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• We expect oilfield service stocks to continue to outperform in 2023 and beyond based on supportive oil price fundamentals, rising capex levels amongst E&Ps, and pricing power leading to margin expansion
• Despite the sector’s strong fundamental tailwinds and the probability for a multi-year commodity supercycle, oilfield service companies are still trading at trough-level multiples
Supportive Oil Prices
While we will not go in-depth on oil price funda
Companies: CFW CFW CET CEU CMG ESI MCB PHX PD SES MATR STEP TCW WRG PD TOT ESN
Calfrac Well Services (CFW-TSX); HOLD, C$1.50 | PrairieSky Royalty (PSK-TSX); BUY, C$17.50
Companies: Calfrac Well Services Ltd. (CFW:TSE)PrairieSky Royalty Ltd (PSK:TSE)
Hiking estimates; upgrading to BUY
Companies: Calfrac Well Services Ltd.
WCSB pressure pumping supply and demand is poised to benefit from an increase in stages per well and proppant per well. We believe this could cause supply and demand to tighten more quickly than anticipated in an activity recovery. Higher service intensity has been particularly evident in the Montney and Duvernay, where stages per well have generated a 2012-1Q16 CAGR of 23% and 44%, respectively, and a proppant per well CAGR of 39% and 62%. Our investment bias is towards Trican given it is the l
Companies: CFW FRC TCW
Calfrac reported a 2Q16 EBITDAS loss of -$14 mm, which was in line with our forecast. Our 2016e EBITDAS of -$23 mm is unchanged, while we have lowered 2017e EBITDAS to $75 mm (prior: $81 mm). The Company has temporarily shuttered its North Dakota operation. We believe this will be positive for operating margins in the U.S. segment. Competitive bidding practices in Canada continue to be an impediment to margin improvement, but 3Q16e activity is expected to be high for the Company’s active fleet.
Impact: We believe the stock could trade lower today due to EBITDAS coming in below expectations and increasing pricing pressure in Argentina. Positively, margins were better than expected in Canada and the U.S.
Calfrac announced it has closed on a $200 mm term loan financing with Alberta Investment Management Corporation (“AIMCo”) at a rate of 9% due September 2020.
Calfrac’s 1Q16 EBITDAS was a loss of $11 mm, but after adjusting for $4 mm in restructuring costs it could be viewed as a loss of $7 mm, compared to our forecasted loss of $14 mm. Calfrac has reduced its 2016e capex to $40 mm from $50 mm. Our forecast suggests the first equity cure provision for the Company’s funded debt to EBITDAS covenant will need to be utilized in 2Q16e, but it could occur in 3Q16e. The Company has temporarily suspended its Eagle Ford operations, which refocuses Calfrac’s o
Impact: Neutral. We expect the stock to trade in line with the market today as results were largely in line with consensus expectations. Operationally, the Company retired ~74,000 hp and is temporarily suspending its South Texas operations, both of which we view positively.
We are updating our oilfield industry forecasts post the release of FirstEnergy’s new commodity price forecast for crude oil and natural gas on March 24, 2016. We have updated our 2016e Canadian well count/drilling days forecast to 3,209/37,335 from 3,800/43,325. In 2017e, we have left our forecast unchanged at 6,200 wells/70,200 days. In the U.S., our 2016e rig count forecast is now 482 (prior: 610) and 2017e is 675 (prior: 775). Data for 1Q16e came in weaker than our prior forecast anticipated
Companies: BDI CWC CFW FRC CET CEU ESI MTL PHX PSI PD SVY SES 0S9F TCW TDG WRG
Calfrac reported bank defined EBITDAS of $22.9 mm in 4Q15, which is positive for the Company’s TTM EBITDAS calculations and covenants moving forward. This compared favourably to our forecast of $10 mm. The Company’s Board of Directors elected to suspend the quarterly dividend, which will help preserve cash through what is expected to be a challenging 2016e. We expect the Company will need to execute its equity cure provision in 4Q16e to remain in compliance with its covenants. Our 2016e EBITDAS
Impact: Negative. Canadian pricing falling by 10% to 15% in 1Q16e outweighs the strong headline EBITDAS number for 4Q15. We expect estimates will have to be revised lower.
In conjunction with the new oil price forecast released by FirstEnergy on February 8, 2016, we have updated our 2016e Canadian well count/drilling days forecast to 3,800/43,325 from 4,950/54,853. In 2017e, we are now forecasting wells/drilling days of 6,200/70,200 from 7,900/86,600. In the U.S., our 2016e rig count forecast is now 610 (prior: 763) and 2017e is 775 (prior: 1,063).
Calfrac has closed an equity issuance for total gross proceeds of $27.5 mm. We expect this capital will be set aside in case the Company needs to use the equity cure provision in its new covenant package. In our view, the dilution will have a more meaningful impact as we approach the peak of the next OFS cycle as absolute profitability per share will be lower than the last cycle given the dilution that has taken place.
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Last week, JOG successfully secured its second GBA farmout, locking in a path to delivering zero-capex barrels. The surprisingly muted share price response to the farm-out leaves JOG trading at an unjustifiably large discount to our valuation. With a material fully funded development project under its belt and a clean balance sheet, JOG presents a very low-cost way to access high quality development barrels for investors and potential acquirers alike. If the threat of M&A does not narrow JOG’s v
Companies: Jersey Oil & Gas PLC
Plexus FY23 revenue and losses were in line with expectations. As well as the further development of its licensee relationship with SLB (Schlumberger), Plexus is focussed on its re-entry into the rental of exploration wellheads from Jack-up rigs, the sale of surface production wellheads and the provision of specialised solutions and applications to operators, particularly for Plug & Abandonment (P&A) work. Plexus won a substantial c£5m special project contract during the year, which was expanded
Companies: Plexus Holdings
• 3Q23 production was 2,518 boe/d, near our forecast of 2,674 boe/d.
• Arrow held US$12.9 mm in cash at the end of September. This is ahead of our expectations of US$6.6 mm on lower capex and opex.
• Four new wells are expected to be on stream by YE23 including RCE 7, RCE-8 and two wells at Oso Pardo.
• Following interpretation of the recently shot 3D seismic at Tapir, Arrow plans to drill a total of 15 wells in 2024 including five exploration wells targeting 3 material and low risk exploration
Companies: Arrow Exploration Corp.
Companies: 88E GENI BMS CRU POS XSG
Companies: CPH2 TIDE MRL BRCK JNEO
Alien and the Iron Ore Company of Australia (IOCA), continue to lay the foundations for operations at Hancock, one of its direct shipping iron ore (DSO) projects in Western Australia. Progress made to date ensures that, should a positive investment decision be made following the conclusion of Definitive Feasibility Studies (DFS), Hancock will be in operation and generating cashflow soon after capital is invested.
Companies: Alien Metals Ltd
• With the acquisition of interests in Sygna and Statfjord Øst expected to complete in January, the process to establish a stable well-funded producing business in Norway is almost complete. FY23 production at Sygna and Statfjord Øst net to Longboat Norge is ~250 boe/d.
• The acquisition of 49.9% of Longboat Norge by JAPEX in 2023 provides low cost capital and access to a strong balance sheet to develop further the Kveikje area and make acquisitions at no further dilution to Longboat plc.
Companies: Longboat Energy Plc
Companies: Trident Royalties Plc
CPH2 and ATOME have reached a mutual agreement to cease the previous production order made by ATOME. The CPH2 Board of Directors considers it is in the Company’s best of interests to focus its engineering and installation resources in ensuring roll out Membrane Free Electrolysers with current partners Fabrum Solutions Limited, KCA Deutag and, Northern Ireland Water. As part of the agreement, Molecular Energies has requested, and CPH2 has agreed to, a non-binding framework agreement with G-Mobili
Companies: Clean Power Hydrogen PLC
Jersey Oil & Gas, Serica Energy, Trinity Exploration & Production, Longboat Energy, Ithaca Energy, Neptune Energy, Pantheon Resources, Nostrum Oil & Gas, Kufpec, ORLEN.
Companies: TRIN LBE JOG
Andrada Mining (“ATM”) has released interim financial results to 31st Aug, revealing weaker than expected EBITDA of -£0.6m vs H&Pe +£1.8m, but a lower than forecast free cash outflow of -£8.3m vs H&Pe -£9.4m. Post period end, ATM secured a total US$30m in new funding from Orion Resource Partners and Development Bank of Namibia, giving a solid (unaudited) cash balance of £23m as of 27th Nov. We expect profitability to improve in H2 as strip ratios are expected to fall. Earlier this week, ATM anno
Companies: Andrada Mining Limited
Hannam & Partners
Companies: Good Energy Group PLC
The front of this note takes a look at the UK oil and gas sector, why domestic production is advantageous, what the main political parties think, and what could happen going forward. The latter part contains a review of the companies in our coverage – some that are UK centric, which give exposure to the note’s wider theme, and others that are focused elsewhere.
Companies: TLOU PTAL HTG ENW ITM BLVN RKH HBR UJO GMS JOG MATD CEG GENL AXL
Companies: HZM BMN ATM CMCL THX EST GROC PRU
Ariana today reports further results from the on-going drill programme at the Salinbas gold-copper project in northern Turkey, in which it has a 23.5% interest. With the Kiziltepe gold mine in operation (and satellite drill results – RNS 28.11.2023 – pointing to an extended mine life) and the Tavsan copper-gold mine under construction, Salinbas could be the third Ariana project to reach production. Ariana and its partners have been aggressively exploring Salinbas, and the adjoining Ardala and
Companies: Ariana Resources PLC