As anticipated, Lightstream has received an initial order from the Court of Queen’s Bench of Alberta under CCAA granting the Company protection from its creditors until October 26, 2016. The Company’s proposed sales process has also been approved, which paves the way for Lightstream’s secured noteholders to make its previously agreed upon credit bid, which we expect will be ~$1,350 mm. Should the credit bid be the successful bid, both unsecured noteholders and shareholders will leave the process empty handed. With trading of the Company’s shares suspended and delisting pending we are discontinuing coverage of Lightstream with an Underperform ranking. We have lowered our target price to $0.00 as we do not expect a bid will materialize in the sales process sufficient to provide equity holders with residual value.
Companies: LIGHTSTREAM RESOURCES
Impact: Negative, as the result of a CCAA sales process has a high probability of leaving equity holders with zero residual value. Lightstream has formally entered into a CCAA sales process after failing to meet conditions under its recapitalization agreement related to litigation commenced by holders of the Company's US$254 mm of unsecured notes. The initial CCAA hearing will be on September 26, 2016. Once the CCAA process has officially commenced, we expect there will be a bidding time frame of ~30 days.
Lightstream reported quarterly results that came in ahead of our expectations on cash flow and production. The results and minor positive changes to our proforma estimates will continue to be overshadowed by the leviathan that is the Company’s ongoing recapitalization transaction. Subsequent to the earnings release the Company announced it has gained the requisite interim order to authorize the individual special meeting of all stakeholders to approve the recapitalization arrangement. These meetings will be held on September 13th. We’ve maintained our 12-month target price of $0.05 per share and Underperform ranking.
Impact: Neutral. Quarterly results came in ahead of our expectations, though in light of the Company's ongoing recapitalization transaction we view the relevance of the results as minimal.
Lightstream has entered into an arrangement agreement that will attempt to formalize the proposed recapitalization transaction announced on July 13, 2016.
Some Recovery on Segmented Cash Flow Generation Over Q1 Though Still Down 56% Y/Y. In aggregate, the Intermediate, Mid, and Small Cap groups are expected to generate 2Q16e cash flow of $1,281 mm, $183 mm, and $53 mm, or $1.517 billion in total, that while depressed relative to the same period last year (~$2.647 billion combined), is up 17% sequentially from the prior quarter, largely on the strength of crude oil price recovery in the period. Severely weak natural gas pricing picture markedly reversed into summer, market likely to ignore financials for natural gas producers and look ahead to winter and formalization of sell-side 2018e estimates in coming months. Spot AECO natural gas prices recently crested C$2.60/mcf, and with a reasonable alignment of previously distressed NE BC Stn2 differentials, augmented by a withdrawal expected next week, view the market psyche as constructive and looking ahead, with the analogy that this market is shaping up to mirror 2012 still holding. That said, with crude oil poised to retest support levels, combined with strong stock price performance broadly observed YTD, we would characterize sentiment as slightly pessimistic in the near-term which could reduce or unwind momentum-based investment strategies that have worked thus far in 2016.
Companies: AAV ARX BTE BNP CPG ERF POU PEY PGF PWT PSK VII TOU VET WCP BNE CJ CR DEE JOY KEL LTS NVA PPY PMT PNE RRX RMP SRX SGY TOG TET ATU CKE GXE IKM LXE MQL PRQ SPE SKX TVE TVL YO ZAR
Lightstream, with support of an ad hoc committee representing a majority of its secured noteholders, has announced a recapitalization proposal which would eliminate the Company’s notes in exchange for equity. If successful, current shareholders would hold 2.25% of the recapitalized entity. If the proposal is unsuccessful, there would be an attempt to satisfy the Company’s obligations through an asset sale, which would leave minimal residual equity value. With continuing uncertainty and a number of potential outcomes all resulting in significant dilution to current shareholders, we have left our Underperform ranking and $0.05 per share 12-month target price intact.
Impact: Negative. A deferral of interest payments adds to mounting short-term obligations including a $120 mm shortfall on the Company's credit facility. Potential for a debt-to-equity swap to alleviate the debt issue would result in massive dilution for current shareholders.
Impact: Neutral. Quarterly results that were slightly below our thinking will remain overshadowed by pending debt repayment issues.
Lightstream announced 1Q16 results that were in line on a production basis but behind on cash flow as a result of weaker than expected price realizations. Production guidance for 1H16e has been revised upwards by 2% at the mid-point though will become more gas biased given an increased weighting from high impact Falher wells. No development spending is planned for 2Q16. The Company is currently in the process of seeking financing alternatives to meet both a junior debt interest payment obligation by June 15th, 2016 and a $120+ mm shortfall on its recently reduced credit facility by July 28th, 2016. In light of the looming interest and bank line repayment issues, we view dilution risk to current equity holders as high and as such continue to offer a 12-month target price of $0.05 per share and an Underperform ranking.
Lightstream’s credit facility has been cut from $550 mm to $250 mm in its semiannual borrowing base review. There is currently $371 mm outstanding under the facility, implying an overdrawn balance of ~$121 mm. A 90 day cure period has commenced where this shortfall must be addressed or the Company will trigger a default event.The Company continues to investigate various strategies to alleviate this liquidity
issue, including alternate first lien financing, asset sales, and restructuring alternatives. Failing to execute on a meaningful transaction could prevent the Company from being able to pay its next junior debt interest payment which is due on June 15th.
The Company is over-drawn by $121 mm on its re-determined credit facility and will have 90 days to remediate the deficiency.
With this publication we briefly summarize our projections for 1Q16e quarterly results for the Junior E&P (Intermediate, Mid & Small Cap) segments of our coverage universe
Companies: AAV ARX BTE BNP CPG ERF POU PEY PGF PSK VII TOU VET WCP BNE CJ CR DEE JOY KEL LTS LRE NVA PPY PMT PNE RRX RMP SRX SGY TOG TET ATU CKE GXE IKM LXE MQL RE SPE SKX TVE TVL YGR YO ZAR
With this publication we highlight various metrics and statistics forthcoming from yearend reserve books for our Domestic E&P coverage universe (Integrateds, Large Cap, Oilsands, Intermediate, Mid Cap, and Small Cap). Similar charts for YE2014 reserves can be found in our Statistical Package dated April 7, 2015.
Companies: AAV ARX BTE BNP CPG ERF POU PEY PGF PWT VII TXP VET WCP BNE CJ KEL LTS LRE NVA PPY PMT PNE RRX RMP SRX SGY TOG TET ATU BXO CKE GXE IKM LXE MQL SKX TVE TVL YGR YO ZAR
With Lightstream’s 4Q15 production figure previously disseminated in the mid- February reserve and budget update (Facts dated February 12, 2016), the focus of this release was cash flow that was 8% shy of expectations. Between $16 mm of anticipated spending earmarked for 1H16e, and negative cash flow in the range of $20 mm over this period, we forecast net debt moving dangerously higher. In the context of its normal course spring bank line review, we suspect the Company’s excess financial liquidity could be impaired in a meaningful fashion. Based on these liquidity concerns and a commodity price environment that will make it challenging for the Company to represent a going concern business plan, we maintain our target price of $0.05 per share and Underperform ranking.
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Trinity has announced a strong set of interim results during a highly volatile period, with production increasing by 9% year-on-year to 3,282bopd (H1/19 3,007bopd). Operating break-even's post hedging in H1/20 reduced to US$22.3/bbl, a 15% year-on-year reduction and a 65% reduction since 2014. Similarly, a relentless drive to improve efficiencies and reduce costs has seen G&A and opex fall by 67% and 65% respectively since 2014. Despite the dramatic fall in oil prices, Trinity's strong production performance combined with its receipt of VAT receivables via a VAT Bond sale and the drawdown of a small working capital facility facilitated cash balances increasing by 43% to US$19.7m from YE2019. Trinity is well positioned to grow both organically and inorganically, with Trinity signing MoU's and submitting EOI's (in consortium with Cairn Energy Plc) to pursue new opportunities of scale. We set our price target a 31p/share, a 248% premium to the current share price and reiterate our BUY recommendation.
Companies: Trinity Exploration & Production Plc
Central Asia Metals (CAML LN) announced robust Q2 2020 operating statistics which highlight that there were no COVID-19 related interruptions, in part due to stringent measures put in place by the company. Q2 2020 copper output of 3.4kt was down 6% YoY, up 6% QoQ, however, H1 2020 total production was flat at 6.6kt indicating the company is on track for our 13.4kt 2020F target. Q2 Lead and zinc production of 7.5kt and 6.1kt were up 3% and 5% YoY although both were down 1% QoQ respectively. For H1 2020 12.2kt of zinc and 15.1kt of lead were up 5% and 6% which was primarily due to higher throughput.
Companies: Central Asia Metals Plc
Oil posted its first back-to-back weekly loss since April's rout with the end of the summer driving season and concern about OPEC's production compliance weighing on prices.
Futures in New York edged up on Friday, but prices fell 6.1% this week coinciding with a retreat in U.S. equities. Traders are also examining data indicating the United Arab Emirates since July has been regularly exceeding its quota under a deal between the Organization of Petroleum Exporting Countries and its allies.
The uncertainty over how much supply OPEC+ is returning to the market adds another wrench in the recovery for oil prices still reeling from the pandemic-driven blow to consumption. While U.S. supplies had grown tighter in past months and producers were expected to restrain production amid a weak financial backdrop, stockpiles rose again last week for the first time since mid-July.
Companies: XOM HES KOS JSE 88E ADV CAD CHAR ECHO ENOG EME I3E PMG RBD SQZ SOU TLW VGAS WTE PHAR
SDX Energy is a £35 mm market cap full cycle exploration and production company with low cost (6 mboe/d) and reserves (>10 mmboe) in Egypt and Morocco. In contrast to most peers, SDX’s business is insulated from oil price moves with ~90% of the production being fixed-price gas on LT contracts. Recent drilling successes have opened up additional low risk/low cost/short cycle exploration and development upside in both countries. SDX will soon embark on a multi-year exploration programme. With infrastructure already in place, any discovery will be highly accretive and can be developed from SDX’s own source of funds. With the financial support of Waha Capital, a large Middle East fund and a >19% shareholder in SDX, the company is looking to make accretive acquisitions.
Morocco: capturing growing demand with very profitable supply
SDX holds 75% WI in five Gharb basin licences onshore with ~6 mmcf/d gross production. WI 2P reserves are only ~6 bcf over multiple small pools but gas is sold at U$10-11/mcf and costs US$7 mm. Gas demand in the area is growing but it is still constraining potential production. Recent drilling success opened up >40 bcf of additional WI resources, which could allow SDX to capture new customers in new markets and materially grow production and cash flow.
Egypt: >110 bcf in production. Growing inventory of low risk prospects. High capital efficiency
The key asset is the South Disouq licence (SDX WI: 55%) onshore Nile Delta. SDX is chasing four different proven plays. SDX has already discovered >110 bcf with 1H20 production of ~53 mmcf/d (gross). ~100 bcf gross prospective resources have been mapped across five prospects with typical chance of success (CoS) of ~40-50%. The prospective resources volumes are expected to grow materially with the ongoing mapping of additional targets. Although realized prices are fixed at ~US$2.85/mcf, a typical 20 bcf discovery costs only US$0.35/mcf to drill and tie back. NPV15 for a gas discovery is ~US$0.6 mm/bcf (US$0.6/mcf), implying ~70% return on risked exploration capex.
SDX shares trade at EV/DACF multiples of ~1.3x in 2020. Our 2P NAV is £0.27 per share, representing 70% upside. The prospective resources already identified have an unrisked NAV of £0.12 per share for Egypt (+75%) and £1.03 per share for Morocco (+600%). The main exploration drilling programme is restarting in 2021 but the company should test the LMS-2 well in Morocco in 4Q20, should COVID-19 restrictions be lifted. A success would derisk ~5 bcf WI resources at LMS-2 (+£0.13 per share) and a further ~20 bcf WI resources in the wider La Mimouna area (+£0.50 per share). Our target price of £0.40 per share (~ our ReNAV) represents ~150% upside.
Companies: SDX Energy Plc
Discussions on alternative transactions
Companies: Premier Oil Plc
Three day CMD to detail how BP will redeploy hydrocarbons’ capital into renewables. The latter are expected to grow by 12% CAGR by 2030, which surely is more exciting than oil. Returns do not compare though, but BP intends to make good use of its trading division to bridge part of the gap. Lowering the dividend took care of the rest. Overall, BP diversifies its risks early, which might prove right if oil stays under $50.
Companies: BP Plc
The COVID-19 pandemic has had a significant impact globally in many areas. While primarily a health issue, it has had wide-ranging implications for stock markets, which have now rallied after the plunge in share prices in mid-March when the full severity of the emerging pandemic became more widely appreciated. Nonetheless, the FTSE 100 Index remains almost 20% off its late February 2020 figure.
Companies: AVO ARBB ARIX CLIG DNL GDR ICGT NSF PCA PIN PXC PHP RECI STX SCE TRX SHED VTA YEW
Shanta Gold (AIM: SHG), the East Africa-focused gold producer has today announced a summary of historic exploration drilling carried out at its recently acquired West Kenyan project. We have included the significant drill intercepts that the company highlighted in the announcement.
Companies: Shanta Gold Ltd.
Salt Lake released an update on the Lake Way project which is now 60% complete on an earned value basis. Construction of the process plant is on-schedule with practical completion and first SOP production planned for the March quarter 2021. Major vendor procurement packages are over 90% committed with fixed costs. At the process plant site concrete foundations are more than 80% complete, installation of structural steel supplied has commenced and first carbon steel tanks have been installed. Long lead procurement items have commenced arriving on site including the crystallisers with associated components and tanks, and transformers. Vendor packages currently in transit to site include lump breaker, attritioners, wet screens and centrifuges. All permanent buildings are now on site and installed and 4G communications has been installed across site.
Companies: Salt Lake Potash Ltd.
Technical review update; H1 2020 results
Companies: Hurricane Energy Plc
Phoenix today provides a further update from its summer drilling program in Idaho. Results in from the Empire deposit continue to show promise in extending the resource, with the targeted zones all at shallow depths and several high-grade intercepts. The inclusion of a recognised high-grade gold zone and additional zones of copper mineralisation will, in all likelihood, lead to an increase in the size and grade of the mineral resource and the overall metal inventory in our opinion. A new resource calculation and updated PEA are expected in Q4 2020; Phoenix are continuing their fast track study on the deposit.
Companies: Phoenix Copper Ltd. (United Kingdom)
Placing raising £7m; H1 2020 results
Companies: Union Jack Oil Plc
Against a challenging sector backdrop, Union Jack successfully navigated the first six months of 2020, progressing its core asset portfolio in addition to securing additional interests in key projects (Wressle and Biscathorpe). The remainder of the year promises to be a transformational period for the Company, with first commercial oil production at Wressle in addition to the imminent drilling of the West Newton B-1 well and an Extended Well Test at the West Newton A-2 appraisal discovery. We therefore retain our rating and 0.82p/share TP.
Shanta Gold (AIM: SHG), the East Africa-focused gold producer, has announced drill results from the New Luika Gold Mine (NLGM) and Black Tree Hill Deposit as well as a new reserves and resources statement for the combined group. We have included a summary of the new inventory below.
Possible all-share offer for Deltic Energy
Companies: Independent Oil & Gas Plc