Pason reported 2Q16 results modestly behind expectations as R&D spending was higher than we had anticipated. Pason has reduced its 2016e capital program to $25 mm from $30 mm as it tries to achieve positive FCF before dividend payments. Our forecast would suggest that the Company will achieve this with positive FCF of $16 mm (which includes a cash tax recovery of $11 mm). The Company’s operations in Saudi Arabia continue to capture market share which is increasing profitability. The Company believes it is adequately staffed to handle a 50% increase in activity. This depicts the embedded operating leverage in the business.
Companies: Pason Systems
Pason reported 1Q16 EBITDAS of $9 mm, well below our estimate of $16 mm as fixed costs were more prominent than we anticipated.
Impact: Negative, as EBITDAS of $9 mm was well below consensus of $14 mm and our estimate of $16 mm. However, we expect an improvement in margins in upcoming quarters due to restructuring that is currently underway or executed in 1Q16.
We are updating our oilfield industry forecasts post the release of FirstEnergy’s new commodity price forecast for crude oil and natural gas on March 24, 2016. We have updated our 2016e Canadian well count/drilling days forecast to 3,209/37,335 from 3,800/43,325. In 2017e, we have left our forecast unchanged at 6,200 wells/70,200 days. In the U.S., our 2016e rig count forecast is now 482 (prior: 610) and 2017e is 675 (prior: 775). Data for 1Q16e came in weaker than our prior forecast anticipated, and we have lowered our estimates across our coverage universe accordingly. We are currently below 1Q16 consensus for 15 of 18 companies in our coverage universe, but the percentages are misleading given the absolute size of EBITDAS being earned this quarter.
Companies: CWC ESI PD SVY TDG WRG CEU CET PSI PHX BDI HNL MTL SES TOT CFW FRC TCW
Impact: Positive Pason has announced that all claims, answers, affirmative defenses, asserted by Auto-Dril against Pason and by Pason against Auto-Dril, have been dismissed. On February 2, 2015, Pason was named as a defendant in a patent infringement lawsuit by Auto-Dril. The patent was specifically related automatic drilling control systems based on electronic sensors placed at the bit.
Pason reported 4Q15 EBITDAS of $21 mm, which was in line with our estimates. The Company is executing additional cost cutting initiatives totaling $20 mm in annual savings. The full benefit of these decisions will not be seen until 2017e. We expect incremental improvements in the cost structure through 2016e. The Company has reduced its 2016e capital program to $35 mm from $45 mm. We have reduced our 2016e EBITDAS to $46 mm from $55 mm due to lower pricing and International activity. Our forecast calls for the cash position to fall to $167 mm ($1.98/share) at YE 2016e from $194 mm at YE 2015.
Impact: We expect the stock to trade higher due to additional operating cost reductions and lower capital spending. 4Q15 results were in line with expectations.
In conjunction with the new oil price forecast released by FirstEnergy on February 8, 2016, we have updated our 2016e Canadian well count/drilling days forecast to 3,800/43,325 from 4,950/54,853. In 2017e, we are now forecasting wells/drilling days of 6,200/70,200 from 7,900/86,600. In the U.S., our 2016e rig count forecast is now 610 (prior: 763) and 2017e is 775 (prior: 1,063).
We have updated our 2016e WCSB drilling days forecast to ~54,900 days, which is 18% below our prior forecast and a 16% decline y/y. We are also rolling out our 2017e drilling days forecast, which is 86,600 days, or a 58% improvement from 2016e. In the context of the last 25 years, our 2017e forecast ranks 19th for active drilling days. Our 2016e U.S. rig count forecast has been reduced to 763 rigs from 888 rigs. In 2017e, we are forecasting a U.S. rig count of 1,063 rigs.
Advantage Oil & Gas Ltd. (AAV) Reports Third Quarter Results Slightly Behind Expectations Due to TCPL Restrictions, Beats Cost Bogeys by 9%, Offers Strong Middle Montney IPs | Bonavista Energy Corporation (BNP) Reports Third Quarter Results, Reduces Dividend, Unveils Conservative 2016e Guidance Aimed at Balance Sheet Preservation | Crescent Point Energy Corp. (CPG) 3Q15 Results In Line, Waterflood and Service Cost Deflation Recognition Highlight Operational Update | Crew Energy Inc. (CR) Reports Third Quarter Results In Line, Announces Septimus Lower Montney Test | Penn West Petroleum Ltd. (PWT) Third Quarter Results Fall Short of Expectations, Ramping Down Activity | Raging River Exploration Inc. (RRX) Reports Third Quarter Results In Line | Trilogy Energy Corp. (TET) Announces 3Q15 Financial and Operating Results and Provides Revised Guidance | Pacific Exploration and Production Corporation (PRE): 2016 Cash Flow Estimate Reduced, Post 3Q15
Results | Canyon Services Group Inc. (FRC) Moving to a Variable Cost Structure | PHX Energy Services Corp. (PHX): Noisy 3Q15 Results; Reduces 2015e Capital Spending by $10 mm | Pason Systems Inc. (PSI) Cost Restructuring Helps 3Q15 Results; Boosting Target Price | SECURE Energy Services Inc. (SES) Top Pick and $14.00/Share Target Price Maintained
Companies: BNP CPG CR PWT RRX TET PRE FRC PHX PSI SES
Impact: We expect the stock to trade higher due to 3Q15 EBITDAS being 34% higher than consensus.
We have lowered our Pason target price to $24.00/share from $27.50/share to reflect the reduction in our estimates. We are maintaining an
Outperform ranking as we believe the projected return of 27% is attractive on a risk adjusted basis. We have lowered our 2015e EBITDAS to $96 mm (prior: $101 mm) and 2016e EBITDAS to $112 mm (prior: $131 mm) to try and reflect potential risks of a weaker-than-expected North American rig count recovery in 2H15e and 2016e.
We are updating estimates for the remainder of our coverage universe to reflect the updated activity forecast released on June 29, 2015. Recall, we released an updated outlook for the Contract Drillers at that time.
Companies: SES PSI TCW FRC BDI CET PHX
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A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
Caledonia, which operates the Blanket gold mine in Zimbabwe, announces today a second dividend increase for 2020 with an increase of their dividend from 7.5c a quarter to 8.5c a quarter – an annualised 34c/yr which currently yields 2.3%. This comes on the back of a first increase in January of this year when Caledonia raised its dividend from 6.9c/quarter.
Avation is a lessor of 48 commercial aircraft to a diversified airline client base. This morning, the group has released results for the nine months to 31 March 2020, which illustrate that the business remained profitable in Q3 FY 2020.
Phoenix copper today provides the results from the initial metallurgical test work to recover precious metals from the Empire deposit. Results from leaching with non-toxic ammonium thiosulfate (ATS) resulted in high gold recoveries of nearly 98% gold, and silver recoveries of between 70% and 80%. A full metallurgical report on this new work is available on Phoenix Copper's website.
Companies: CMCL AVAP PXC
Considering the environment, this sale is positive and marks the completion of the $15bn divestment programme started after the acquisition of the shale assets from BHP in 2018. Overall, BP’s strategy in downstream is to bring stable earnings, to offset volatility in upstream. In this regard, expanding renewables activities would seem appropriate to BP. While, BP has no competitive advantage in this field, exposure to renewables will allow the oil majors to keep their oil & gas activities.
Companies: BP Plc
Acquisitions and creditors update
Companies: Premier Oil
InfraStrata's acquisition of the iconic Harland & Wolff (H&W) shipyards in Northern Ireland has been transformational for the group, and with a carefully planned growth strategy, there is a clear route to cash breakeven in the short term. Over the medium to long term, these facilities could support a c£400m revenue business. With the company trading at a c30% discount to its H1/20A book value and c65% to its Adj NAV, we initiate with a Buy recommendation.
Oil posted its second weekly loss for the month, as a surge in US coronavirus cases clouds the demand outlook and casts doubts on the market's recovery.
Futures in New York slipped 3.2% this week. The price slump comes just days after oil closed above $40 for the first time since early March, and following a run of weekly gains that lifted oil from its historic plunge below zero in April. Texas -- the centre of the American oil industry -- halted its reopening as virus infections jumped, and Houston's intensive-care wards reached capacity. Bars in Texas and Florida were ordered to shut, and Arizona reported a surge in infections.
While massive OPEC+ output cuts and a pickup in demand have helped crude climb from its April low, price gains have slowed this month. Infections continue to soar in many parts of the world, consumption is still a long way off pre-virus levels and many refiners are struggling with low margins.
Crude stockpiles in the US are at record highs, and there's a risk that US shale producers could start bringing back output. The number of rigs drilling for oil fell by 1 to 188, the lowest since June of 2009.
West Texas Intermediate for August slid 23 cents to settle at $38.49 a barrel in New York.
Brent for August fell 3 cents to close at $41.02 a barrel.
Still, the pessimism's being tempered by huge cuts to Russia's seaborne crude exports, a development that lifted oil earlier in the session. Shipments of the flagship Urals grade from its three main western ports are set to plunge by 40% next month, according to loading programmes seen by Bloomberg. The steep reductions underscore the OPEC+ alliance's commitment to eliminate the oil glut that built up earlier this year.
Other oil news:
Exxon Mobil Corp is preparing to cut jobs in the US as the oil giant focuses on a slimmed-down and more efficient organisational structure, according to people familiar with the matter.
Four automakers backing a California effort to curb tailpipe emissions will break with some big rivals in the legal battle over the Trump administration's relaxation of fuel efficiency standards.
Companies: FOG PVR 88E DGOC EME TRIN UOG
Implications of the gold-silver metallurgy at Empire, Idaho
Yesterday, Phoenix Copper published a metallurgical report on the leaching of its gold-bearing mineralisation from the Empire resource area in Idaho. This showed high recoveries for gold and silver using standard cyanide and non-standard Ammonium Thiosulphate leaching (comparable leach times, reagent consumption and recovery). The implications of these tests may be far ranging for Phoenix as it enables it to consider bringing forward precious metals production from the area, with the following benefits: 1) quicker permitting for a non-cyanide process; 2) cheaper reagents; 3) earlier establishment of mine site infrastructure to assist ongoing economic studies and; 4) cash flow in a robust gold price environment. More test work on the gold recovery process remains to be completed to establish the optimum leaching and recovery parameters. We still see fair value at 34p/sh (see research from 12/05/2020 for full details) but note that Phoenix management is actively seeking to bring forward value in its projects. In the meantime, we have drilling results and a (potential) resource upgrade to look forward to shortly from the Red Star lead-silver project as well as a funded resource drilling program to establish a whole resource for Empire – and not just the base metal-rich zones.
Companies: Sirius Real Estate
Enteq Upstream PLC (LON:NTQ) has released full-year (FY) results for the year-end March 2020 with commentary on the ongoing trading environment. The company reported revenues of around US$10.9mln, underlying adjusted EBITDA (earnings before tax interest depreciation and amortisation) of US$3.1mln,
Companies: Enteq Upstream
Rockfire Resources, the gold and copper exploration junior with projects in northern Queensland has recently commenced a major £0.8m drilling programme on Plateau, its most advanced project. Drilling is likely to be followed by a resource update in late 2020 and a scoping study in Q1 2021. We believe that the updated resource estimate could be commercially significant. This reflects the promising drilling results post July 2019’s resource assessment and the potential for the drilling programme to expand the resource base given the analogous Mt Wright mine geology 47 km to the NE. The new drilling programme will include diamond drilling for the first time which will enable deeper higher-grade targets to be targeted. The drilling programme has been underpinned by the recently announced £1m raise. We believe the scope for positive news flow in the coming months is excellent while the gold market backdrop should be supportive for gold exploration as well as production plays over the balance of 2020.
Companies: Rockfire Resources
Shearwater sells resilience and today's trading update shows us how resilient demand has been for its products and services. The Group has swung to EBITDA profitability and cash flow is well ahead of expectations. The macro themes of cyber security and remote working are supportive of robust demand levels going forward. We are maintaining our forecasts. Buy.
Companies: Shearwater Group
Petropavlovsk PLC (LSE: POG) have released their FY2019 results and Q1 trading update this morning. The company had already released production numbers for last year. Overall the numbers reflected a strong operational performance although various financial/other parameters thwarted positive changes below the EBITDA line. Conversely net cash from operations reduced by 43% due to lower cash from prepayment as part of the group’s forward sale facility with the banks, yet net debt came down to $561m. . We show the key figures in Table 1.
Solid State is a manufacturer of computing, power and communications products, and value added distributor of electronic components. This morning, the group has provided a further update on trading in light of the present COVID-19 backdrop, ahead of full year results to 31 March 2020 due to be released on 30 June.
Cadence today provides and update on the Amapá iron ore project in Brazil. The Amapá JV (EV Mineração S.A.), in which Cadence can earn an initial 20% of the project, is understood to be on track to begin shipping stockpiled iron ore from late Q2 / early Q3 2020. Finalisation of the negotiation with the secured creditors still needs to be reached, but the Amapá JV partners are engaging constructively. In preparation for shipping, a trucking contractor has been hired to move key equipment to site and a shipping manager and shipping broker have been engaged.
This morning's update from CSSG confirms the positive direction of travel highlighted when the company published H1 results in March. With comparators still challenging (because of one-off work in the prior year), and “light” Covid-19 impacts in recent months, the expected £1.6m EBITDA flagged by the company seems a creditable number, still within touching distance of historical performance in both EBITDA and PBTA terms. Net cash, moreover, even after three months of the Covid-19 crisis, is reported to still be higher than the £2.4m which the company reports it had at the start (which in turn represents an increase on the £2.3m as at 31 December 2019). Not surprisingly, having suspended payment of the dividend a couple of months ago, the Board is now proposing to have another look at this question, at least in relation to the half year dividend.
PTY's announcement this morning flags a change in the CFO role with the new appointee benefiting from extensive experience in developing digital businesses to their full potential, both in overall and in financial leadership positions. His arrival follows on from highly proactive action led by the previous finance director, delivering a platform for growth once the current uncertain circumstances have abated.
Companies: KDNC CSSG PTY SOLI
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
Warren Buffett once said that as an investor, it is wise to be ‘fearful when others are greedy and greedy when others are fearful’. Fear is not in short supply right now.
Companies: OPM ALU ANCR BLV CONN CRC STU GATC HAT LEK MMH MCB MWE NXR NTBR NOG PAF PEG RFX SRC TEF TEG TPT VTU WYN XLM
Jubilee Metals (JLP) – Corporate – H2 Update - Continued transformational improvements
Market Cap £90m Share Price 4.5p
Today Jubilee, the chrome and Platinum Group Metals (PGM) producer in South Africa with its Kabwe base metal refinery currently under construction in Zambia, provides an update on its H2 numbers for the six month period ending December 31st 2019. Revenues increased 74% (£25.0m from £14.4m in H1 2019) with operational earnings also increasing to £8.3m in H2 (from £5.6m). In H2 the company also brought the Kabwe copper (cobalt) plant into production from third party material with a view to also producing zinc in Q2 2020.
Verditek (VDTK) – Corporate – Continued trials, new sales appointment
Market Cap £4.9m Share Price 2.25p
We note this morning's RNS from VDTK, which outlines a wide range of trials, development agreements and potential outlets for their strong but light solar product. The RNS amply illustrates the potential broad reach of VDTK's product, taking in industrial, retail, telecoms and transportation products among others. With the company anticipating crystallising these opportunities in FY2020E, with commercialisation to follow, potential drivers remain safety, practicality and cost.
Companies: Jubilee Platinum Verditek