GeoPark (GPRK US)C; Target price of US$20.00: Re-instating dividend and up to 10% Buy back - FY21 production guidance has been set at 40-42 mboe/d excluding any contribution from exploration/appraisal with US$100-120 mm capex at US$40-45/bbl. This includes US$95-115 mm in Colombia (US$30-35 mm for exploration/appraisal) and US$4-5 mm in Ecuador. FY21 operating net back is guided at US$210-280 mm. 3-4 exploration wells will be drilled at CPO-5, some of which will test the continuity of the Guadalupe play encountered on Llanos-34 into CPO-5. The initial results of the Indico-2 well already look promising with more details expected imminently.1-2 exploration wells could be drilled in Ecuador in 2H21/early 2022. The company is re-instating its quarterly dividend set at US$0.0206 per share representing ~1.1% annual yield. An exceptional dividend of the same amount will be paid in 4Q20. GeoPark is also launching a share buyback programme for up to 10% of the issued shares. With shareholder distributions now re-instated, the very attractive investment profile of GeoPark (with production growth, material exploration upside, balance sheet strength and shareholder distribution) has been completely restored to what it was pre COVID-19 while oil prices continue to oscillate around US$40/bbl. This showcases the resilience of GeoPark’s assets and business model. The shares trade at ~60% discount to our Core NAV and ~40% discount to our 2P NAV of ~US$11 per share. Our unrisked NAV for the 2021 drilling programme is ~US$9.00 per share, which represents over 100% of the current share price. Most importantly, and contrary to most peers, the programme is diversified across multiple wells and relatively low risk.
Tethys Oil (TETY SS)C; Target price of SEK75.00: Adding near term exploration – The 3Q20 financials were inconsequential with negative working capital movements to be recovered in 4Q20. The company held US$48 mm in cash at the end of the period; which is in line with our expectations. The 4Q20 capex at Block 3 & 4 is likely to be similar to 3Q20 capex (U$6.5 mm), which is lower than what we were anticipating (US$10 mm). The main near term focus continues to be the upcoming drilling of the Thameen prospect on Block 49. Our unrisked NAV for the Thameen prospect, assuming 15 mmbbl resources, is SEK17 per share (~50% of the current share price). The Anan-1 well on blocks 3 & 4), to be drilled in 4Q20, is a near field exploration well for which we are not carrying any value yet. It is relatively low risk but could have a small positive impact on the company reserves. The current share price represents EV/DACF multiples of only 1.8x for 2020 and 1.7x for 2021 and the core dividend implies>5% yield. Our target price of SEK75 per share has been set close to our ReNAV.
IN OTHER NEWS
Frontera Energy (FEC CN): 3Q20 results – 3Q20 production in Colombia was 43,202 boe/d. The company held US$421 mm in cash (including US$162 mm in restricted cash) with debt of US$557 mm at the end of September. Working capital at the end of September was negative (-US$79 mm).
i3 Energy (I3E LN): Production update in Canada – Group production from the Gain and Toscana’s assets during October averaged 9,407 boe/d (61% gas, 39% liquids). A first dividend is expected to be declared and paid in 1Q21 with up to 30% of cashflow being distributed. The company anticipates that the dividend yield will be >10% on an annual basis.
Maha Energy (MAHA-A SS): Production update in Brazil and resources update in Oman – Production in October was 2,971 boe/d. The award of Block 70 in Oman to Maha has now been approved by the authorities. The Block is estimated to hold 1 mmbbl of 2P reserves and 22 mmbbl of 2C contingent resources of heavy oil.
Parex Resources (PXT CN): 3Q20 results – 3Q20 production in Colombia was 44,305 boe/d. 4Q20 production is expected to be 45,500-47,500 boe/d with US$35-45 mm capex. At Aguas Blancas, the rates of the AB-11 and AB-24 exploration wells did not meet minimum thresholds to warrant the development of the Southern Aguas Blancas area at current oil pricing. In 2021, Parex expects to produce 47,000-49,000 boe/d with US$165-$185 mm capex. The 2021 share buyback programme is budgeted at $155 million at US$45/bbl with YE21 working capital forecasted at US$335 mm (YE20e: US$330 mm).
Touchstone Exploration (TXL LN/CN): Raising new equity – Touchstone is raising US$30 mm of new equity priced at £0.95 per share. The proceeds will be used for the Cascadura surface facility development, the testing of Chinook-1 and the drilling of the Chonook-1 and the Royston exploration wells.
Independent Oil & Gas (IOG LN): Update in the UK North Sea – Phase 1 of the SNS core project is on schedule for first gas in 3Q21 with drilling due to start in 1Q21.
MIDDLE EAST AND NORTH AFRICA
ShaMaran Petroleum (SNM CN): 3Q20 results – 3Q20 gross production at Atrush was 46.1 mbbl/d. FY20 gross production guidance remains 44-50 mbbl/d At the end of September, the company held US$29.9 mm in working capital.
Africa Oil (AOI SS/CN) & Impact Oil & Gas: Transactions in South Africa – Impact Africa is farming-out of a 50% WI and in the Transkei & Algoa exploration right, offshore South Africa to Shell. Shell has also been granted the option to acquire an additional 5% working interest should the joint venture elect to move into the Third Renewal Period, which is expected to be approximately 2024. Impact is acquiring 90% WI of Area 2 from Silver Wave Energy. Being immediately east and adjacent to Impact’s Transkei & Algoa Blocks, Area 2 compliments Impact’s existing position by extending the entire length of the ultra-deep-water part of the Transkei margin. Together, the Transkei & Algoa Blocks and Area 2 cover over 124,000 km2, with plays extending across both blocks. Africa Oil holds 31.10% of Impact.
Attis Oil & Gas (AOGL LN): Becoming a Helium business – Attis is merging with Helium One. Attis shareholder will be issued 1 Helium One share for every 236 Attis shares. The merger values Attis at £1.76 mm, and Helium at £6.0 mm. Helium One has Helium exploration assets in Tanzania. Helium One will be admitted to AIM in December subject to minimum fundraise of £5 mm.
BWE Energy (BWE NO): Update in Gabon – 3Q20 production at Dussafu was 15,449 bbl/d. Production cost (excluding royalties) was US$19.6/bbl. This includes approximately US$2 mm of additional costs related to the COVID-19 pandemic in the quarter. BWE has also acquired two jack-up drilling rigs for US$14.5 mm for the development of Hibiscus. A jack-up conversion is expected to reduce gross capital investments by ~US$100 mm compared to previous development plan.
Vaalco Energy (EGY US/LN): 3Q20 results – 3Q20 production in Gabon was 5,064 bbl/d. Vaalco held US$42 mm in cash (and no debt) at the end of September. 4Q20 WI production is expected to be between 5,300 bbl/d and 5,750 bbl/d.
EVENTS TO WATCH NEXT WEEK
09/11/2020: Kosmos Energy (KOS US/LN) – 3Q20 results
Companies: EGY AOI FEC GPRK I3E 7M7 0GEA MAHAA PXT 0VH4 SNM 3B8 SNM SHASF TETY TETY TXP
SDX Energy (SDX LN)C; Target price £0.45 per share: Growing the prize, accelerating drilling - Sales in Morocco are now almost back to pre COVID 19 levels (90%). This is important for cash flow. SDX has now mapped additional prospects on the South Disouq license, resulting in gross prospective resources increasing by 139 bcf to 233 bcf. Drilling in Egypt is being accelerated to start in 2Q21 with two initial wells targeting 165 bcf, including the new Hanut prospect with 139 bcf gross prospective resources and a 33% Chance of Success. The volumes targeted by the first part of the programme are 5x larger than what we were previously anticipating (34 bcf). At the end of September, SDX held US$9.2 mm in cash with the majority of the 2020 capex programme having already been incurred. With no debt and expected FY21 cashflow of ~US$30 mm (largely unaffected by oil price movements), this leaves the company with ample liquidity to fund the upcoming drilling programme. Overall, we estimate the prospects the company will target with the drill bit over the next twelve months at £0.38 per share, which represents 2.4x the current share price. The main items are the LMS-2 well test in Morocco (£0.14 per share) and the Hanut well in Egypt (£0.16 per share). This does not include the potential for additional look-alike prospects to LMS-2 to be drilled in 2021. While the company continues to deliver positive updates and the materiality of the upcoming drilling is growing, the shares continue to trade at EV/DACF multiples of only 1.3x in 2020 and 0.5x in 2021.
IN OTHER NEWS
Diversified Gas & Oil (DGOC LN): Partnership agreement with Oaktree Capital – Diversified and Oaktree are partnering to jointly pursue US PDP acquisitions with individual transaction valuations over US$250 mm. Oaktree and Diversified will fund equal portions of any acquisitions, however Oaktree will provide Diversified a 5.0% upfront promote of its funded working interest (2.5% incremental) at the time of an acquisition. In addition, upon achieving a 10.0% unlevered IRR on its investment, Oaktree will convey to Diversified 15.0% of its working interest (7.125% incremental).
Maha Energy (MAHA-A SS): Production update in Brazil – Sales production for the month of September totalled ~ 3,255 boe/d, During the month of September the dual GTE-4 oil producing well was shut down for 14 days, due to workover operations. Fishing operations to date have been unsuccessful and a more rigorous workover operation is now scheduled during the fourth quarter to restore production from the AG zone. Production from the GTE-4 well (Sergi zone) resumed on the 28th of September. Tartaruga had issues during the month with unreliable power from the local grid – back up generation has been is installed and production is stabilizing.
Parex Resources (PXT CN): Buy back and operation update in Colombia – Parex plans to buy back up to a further 10% of its share capital by YE20. 3Q20 production was 44.2 mboe/d and 4Q20 production is expected to be 44-48 mboe/d with US$40-50 mm capex. The company plans to drill the Cayena horizontal exploration well on the Fortuna block and one appraisal well at the Boranda Block. At Block LLA-94, the Grulla well will be re-entered. The company held US$350 mm in cash at the end of September.
Phoenix Global Resources (PGR LN): 1H20 results – 1H20 production in Argentina was 4,369 boe/d. At 30 June 2020 the group had cash of US$1.4 mm and total borrowing US$317.7 mm.
Proposed changes in Trinidad’s fiscal regime - The government of Trinidad is proposing to lift the threshold for the imposition of the very punitive Supplemental Petroleum Tax (SPT) from US$50/bbl to U$75/bbl.
Getech (GTC LN): 1H20 results – 1H20 revenue totalled £2.1 mm. The orderbook was £2.9 mm at the end of June. The company held £2.8 in cash at the end of June. Getech is currently negotiating with two potential Energy Transition acquisition targets. Key sectors of focus are mining, geothermal energy and the hydrogen economy.
Hurricane Energy (HUR LN): Update in the UK – 3Q20 production averaged 13,600 bbl/d with current production of 14,500 bbl/d.
Independent Oil & Gas (IOG LN): No offer to buy Deltic Energy (DELT LN) – Independent will not make an offer to acquire Deltic with two approaches rejected by Deltic.
Lundin Energy (LUNE SS): Acquisition of exploration licences in Norway – Lundin is acquiring from Idemitsu interests in a portfolio of licences in the Barents Sea, including a 10% WI in the Wisting oil discovery and a further 15% WI in the Alta oil discovery with an overall 70 mmboe net contingent resources. The proceeds consist of US$125 mm in cash.
OMV (OMV AG): 3Q20 update – 3Q20 production was 444 mboe/d.
Premier Oil (PMO LN): Merger with Chrysaor – Premier Oil is merging with Chrysaor. The Transaction is expected to result in Premier’s stakeholders owning up to 23% (including 5.45% by Premier’s shareholders) of the combined group. A cash payment of US$1.23 bn will be made to financial creditors of Premier. The transaction provides ~US$0.61 on the dollar cash recovery for existing creditors plus US$0.14 in shares for an overall recovery of 75%. The combined entity had >250 mboe/d at the end of June and 2P reserves of 717 mmboe as YE19. The acquisition of the BP assets by Premier will not go ahead.
Repsol (REP SM): 3Q update – 3Q20 production was 615 mboe/d.
UK Oil & Gas (UKOG LN): Raising £2.2 mm of new equity – UK Oil & Gas has raised £2.2 mm of new equity priced at 0.16 p per share to fund its share of initial drilling and seismic costs in Turkey.
FORMER SOVIET UNION
JKX Oil & Gas (JKX LN): Operating update in Russia and Ukraine – 3Q20 WI production was 10,245 boe/d including 4,727 boe/d in Ukraine and 5,519 boe/d. The company held US$18.8 mm net cash at the end of September.
Tullow Oil (TLW LN): RBL Redetermination – Tullow’s RBL credit facility has been redetermined with US$1.8 bn of debt capacity. As a result, the Group retains ~US$500 mm liquidity headroom of undrawn facilities. The next redetermination will commence at the end of November and is expected to be completed in January 2020.
Companies: UKOG TLW SDX REP PXT PMO PGR OMV 0GEA LYV JKX HUR GTC DGOC
GeoPark (GRPK US)C; Target price US$20: Cash tax reduction and high impact drilling– The only item of interest in the 2Q20 financials was the fact that GeoPark did not pay any cash tax in 2Q20 (we were carrying a payment of US$40 mm). This explains why the cash balance at the end of June was so much higher than we expected at the time of the 2Q20 operating update in July). This also reflects important positive changes in Colombia. First, US$20-25 mm cash taxes in 2020 have been deferred to 2021 leaving only US$15-20 mm due in 2H20. In addition, Colombia is accelerating the reimbursement of income tax credits. GeoPark has already collected US$15 mm in July that will offset the remaining 2H20 cash tax. Overall in 2020, the company could potentially obtain a total refund of US$25 mm of income tax (out of which US$15 mm is firm and collected in July) plus US$15-20 mm of VAT. The key wells to focus on in 2H20 will be the 1-2 wells to be drilled at CPO-5 (GeoPark WI: 30%). While these wells are expected to increase production, they will also allow the company to start derisking the exploration upside associated with the block. The first well will be a development/appraisal well in Indico where the oil water contact has not been encountered yet. The second well is an exploration well at Aguila targeting the same play concept. The share price continues to trade at ~45% discount to our Core NAV of ~US$19 per share. Overall there could be 350-700 mmboe gross prospective resources across its Llanos blocks (including CPO-5). Our target price of US$20 per share reflects our ReNAV and attributes only ~US$1 per share to exploration. It represents over 100% upside to the current levels.
IN OTHER NEWS
Frontera Energy (FEC CN): 2Q20 results | Gran Tierra (GTE LN/US/CN): 2Q20 results | i3 Energy (I3E LN): Acquisition of Canadian assets and £30 mm funding | Maha Energy (MAHA-A SS): Production update in Brazil | Parex Resources (PXT CN): 2Q20 results
Pharos Energy (PHAR LN): Licence extension in Vietnam and RBL confirmation
bp (BP LN): 2Q20 results and change of strategy | Hurricane Energy (HUR LN): Technical update in the UK | Neptune Energy: Discovery in Norway | Spirit Energy: Dry hole in Norway
MIDDLE EAST AND NORTH AFRICA
Genel Energy (GENL LN): 1H20 results
Kosmos Energy (KOS US/LN): 2Q20 results | San Leon Energy (SLE LN): Acquires 10% Interest In new Nigerian oil export system | Vaalco Energy (EGY LN/US): 2Q20 results
EVENTS TO WATCH NEXT WEEK
10/08/2020: Diversified Gas & Oil (DGOC LN) – 2Q20 results
11/08/2020: JKX Oil & Gas (JKX LN) – 2Q20 results
13/08/2020: Africa oil (AOI CN/SS) – 2Q20 results
Companies: BP/ FEC GENL 0MDP I3E PXT PHAR HUR KOS 0GEA EGY
PetroTal (PTAL LN/TAL CN)C; Target: £0.45: Initiating coverage – PetroTal is a production and reserve growth story in Peru with a market cap of ~£90 mm. Management’s experience of operating in the jungle and their deep in country relationships are key. Project execution has been excellent. The Bretaña field (48 mmbbl 2P reserves) was acquired from Gran Tierra in late 2017 with production of 1 mbbl/d achieved in 3Q18. By YE19 that figure had grown to >13 mbbl/d. While COVID-19 forced a shut down of the export infrastructure and Brent prices collapsed to ~US$20/bbl, PetroTal has managed to negotiate with Petroperu a reduction in transport fees and a rephasing of a contingent payment. With the recent US$18 mm equity raise strengthening the balance sheet and production expected to restart in July, PetroTal is returning to growth. Bretaña could produce 20 mbbl/d. PetroTal’s shares trade at ~ one quarter of our Core NAV of £0.46 per share and at one third of the company’s value based on its 2P reserves only (2P NAV of £0.28 per share). On flat production, the share price implies EV/DACF multiples of 1.0x in 2021 turning negative in 2022. Importantly PetroTal’s only material liabilities consist of (1) an oil linked contingent payment over three years to Petroperu on very flexible terms and (2) trade payables of US$49 mm with attractive payment terms. We forecast ~US$45 mm of capex (incl. servicing the payables) in 2H20. This is covered by (1) US$28 mm in cash from a recent equity raise plus collecting pending invoices from oil sales, (2) >US$10 mm of VAT receivables and (3) ~US$25 mm operating cash flow (US$11-12/bbl net backs) in 2H20 at US$38/bbl. At ~US$45/bbl and 12 mbbl/d in 2021, we forecast PetroTal generates ~US$90 mm cash flow with ~US$35 mm cash capex (incl. servicing the payables). Our target price of £0.45 per share (~our Core NAV) represents 4.5x the current share price.
i3 Energy (I3E LN): Corporate update | Parex Resources (PXT CN): Trading update in Colombia | Phoenix Global Resources (PGR LN): FY19 results | Royal Dutch Shell (RDSA/B LN): Dry hole in Brazil | IGas Energy (IGAS LN): Trading update | Serinus Energy (SEN LN): Deferred EBRD debt repayment | Union Jack (UJO LN): Additional interest in UK asset | SDX Energy (SDX LN): Update in Egypt and Morocco| ShaMaran Petroleum (SNM CN): Payment from KRG and debt restructuring | United Oil & Gas (UOG LN): Reserves and production update in Egypt | FAR (FAR AU): Not paying cash call in Senegal | Lekoil (LEK LN): Update in Nigeria | San Leon Energy (SLE LN): FY19 results | Savannah Energy (SAVE LN): Trading update | Victoria Oil & Gas (VOG LN): Trading update in Cameroon
Companies: SEN SDX PTAL PGR VOG PXT SAVE RDSA FAR
In this note, we analyze the indebtedness of 35 international E&Ps publicly listed in the UK, Canada, Norway, Sweden and the USA. For each company, we look at (1) cash position, (2) level and nature of debt (including covenants), (3) debt service and principal repayment framework and (4) Brent price required from April to YE20 to meet all the obligations and keep cash positions intact. We also estimate YE20 cash if Brent were to average US$20/bbl from April to YE20. While the oil demand and oil price collapse are of unprecedented historical proportions and the opportunities to cut costs much more limited than in 2014, most companies (with a few exceptions) entered the crisis in much better position than six years ago, with stronger balance sheets and often already extended debt maturities. In addition, this time around, many E&Ps have already been deleveraging for 1-2 years and are not caught in the middle of large developments that cannot be halted. The previous crisis also showed that debt providers could relax debt covenants for a certain period as long as interest and principal repayment obligations were met. This implies that as long as operations are not interrupted and counterparties keep paying their bills (Kurdistan), the storm can be weathered by most for a few quarters.
With (1) Brent price of about US$50/bbl in 1Q20, (2) reduced capex programmes, (3) material hedging programmes covering a large proportion of FY20 production at higher prices and (4) limited principal repayments in 2020, we find that most companies can meet all their costs and obligations in 2020 at Brent prices below US$40/bbl and often below US$35/bbl) from April until YE20 and keep their cash intact, allowing them to remain solvent at much lower prices for some time. In particular, Maha Energy and SDX Energy are cash neutral at about US$20/bbl. When factoring the divestment of Uganda, Tullow needs only US$9/bbl to maintain its YE20 cash equal to YE19. Canacol Energy, Diversified Gas and Oil, Independent Oil & Gas, Orca Exploration, Serica Energy and Wentworth Resources are gas stories not really exposed to oil prices and Africa Oil has hedged 95% of its FY20 production at over US$65/bbl.
Companies: ARC AOI CNEC CNE DGOC EGY ENOG ENQ GENL GKP 0MDP GTE HUR IOG JSE KOS LYV 0GEA 3SX ORC/B PENUSD PHAR PMO PTAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
GeoPark (GPRK US)C; Target: US$20 - Delivering more with less | Diversified Gas and Oil (DGOC LN): Acquisition in the US and US$87 mm equity raise | Gran Tierra Energy (GTE LN/CN): 1Q20 results| Parex Resources (PXT CN): 1Q20 results | Trinity Exploration and Production (TRIN LN): FY19 results | Touchstone Exploration (TXP LN/CN): 1Q20 results | Condor Petroleum (CPI CN): 1Q20 results | Premier Oil (PMO LN): 1Q20 update and FY20 production guidance reduction | Serinus Energy (SEN LN): 1Q20 update | Valeura Energy (VLU LN/VLE CN): 1Q20 results |Caspian Sunrise (CASP LN): Production update in Kazakhstan | Genel Energy (GENL LN): 1Q20 update | Pharos Energy (PHAR LN): 1Q20 results | ShaMaran Petroleum (SNM CN/SS): 1Q20 update in Kurdistan | TransGlobe Energy (TGL LN/CN): 1Q20 results | Africa Oil (AOI SS/CN): 1Q20 results | Vaalco Energy (EGY LN/US): 1Q20 results | Kosmos Energy (KOS LN/US): 1Q20 results
Companies: KOS 0MDP DGOC GTE PXT TRIN TXP PMO SENUSD VLU CASP GENL PHAR 0VH4 TGL AOI EGY KOS
88 Energy (88 LN/AU)/Premier Oil (PMO LN): Drilling update in Alaska | Eco (Atlantic) Oil & Gas (ECO LN/EOG CN): Update in Guyana | Maha Energy (MAHA-A SS): Acquisition in USA and production update | Parex Resources (PXT CN): Low capex programme and production update in Colombia | Total (FP FP): Significant discovery in Suriname | Aker BP (AKERBP NO): Small discovery on Norway | BP (BP LN): 1Q20 update and capex reduction | Providence Resources (PVR LN): US$3 mm equity raise | RockRose Energy (RRE LN): FY19 results, guidance revision | Royal Dutch Shell (RDSA/B LN): 1Q20 update | Valeura Energy (VLE CN/VLU LN) : Update in Turkey | Caspian Sunrise (CASP LN): Production update in Kazakhstan | JKX Oil & Gas (JKX LN): FY19 results | Nostrum Oil & Gas (NOG LN): Corporate update in Kazakhstan | Energean Oil & Gas (ENEOG LN): Progress at Edison E&P acquisition | Payment from Kurdistan received | TransGlobe Energy (TGL LN/CN): Operating update in Egypt | United Oil & Gas (UOG LN): Update in Egypt | Aker Energy: Postponing development in Ghana | Canadian Overseas Petroleum (COPL LN/XOP CN): US$63 mm legal claims by Essar against ShoreCan | Tullow Oil (TLW LN): RBL redetermination in line, no further principal repayment until 2021 and further capex reduction
Companies: 88E ARC BP/ CASP COPL NK1A ENOG GENL GKP JKX 0GEA NOG PMO PXT PVR RDSA RRE TGL TLW UOG VLU
Companies: ATU CNQ PXT SRX TOU TVE 0KTI PD K FQM LUN TCN AIF ATA TCS ARE ARE CCL/B SIS SIS
Parex Resources (PXT-TSX); BUY, C$33.50
Companies: Parex Resources Inc.
Parex Resources (PXT CN); BUY, C$33.00: 3Q19 results, 2020 guidance roll-out reveals better than anticipated FCF | Chevron (CVX US) (not covered): Exiting Malampaya | Union Jack Oil (UJO LN) (not covered) & Reabold Resources (RBD LN): Upgraded volume estimate in the UK | Genel Energy (GENL LN); Speculative Buy, £3.20: Somaliland farm-out process | Aminex (AEX LN) (not covered) & Solo Oil (SOLO LN): 2020 capex budget in Tanzania
Companies: PXT 0R2Q UJO RBD GENL AEX SCIR
Kosmos Energy (KOS LN/US) (not covered): 2Q19 results | Parex Resources (PXT CN); BUY, C$32.00: 2Q19 results | Providence Resources (PVR LN) (not covered): Working capital update
Companies: KOS PXT PVR
Canacol Energy (CNE CN) (not covered): Gas discovery in Colombia | Parex Resources (PXT CN)8; BUY, C$32.00: Andina Norte-1 tests 2,892 bbl/d, leading bid on 2 blocks in early Colombia bid round action | Renaissance Oil (ROE CN) (not covered): Issue of new equity | Total (FP FP) (not covered): Selling stake in Norwegian asset | Gulf Keystone Petroleum (GKP LN) (not covered): Payment update in Kurdistan
Companies: CNEC PXT ROE GKP
Parex Resources (PXT CN)8 ; BUY, C$31.00: 1Q19 results in line, testing of up to four pay zones has commenced on Andina Norte-1 | Africa Oil (AOI CN/SS): BUY, C$2.60; 1Q19 results | ENI (ENI IM) (not covered): Discovery in Ghana
Companies: PXT AOI ENI
Parex Resources (PXT CN); BUY, C$30.00: 1Q19 estimated production c. 51,200 boe/d | Premier Oil (PMO LN); BUY; £1.45: Well test result in Mexico | Europa Oil & Gas (EOG LN) (not covered) & UK Oil & Gas (UKOG LN) (not covered): Sale of interest in PEDL143, UK | Union Jack Oil (UJO LN) (not covered) & UK Oil & Gas (UKOG LN) (not covered): Holmwood update, UK | Tlou Energy (TLOU LN) (not covered): Placement with Botswana based investors | Tower Resources (TRP LN) (not covered): Proposed bridging loan
Companies: PXT PMO EOG UJO UKOG TLOU TRP
Impact: Slightly positive. Parex continues to top expectations, matching up ideally with strong Brent crude prices and a narrow Vasconia differential.
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Parkmead’s portfolio has evolved to the point where it is now a full-cycle E&P company with a low-cost Dutch production base and a broad spectrum of high-quality UK growth opportunities, encompassing material development projects and an attractive range of risk/reward exploration. Recently, it has diversified into renewables, future proofing its equity story and opening up a new ‘investor-friendly’ avenue of growth. A core strength of this management team is its commercial acumen and portfolio-driven approach to optimising value. Parkmead has been in portfolio construction mode to date but is now well positioned to start crystallising its intrinsic value. We initiate with a risked-NAV based price target of 155p/sh. Investors would do well to get on-board with a management team that has a strong track record of delivering shareholder value.
Companies: Parkmead Group PLC
Edison Investment Research is terminating coverage on Diversified Gas & Oil (DGOC), Vermilion Energy (VET) and Circle Property (CRC). Please note you should no longer rely on any previous research or estimates for these companies. All forecasts should now be considered redundant.
Companies: Diversified Gas & Oil PLC
Savannah’s acquisition of a key strategic Nigerian gas asset with strong growth potential has been ignored by the market. Its significant exploration success in Niger has also gone unrewarded. Delivery of the strong free cash flow potential these assets offer will re-rate the shares, which are materially undervalued. Management’s tenacity in getting the Seven Energy acquisition across the line alongside the impressive early progress with the acquired assets should give investors confidence. We initiate with a Buy rating and risked-NAV based price target of 49p/sh.
Companies: Savannah Energy Plc
EQTEC has announced today that the Company and Scott Bros. Enterprises Limited have agreed to extend the exclusivity period of the Billingham MOU until 18 December 2020. The Billingham MOU has been subject to previous extensions, as announced on 23 October 2019, 23 June 2020 and 18 September 2020.
Companies: EQTEC PLC (KEU1:FRA)EQTEC PLC (EQT:LON)
Panoro Energy (PEN NO)c; Target price of NOK23.00: Revisiting Gabon - BW Energy provided an update on Dussafu with FY20 production guidance expectation marginally below previous guidance (14.25 mbbl/d versus 15 16 mbbl/d) due to COVID-19 restrictions and OPEC+ quotas. This results in FY20 opex expected to be US$19/bbl which is slightly above the previous guidance of US$17-18/bbl. The drilling of DTM-7H, and the tie-in of DTM-6H and -7H, has been deferred to mid-2021 with first oil expected in 3Q21 and our estimate of the timing of the field production ramp-up has been delayed by one quarter. BWE continues to expect production from the Dussafu area to reach >30 mbbl/d in 2023 and ~40 mbbl/d in 2024. The Hibiscus development is expected to offer 15% IRR at
Companies: TGL TGA 88E FEC JSE LUPE LUNE LNDNF LYV NOG GB_NTRM NSTRY 3NO PANR P3K PTHRF PTAL TETY TETY AOI ENOG PEN SDX EGY
Salt Lake Potash's AGM update reported that the Lake Way project is now 74% complete. Construction of the process plant is on-schedule with practical completion and first SOP production planned for Q1/21. Drawdown of the Senior Facility Agreement funds and repayment of the Taurus bridge loan is expected soon.
Companies: Salt Lake Potash Limited
• In an Important development, PetroTal has signed a contract with an international oil trader for a pilot shipment to export 0.12 mmbbl into the Atlantic region using the Amazon river through Brazil. The shipment will be sold FOB Bretana, priced at the forward month Brent ICE price, and paid within two weeks of loading at Bretana. There are no subsequent oil price adjustments.
• At November 19, 2020, PetroTal had cash resources of US$9.8 mm, with accounts payable and accrued liabilities of ~US$39 mm, a reduction of ~US$11 mm from the end of 2Q20. The company has been paid US$5.5 mm for delivery of 0.192 mm bbl of oil to Petroperu in October. Production is constrained to ~5,000 bbl/d pending the reopening of the export pipeline.
• We understand that the pilot should start in December. This would not only provide ~US$5 mm in cash to PetroTal but also allow production to return to recent levels (11.5 mbbl/d), effectively unlocking the fundamental value of the asset.
Balance sheet considerations
The potential financial derivative liability has been reduced from US$22.5 mm at the end of June to US$17 mm at the end of September. Of the US$39 mm current payables 46% are not due before 2021 and we note that the company still holds US$13 mm in account receivables and US$4.7 mm in inventory.
Financials on “a back to normal” scenario with flat production
We are now assuming production remains constrained at 5 mbbl/d over 4Q20 with minimum capex with cashflow and receivables being used to repay the due payables over the period.
On production of just ~11.5 mbbl/d during 2021, we estimate operating cashflow of US$85 mm at US$48/bbl Brent. This would result in free cashflow of >US$40 mm assuming capex of US$20 mm to maintain production and US$20 mm to repay the remaining payables. This compares with a current market cap of just US$75 mm, suggesting FY21 free cashflow would represent over 50% of the current market cap in a no growth scenario assuming production can be exported.
Our target price of £0.45 per share represents 6x the current share price.
Companies: PetroTal Corp.
88 Energy has raised A$10m (before expenses) at a price of A$0.006 (0.33p) to fund the ongoing evaluation of the Company's portfolio and to enable it to identify and exploit new opportunities on the Alaskan North Slope. The net proceeds will fund 88E's share of any potential costs associated with the drilling of the Harrier and Merlin prospects at Project Peregrine, scheduled to commence in Q1/21. Harrier and Merlin are on trend and south of the ConocoPhillips Harpoon and Willow discoveries, and are estimated to contain >1bn boe of gross unrisked net prospective resources. Lying at a depth of 5,000ft, both prospects can be drilled at a gross cost of cUS$15m, providing shareholders with access to a huge potential resource at a relatively low cost. Following strong industry interest, a preferred bidder has been selected, with 88 Energy looking to conclude the farm-out of Project Peregrine in the next few weeks. Following yesterday's placing, we value the Merlin and Harrier prospects at 0.5p/share (risked) in aggregate, increasing to 8.0p/share unrisked. We update our target price to 2.3p (a 597% premium to the placing price and reiterate our BUY recommendation).
Companies: 88 Energy Limited
Central Asia Metals (CAML LN) following a successful ramp up at Sasa, progress in the environmental clean up and confirmation of the remedial costs in line with the previously guided US$1.5m the company has declared an interim dividend of 6p/sh. This will be paid on 11 December 2020 with a record date of 20 November 2020.
Companies: Central Asia Metals Plc
Oil rose to the highest in nearly three months with positive Covid-19 vaccine developments paving the way for a more sustained recovery in oil demand.
Futures rose 5% in New York this week for a third straight weekly gain as Pfizer Inc and BioNTech SE requested emergency authorisation of their Covid vaccine Friday. Moderna Inc also released positive interim results from a final-stage trial and said it is close to seeking emergency authorisation. Still, further gains were limited by broader market declines amid a dispute between the White House and the Federal Reserve over emergency lending programmes.
Even with vaccines on the horizon, a recovery in oil demand faces obstacles with governments under pressure to tighten restrictions and curb the spread of the virus. UK Prime Minister, Boris Johnson's officials are considering tougher pandemic rules placed on broader regions of England next month after a national lockdown is set to end and the country returns to its tiered system. Meanwhile, the shift toward working from home may have a lasting chill on gasoline demand, according to Federal Reserve Bank of Kansas City President Esther George.
The recent climb in headline prices has been accompanied by significant moves in timespreads, where traders bet on the price of oil in different months. The spread between West Texas Intermediate for December 2021 delivery and the following month moved to backwardation, while the closely watched gap between December 2021 and 2022 WTI contracts is close to also flipping.
West Texas Intermediate for December delivery, which expired Friday, rose 41 cents to settle at $42.15 a barrel.
The January contract rose 52 cents to end the session at $42.42 a barrel.
Brent for January settlement gained 76 cents to $44.96 a barrel. The contract rose 5.1% this week.
Pfizer and BioNTech's vaccine could be the first to be cleared for use, but first it must undergo a thorough vetting. The filing could enable its use by the middle to the end of December, the companies said in a statement. Yet, it could take at least three weeks for a US Food and Drug Administration decision.
Companies: FOG PVR 88E DGOC EME TRIN UOG
Trifast has reported FY21 interim results that highlight the tough operating conditions with material falls in revenue, and operating leverage driving sharp reductions in profitability. The c.£16m equity raise helped to cushion the financial impact and the ongoing recovery exiting the first half provides some optimism for the Group heading in to FY22. We reinstate our buy recommendation.
Companies: Trifast plc (TRI:LON)Trifast plc (25D:BER)
Hargreaves’ AGM statement confirms a positive start to FY21, building on the resilient FY20 performance. Trading is in line with expectations, the Industrial Services business has won a number of new contracts, and Hargreaves Land is said to be close to announcing the completion of its first plot sale at Blindwells. In our view, the shares are yet to reflect the earnings growth forecast for the next three years or the prospect of a 20p total dividend, which is expected to be paid first in FY22 as previously restricted HRMS profits are distributed. A further update on trading will be provided in early December, ahead of interims at the end of January.
Companies: Hargreaves Services plc
Jubilee today releases its audited annual accounts for the year ending June 30 2020. As expected, the results show the real progress made through the year. Production up, revenues up (132% to £54.8), Operating profit up (226% to £15.9m and EPS up (96% to 0.94/sh). We have seen solid progress on the expansion in the chrome and PGM projects in South Africa and consolidation of ownership of the projects against a background of Covid – which Jubilee successfully navigated. The year also saw robust plans for expansion in Zambia at the Sable Refinery in Kabwe. Security of supply has been achieved by three transactions which tie up dump resources all set to feed into the (to be) expanded Sable Refinery and making Jubilee a producer of scale in Zambia. We see fair value in Jubilee at 12p and present our first forecasts for the company (FY2021E).
Companies: Jubilee Metals Group PLC
Pan African Resources (PAF) has announced that it is to acquire 100% of Mogale Gold and Mintails SA Soweto Cluster from Mintails’ liquidator for ZAR50.0m (US$3.2m). Combined, the two assets host a mineral resource of 243Mt (in tailings), containing 2.36Moz gold. As such, consideration equates to US$1.31 per oz of contained gold cf an average valuation of US$9.88/oz for London-listed pre-production gold assets (see Gold stars and black holes, published in January 2019). Closure of the deal is subject to the usual due diligence, including the evaluation the assets’ amenability to retreatment.
Companies: Pan African Resources PLC
Union Jack’s latest drilling update of the West Newton B-1 well (WNB-1) outlines that the Kirkham Abbey formation is hydrocarbon bearing which supports pre-drill expectations and previous drilling results from the A-1 and A-2 wells. The secondary target (the Cadeby formation) was always deemed to be much higher risk and therefore we had not previously valued this interval, therefore today’s update has no impact on the material base case resource estimates at West Newton (146MMBbl oil, 211Bcf gas). The JV partners continue drilling activities with a side-track of WNB-1 to further appraise the Kirkham Abbey which we fully expect to yield positive results given significant de-risking achieved to date. As such, we retain our STRONG BUY stance and 0.82p/share TP.
Companies: Union Jack Oil Plc