listed upstream oil and gas exploration and production company’s investors as the company is working to complete a reverse takeover, after a year of disappointing share price performance.

On 9th September, Advance Energy announced that it entered into a non-binding agreement with the majority owner of “a European oil and gas company” for a reverse takeover. It hasn’t revealed the name of the oil and gas company, but the exclusivity period is up to 29 October. This means investors will not have to wait long until they get more information.

Until the company can publish an AIM admission document for the potential acquisition, it has had its shares suspended from trading. However, before the suspension on Friday, the share price rose 109% to 18p, before settling at 13p.

Still, the stock has a long way to go before it can recover its losses, as it remains down 96% year-to-date.

In January of this year the group’s share price plunged 95.5%, following disappointing drill results at its Buffalo-10 well. Less than a month later, chief executive Leslie Peterkin left the company with Larry Bottomley taking over as interim chief executive.

Advance Energy refocusing its strategy

Following the failure at the Buffalo-10 well, Advance Energy reviewed its cost structure and refocused its strategy, announcing that it will aim to create a: “self-funding oil and gas production company to take advantage of growth opportunities being generated as industry players reshape their portfolios to manage energy transition to net-zero emissions.”

Once the company’s licence to drill offshore Timor-Leste in south east Asia lapsed in May, it became a cash shell under AIM rules, which gives it six months to make an acquisition.

The announcement on Friday indicates that the group is in advanced stages of discussions and if completed, the reverse takeover should provide a boost to its share price. However, long-term, its success will depend on which oil and gas company the deal is struck with.

Providential timing

In any case, it is a good time for oil and gas companies, as higher commodity prices are resulting in strong returns. As the war in Ukraine continues and Russia continues its threats to cut off gas to Europe, there is increased interest in ramping up traditional oil and gas production, much to the disappointment of renewable energy advocates.

Bloomberg’s most recent MLIV Pulse survey among portfolio managers and retail investors, found that two-thirds of respondents plan to increase exposure to the energy sector over the next six months, which could provide a boost to energy stocks.

Meanwhile in the UK the discussions regarding a ramp up in oil and gas production has heated up in the last week as new prime minister Liz Truss announced a lifting of the ban on fracking and plans to become a net energy exporter by 2040.

While some argue that Russia’s invasion of Ukraine and Europe’s dependence on Russian gas highlight the importance of continuing fossil fuel exploration and production to guarantee energy security, for environmentalists the focus should be on developing cleaner sources of energy.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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