ARC Resources(ARX-TSX); BUY, C$10.00― 2019 results and investor day recap | Mullen Group (MTL-TSX); HOLD, C$9.00― FLASH: 4Q19 results and 2020e EBITDAS guidance in line with Street; NCIB planned | NuVista Energy (NVA-TSX); BUY, C$4.75― FLASH: Management update
Companies: ARX MTL NVA
NuVista’s production of 50,391 boe/d matched expectations, although condensate contributions were higher than forecasted. AFFO of $64.3 mm, or $0.29/sh, was lower than GMPFE at $0.33/sh and consensus at $0.31/sh, on low natural gas and NGL pricing. Capital spending of $89 mm was 55% higher than consensus, with phased timing of its 2019 program permitting the acceleration of activity, as well as including ~$26 mm in infrastructure activity. Management did, however, reconfirm it is focused on spending at the low end of the 2019 budget range of $300-$325 mm. 3Q19 volumes are expected to come in at 49-52 kboe/d, which when targeting the low end of the annual guidance range (51 kboe/d), implies a sporty 4Q19 figure that would be 58 kboe/d or higher. Flexibility continues to be the mantra here, with a 68,000 boe/d bogey for 2022 representing a minimum take-or-pay commitment level, which is forecast to only require spending 100-110% of cash flow over the next few years to achieve.
Companies: NuVista Energy Ltd.
Despite planned facility outages, well freeze-offs, and completion related shut-ins, NuVista still managed to meet the low end of its 43,000-46,000 boe/d guidance range for the quarter.
With production of ~49,000 boe/d previously disseminated, FFO of $63.6 mm, or $0.28/sh, matching our expectations of $0.28/sh (consensus $0.29/sh) was no surprise. Capital spending of $77.4 mm was also aligned with our forecast. Through a busy organic drilling campaign, augmented by the Pipestone acquisition, reserves grew by 20% PDP, 47% 1P and 20% 2P on a per share basis. All-in FD&A performance in 2018 bested 3-yr averages at $8.22/boe 2P, $10.34/boe 1P and 21.53/boe PDP, leading to cash recycle ratios of 0.8-2.2x. 2019 guidance remains unchanged at 51,000-54,000 boe/d (capex of $300-$325 mm) with 1Q19 volumes to come in between 43,000-46,000 boe/d.
NuVista has gravitated to the low end of prior 2019e guidance, where they will now spend between $300-$325 mm (previously $300-$400 mm) to post average volumes of 51,000 – 54,000 boe/d (formerly 52,000-56,000 boe/d), which still offers 10% PPS growth over 2018e. Planned outages at various non-operated facilities and pipelines will have 1Q19 volumes in the 43,000-46,000 boe/d range before jumping to well beyond 50,000 boe/d for the remainder of the year.
NuVista, as anchor tenant, has entered into a 15-year agreement with Veresen Midstream Limited Partnership for firm transportation and processing of 100 mmcf/d of gas from the recently acquired Pipestone North block (80% take-or-pay terms).
With the closing of the Cenovus Pipestone asset acquisition, we have updated our estimates to reflect closing price, production and cash flow adjustments. Updating for the September 6th closing date, 2018e annual production guidance was formally revised to between 38,750-40,000 boe/d. Management expectations for 3Q18e and 4Q18e have now been refined to 37,500-39,000 boe/d and 46,000-48,500 boe/d, respectively.
4Q17 production volumes of 37,435 boe/d and cash flow of ~$76 mm, or $0.44/sh, were confirmed with the arrival of its year-end audited financials, after previously being disseminated alongside our comment dated February 14, 2018. Subsequent to the quarter, NuVista issued $220 mm in senior unsecured notes at a coupon of 6.5%. Net proceeds were used to redeem an older, ~$70 mm senior unsecured note (coupon at 9.875%). Management’s updated cash flow guidance now includes a one-time charge of $6.6mm to retire the old note.
NuVista’s 3Q17 results, which included production of 29,405 boe/d and cash flow of $41.5 mm or $0.24/sh, beat corporate guidance, GMP FE ($0.21/sh), and consensus expectations ($0.20/sh).
Current volumes have reached a record high 35,000 boe/d, with production on track to meet unchanged 4Q17e guidance of 35,000 to 38,000 boe/d.
2018 production target of 35,000 to 40,000 boe/d has been reaffirmed, however, ideally achieved through a 5% lower capex range of $270mm to $310 mm.
Latest 3x HiFi wells at Elmworth generated IP30 rates of 2,240 boe/d, carrying a CGR of 80 bbls/mmcf (double the anticipated CGR).
Based on its continued operational success, NuVista’s bank line has been boosted from $235 mm to $310 mm.
NuVista reported second quarter financial and operating results ahead of our forecast, with strong cash flow generation well ahead of consensus estimates even on adjustment of receipt of infrequent items. Well deliverability is strong and corporate output has recovered to pre-divestiture levels, prompting management to increase its 2016e volume guidance by 1,000 boe/d on unchanged capital inputs. Our forward CFPS estimates are up, though not to the level we anticipated through our initial reaction on receipt of this report. The likelihood that NuVista exceeds guidance continues to be high however. We are increasing our 12-month target price to $8.25 per share and maintaining our Outperform ranking on the stock.
Impact: Positive. Cash netbacks were ahead of forecast and NuVista continues to observe strong results within its Montney complex, particularly at Bilbo offsetting Seven Generations. The Company has increased its 2016e volume guidance by 1,000 boe/d on an unchanged capital budget for 2016e so market estimates will be going higher on receipt of this quarter.
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: 0UG9 ARX BTE BNP 0UR7 ERF POU 0VCO PGF PWT PSK VII TOU VET WCP BNE CJ CR DEE JOY KEL LTS NVA PPY PNE RRX RMP SRX SGY TOG TET ATU CKE GXE IKM LXE MQL PRQ SPE SKX TVE TVETF YO
NuVista announced a series of transactions providing for improved liquidity and acceleration of its greater Wapiti Montney development, namely a $70 mm non-core asset divestiture, the issue of $70 mm of 5-year notes, and an increase to its 2016e capital budget by ~$40 mm with the advent of a 2nd operated rig immediately added to its fleet. There is no change to our 2017e CFPS, though on the strip, D/CF (trailing) has moved from 1.7x to 1.5x which is positive. We continue to rank the stock as an Outperform on an unchanged 12-month target price of $7.50/sh.
Impact: Slightly positive as the offering provides some additionally liquidity and modestly improves debt characteristics for the Company, on the heels of a recently revised credit facility and expanded 2016e capital program.
Impact: Neutral to slightly positive as the positive influence that the W6 Deep Basin transaction should have on netbacks will be partially offset by additional interest expense accrued through a high-yield bond issuance.
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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
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.
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.
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.
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.
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