Cardinal Energy (CJ-TSX); BUY, C$3.50 | Cenovus Energy (CVE-TSX); BUY, C$15.50
Companies: Cardinal Energy Ltd. (CJ:TSE)Cenovus Energy Inc. (CVE:TSE)
Five-year outlook emphasizes a nimble and prudent capital allocation strategy, but is still centred on taking net debt to <$5B, which we see occurring by ~YE2020e. CVE is quickly delivering, diffs should stay relatively narrow, and management is executing.
Companies: Cenovus Energy Inc.
Our 1Q18e production estimate is down 5%, but our FY18e estimate is largely unchanged given unchanged production guidance, while our ‘18e CFPS estimate is down 2%. Our official estimates do not yet reflect QTD commodity prices. However, based on QTD prices, we suspect 1Q18e CFPS may be ~zero. $14.50 TP and BUY rating unchanged.
The process to divest of CVE’s four legacy properties is nearly finished, as CVE announced a $940 mm transaction for Weyburn. The $940 mm figure is roughly in line with the $1.0 billion figure we were using in our modeling assumptions, which we suspect is similar to Street consensus expectations.
3Q16e WTI prices look set to average ~US$44.50/bbl vs. our $50.00/bbl prior estimate. We have also reduced our 4Q16e WTI forecasts by US$5.00 to US$50.00/ bbl, but left our 2016e+ oil & gas price deck largely unchanged. For the second time in three months we are increasing our forecasts for Canadian refined product premiums relative to New York Harbor.
Companies: CVE HSE IMO SU CNQ ECA ATH MEG PXX
CVE’s cost structure continued to decline in 2Q16, even prior to ramp-up of two large projects in 2H16e. Our go-forward CFPS estimates are modestly improved as is our RENAV. Target price increased $0.50 to $18.50/share. The stock looks inexpensive relative to our longer term views, but expensive at US$60/bbl WTI. CVE’s core assets are currently generating low margins (bitumen, mid-west U.S. refining).
Market Impact: Positive, as CFPS beat expectations, and capex and opex guidance have been reduced.
The Fort McMurray wildfire took more than 1.2 mmbbl/d of oilsands production offline at one point, disrupting operations of many companies within our coverage universe. We expect production estimates for many oilsands producers (HSE, IMO, SU, ATH) to be more varied than usual with more variables to account for than usual (downtime, ramp up, sales volumes). SCO prices were boosted by the wildfire, with CNQ best positioned to have taken advantage, given the upgrader at Horizon was only mildly affected by wildfires. CVE, HSE and SU likely benefited from a positive FIFO impact. We estimate a positive FIFO impact of $4-5/bbl of throughput assuming a 30 day lag, with a larger positive FIFO impact on longer lags. We are generally close to consensus for most CFPS estimates, with the exception of Suncor, where we are estimating $0.34/share versus consensus at $0.44/share. There are no target price or ranking changes with this publication.
Macros: Commodities - Energy
We have analyzed recent Company estimates of sustaining capital. Relative to our approximations of sustaining capital, post Horizon expansion, at current prices CNQ offers a far better free cash flow yield than the Canadian Integrateds, even in a high case refining margin scenario (see charts on page 2). We are upgrading our ranking on CNQ to Top Pick from Outperform, increasing our target price by $3.00 to $47.00/share, while we have reduced our target prices for both HSE and CVE by $1.00/share, to $18.00/share. In our view CNQ is clearly better value than any of the Canadian Integrateds.
Companies: CNQ CVE HSE IMO MEG SU
Commodity Price Update – Impact on Integrateds, Large Cap E&P, Oilsands
1Q16 cash flow was, as expected, negligible, despite hedging gains, given lowcommodity prices . 2016e capex guidance is now $1.2 billion (previously $1.2-$1.3 billion).Expansion projects remain on track, while Foster Creek’s base operations appear to have turned a corner, again.While cost reduction efforts continue, lease commitments will likely mean that CVE’s G&A costs per boe will remain above average.Year end disclosures suggest that abandonment liabilities may be turning CVE’s gas assets into a net financial liability . We believe the current share price is baking in ~US$70/bbl WTI prices .$16.00/share target price and Market Perform ranking maintained.
Market Impact: Neutral. Investors were well aware that low prices were going to result in negligible cash flow for CVE in 1Q16. Operating and financial results were, broadly speaking, in line with expectations.
We are updating our estimates to reflect FirstEnergy’s updated price deck for oil, natural gas, and refining crack spreads.
Estimates and NAV updated post 4Q15 results and annual reserves disclosures. Reduced capex, reduced dividend, and new hedges have improved our YE2016e net debt forecast by $0.9 billion, implying a net-debt-neutral 2016e outlook at our price deck (~$0.9 billion increase at the strip).
Market Impact: Probably negative, given that once again Management did not anticipate production issues at Foster Creek. The dividend cut is significant but not totally unexpected, and in this market it may be a good thing for the stock.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Cenovus Energy Inc.. We currently have 47 research reports from 2 professional analysts.
Central Asia Metals (CAML LN) is our top pick for exposure to copper and following the recent operational and financial normalisation the shares have jumped, up 16% since our last note. Our copper price forecast assumptions implied that during Q4 2020 the price, at that point up 47% from March lows would pause. This has not come to pass, now up 60% to eight year highs of US$7,688/t, indicating a higher starting point in 2021F and we have upgraded our forecasts accordingly.
Companies: Central Asia Metals Plc
Today's news & views, plus announcements from AZN, LLOY, WEIR, TATE, GFTU, INCE, DELT, SOLG, HYVE
Companies: LLOY SOLG INCE
Touchstone’s Ortoire block exploration programme onshore Trinidad has again exceeded expectations with its Cascadura Deep-1 well delivering another major gas discovery, its fourth in a row after Coho, Cascadura and Chinook. Further testing is required to determine the ultimate potential of the discovery, but this well again confirms the accuracy of Touchstone’s geological model and extends the runway for future production growth from this prolific acreage. Our risked-NAV and price target rise 58% to 188p/sh as a result of this discovery and a higher Royston pre-drill resource assumption.
Companies: Touchstone Exploration Inc
We are replacing our preliminary valuation of i3 Energy, which had been premised on the valuations of GLJ and Sproule, with our own valuation model and our own commodity price assumptions. The resource estimates assumed in our valuation remain aligned with those of i3 Energy's resource evaluators, namely, GLJ, Sproule and AGR Tracs. Our fair value amounts to 15.0p/share, which compares to our prior and preliminary valuation of 17.7p/share. Our valuation is premised on the proven and probable reserves of the company's Canadian assets; therefore, we believe that the company's current share price provides an opportunity to acquire a compelling investment at a steeply discounted entry price.
Companies: i3 Energy Plc
AMERICAS 88 Energy (88E LN/AU): Farm out in Alaska – 88 Energy is selling 50% WI in the Peregrine project to Alaska Peregrine Development Company (APDC). in return, APDC will contribute US$11.3 mm towards the cost of the Merlin-1 well (estimated gross cost US$12.6 mm). APDC is a special purpose investment vehicle organized for Project Peregrine. Its members are a consortium of private US entities. Bahamas Petroleum Company (BPC LN)C: PSC contract in Trinidad renewed and Resources update – The company has entered into a new PSC for the Goudron Block with Heritage. The contract is valid until 30 June 2030. 2P reserves on the company’s licences are estimated at 1.3 mmbbl. In addition, the company is estimated to have 7.5 mmbbl contingent resources in Trinidad and Suriname, excluding the Saffron discovery. The company’s base programme for 2021 will include (1) the drilling of the Saffron well with up to 7 production follow-on wells on success; (2) an EWT at Weg Naar Zee in Suriname in February 2021 followed by up to 6 development wells; and (3) up to 2 exploration wells on the South West Peninsula of Trinidad. The programme is expected to cost US$20 mm. An accelerated programme (US$35 mm capex) would include 8 further Saffron wells in Trinidad, 3 further Weg Naar Zee wells and one exploration well in the SWP. Echo Energy (ECHO LN): Update in Argentina – Production in Santa Cruz from 1 January to 17 November 2020 was 1,990 boe/d. Touchstone Exploration (TXP LN/CN): Drilling results in Trinidad – The Cascadura Deep-1 well encountered natural gas pay totalling ~1,315 net feet in four unique thrust sheets in the Herrera sands. This includes 308 net feet in two previously untested Herrera thrust sheets located below the sands observed in the Cascadura-1ST1 well. While the well was originally planned to be drilled to a total depth of 10,600 feet, the gas sands encountered in the deepest sheet proved difficult to manage, and the decision was made to cease drilling at a depth of 8,303 feet to preserve the substantial pay section encountered in the well. ASIA PACIFIC Jadestone Energy (JSE LN): Trading update – Group production from January to November was11,356 bbl/d. FY20 production guidance remains 11,000–12,500 bbl/d. At the end of November Jadestone held net cash of US$82.6 mm. The Maari acquisition is now expected to close in 1H21 rather than by YE20 as previously anticipated as a result of delays caused by COVID-19 and New Zealand’s recent general election. EUROPE Providence Resources (PVR LN) and Lansdowne Oil & Gas (LOGP LN): Farm out in Ireland – Providence and Lansdowne are farming out 50% WI in Baryroe to SpotOn. In return SpotOn will provide a non-recourse loan to Providence and Lansdowne for their share of the development cost. The funding will incur a blended average annual interest rate of less than 8% through the repayment period which will be repayable from SEL 1/11 production cashflow. SpotOn is entitled to 80% of the net production cashflow from SEL 1/11 until the debt is repaid. UK Oil & Gas (UKOG LN): Consent for UK project refused - Surrey County Council has refused planning consent for the company's 100% owned Loxley-1/1z Portland gas appraisal project. FORMER SOVIET UNION Block Energy (BLOE LN): Raising new equity – Block has raised ~£5.3 mm of new equity priced at £0.03 per share (almost a 30% discount to the previous day close). Caspian Sunrise (CASP LN): Update in Kazakhstan – The MJF field is currently producing at rates between 1,300 and 1,550 bbl/d. A consistent flow of oil has not been established at Deep Well A8 and the company had another stuck pipe at the Deep Well A5. The result of the acid treatments at Deep Well A6 have to date have been inconclusive. The domestic oil prices in Kazakhstan are only US$6/bbl. MIDDLE EAST AND NORTH AFRICA Genel Energy (GENL LN): Gulf Keystone Petroleum (GKP LN), ShaMaran Petroleum (SNM CN): Payment in Kurdistan – Genel, ShaMaran and Gulf Keystone have received respectively net payments of US$10.3 mm, US$7.5 mm and US$5.44 mm from the Kurdistan Regional Government for oil sales for the month of October 2020. TransGlobe Energy (TGL LN/CN): Restructuring of Egypt Licences - The West Gharib, West Bakr, and North West Gharib concessions will be merged into the Merged Concession with a new 15-year development term and a 5-year extension option. Cost recovery terms are being improved and the production sharing terms will be scaled to oil price. The increased cash flows is expected to fund new investments in incremental recovery projects. Near-term operational netbacks are estimated to increase by respectively US$5-7/bbl at US$40/bbl (Brent), US$7-9/bbl at US$50/bbl and US$9-11/bbl at US$60/bbl. The company has estimated that the new terms increase the company’s risked economic contingent resources (best case) by 59.1 mmbbl. In return TransGlobe will make an initial equalization payment of US$15 mm and a bonus payment of US$1 mm on ratification. There will be five further annual equalization payments of US$10 mm each being made over five years. United Oil & Gas (UOG LN): Operational update in Egypt – WI production from Abu Sennan is on target to exceed previous guidance of 2,300 boe/d for 2H20. SUB-SAHARAN AFRICA Eco (Atlantic) Oil & Gas: Licence update in Namibia- Four new Petroleum Exploration Licenses have been agreed on the company’s existing offshore blocks, leading to the expansion of its acreage position. The new licences cover approximately 28,593 km2, with over 2.362 Billion BOE of prospective P50 resources. FAR Limited (FAR AU): Woodside Petroleum pre-empts divestment in Senegal – Woodside is pre-empting the sale by FAR to ONGC of its interest in the Rufisque, Sangomar and Sangomar Deep assets.
Companies: RO1 CASP ROXIF BPC 0VH4 SNM 3B8 SNM SHASF TXP UKOG 0UK UKLLF 88E GENL JSE TGL TGL TRP TGA TGL TGA
Brent oil edged lower but was on track for a fourth weekly gain -- amid signs of division among OPEC+ members just days before a key policy meeting on whether to extend production curbs. Futures in London traded near $48 a barrel after falling 1.7% in the previous session. West Texas Intermediate dropped 2% from Wednesday, with prices not closing on Thursday due to the Thanksgiving holiday in the US. While most analysts surveyed by Bloomberg are forecasting OPEC+ will postpone a planned supply hike by three months to March at a meeting early next week, some see a chance of a shorter delay amid resistance from the United Arab Emirates and Iraq, which are eager to resume oil sales. OPEC's president said the group must remain cautious, with internal data pointing to the risk of a new surplus early next year if output is hiked in January. That came after Iraq's deputy leader criticised the cartel, saying the economic and political conditions of member countries should be considered before they are asked to withhold production. The recent rally gives leverage to members who want to pump more, Standard Chartered Plc said in a note. Crude is up around 6% this week as signs Covid-19 vaccines could soon be rolled out brighten the consumption outlook, even as a resurgent virus led to more lockdown measures, particularly in Europe. There was also fresh evidence the demand recovery in Asia is gaining traction. Chinese industrial profits rose at the fastest pace in almost nine years in October, while Indian economic growth data due Friday is forecast to show a sharp recovery last quarter. Prices Brent for January delivery declined 0.4% to $47.59 a barrel on the ICE Futures Europe exchange at 7:43 a.m. in London and is up 5.8% this week. WTI for the same month January delivery fell 2% from Wednesday to $44.80 on the New York Mercantile Exchange. Crude futures on the Shanghai International Energy Exchange rose 0.2% to 289.1 yuan per barrel and have risen around 11% this week.
Companies: FOG PVR 88E DGOC EME TRIN UOG
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
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
October production payment received
Companies: GKP GUKYF GVP1
88 Energy has executed definitive farmout documents to farmout a 50% working interest at Project Peregrine in exchange for a US$10m carry on in the Merlin-1 exploration well. Given the current oil and gas environment, to be able to achieve a close to two for one deal is quite remarkable, and is testament to the quality of the Project Peregrine acreage. The Merlin-1 exploration well is on track to spud in February 2021, and will be targeting the 645mmbbl Merlin prospect, situated on trend with the ConocoPhillips Willow and Harpoon discoveries. Lying at a depth of 5,000ft, the Merlin well can be drilled at a gross cost of US$12.6m, providing shareholders with access to a huge potential resource at a relatively low initial cost. We update our model, increasing our target price to 2.4p (from 2.3p), a 475% premium to the current share price and reiterate our BUY recommendation.
Companies: 88 Energy Limited
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
As expected, Castings' interim results highlighted a tough period with customer shutdowns and lockdown measures causing a 43% decline in revenue. Pent-up demand, a recovering trucking industry and strong new truck orders supports activity levels that have now reached 100% of pre-COVID levels and likely to exceed this in short order. Reinstate buy rating.
Companies: Castings PLC (CGS:LON)Castings PLC (9Z9:STU)
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)
The Prime Minister vowed last week to “restore Britain's position as the foremost naval power in Europe” and promised an extra £16.5bn in defence spending over the next four years. Mr Johnson expects this investment to “spur a renaissance of British shipbuilding across the UK”, and specifically mentioned five locations where this would occur, including Belfast and Appledore – the location of InfraStrata's shipyards. Other supportive policy initiatives emanating from the government include Mr Johnson's pledge in October that offshore wind will power every home in the country by 2030. We believe this demonstrable support from the highest level of government vindicates InfraStrata's strategy, and demonstrates the significant opportunities available to the company as it bids on numerous shipbuilding and fabrication contracts. We reaffirm our Buy rating.
Companies: InfraStrata plc
Caledonia announced that the equipping phase to the shaft collar of the Central Shaft at the Blanket mine in Zimbabwe is now complete; commissioning is expected in the first quarter of 2021. This new Central Shaft at 1.2km deep has been a self-funded, five-year project to extend the mine life and make it logistically possible to expand production to +80koz gold/yr. Most of the shaft sinking has been undertaken by Caledonia's own crew, overseen by outside technical help, which has enabled a focus on safety and a significantly lower capital cost of $60m than initially forecast.
Companies: Caledonia Mining Corporation PLC
