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Renewable product margins beat the consensus estimates by 8% in the Q3 and came in above the company’s guided range, supported by high diesel prices. With lower volumes expected in Q4 due to maintenance and falling diesel prices, these high margins will be hard to maintain although the company is guiding for $800-900/t. Declining diesel prices are an overhang for term contracts as Neste is negotiating for FY24 and aims to reach 70-80% of its renewable volume on top of the already-contracted leve
Companies: Neste Corporation
A challenging quarter led to a c.7% miss compared to the EBITDA consensus and a 28% annual decline as lower margins depressed the results. The Martinez and Singapore startups boosted renewable diesel sales volumes by 16% yoy while the operational shutdown and bio-ticket recognition dragged the sales margin by $50/t, pushing it down to the lower end of the guidance. Increasing capital expenditure due to ongoing investment lifted net debt, boosting the leverage ratio from 18.7% in Q1-end to 24.3%
The Renewable Products margin was a record $945/t, an impressive 20% jump yoy and 25% qoq, well above the guidance range. The adjusted EBITDA was strong at €830m (+44% yoy) thanks to flat results from Renewable Products and Oil Products. The market will remain volatile in Q2 and Oil Products will lend less support to the results while the Renewable Products division is looking to increase sales volumes with the start of new refineries and could benefit from declining feedstock costs.
After disappointing results in Q3 FY22, the Renewable Products segment improved thanks to lower feedstock costs, better sales optimization and a hedging policy. Given the current environment, the strong results from Oil Products continued to support the results. Against the backdrop of a doubling in net profit, Neste increased the dividend per share by 85% yoy. The Rotterdam refinery shutdown will impact Q1 FY23 sales volumes for the renewable segment and inventory build will put pressure on wor
The Renewables segment was disappointing as hedging losses combined with logistical problems in late September led to margin realizations below the company’s guidance. The comparable EBITDA was supported by the oil products segment where margins remained resilient and cash flow from operations benefited from a working capital release of €347m despite a negative inventory impact. Volatility in both the renewables and oil products segments will continue in Q4 but sales are expected to remain resil
Neste gained in the two core divisions as diesel prices impacted both renewable and oil products. This currently makes Neste less of a green play, and more of a call option on diesel prices. Expect a volatile H2, with extremely low visibility.
Strong results with Renewable Products flat qoq with an adj. EBITDA of €419m. The margin stood at $806/t (+3% qoq), above the company’s guidance ($650-725/ton), an impressive feat due to margin hedging, higher volumes (+16% qoq) and higher oil prices, partly offset by a lower LCFS credit price and higher feedstock prices. The company guides for a margin of $675-750/t in Q2, but as Neste beat its own guidance in Q1, we consider this outlook to be conservative.
Mixed results, especially with regards to the guidance. The adj. EBIT is strong and up 17% qoq, on the back of higher margins in renewables (at $779/t, +3% qoq). The dividend is increased by 3% to €0.82 per share, slightly above our estimates. Note however that Neste is guiding for a Q1 margin of between $650-725/ton. A wide range, hinting that margins will be down in FY22. For reference, FY20 averaged $703/ton and FY21 $715/ton.
The results are slightly above consensus, with the recovery in refining margins visible now that the turnaround at Porvoo is ended. The stock is down 5% at pixel time nonetheless, in a similar fashion as with the Q2 earnings, which highlights, once more, that with a high price tag comes high expectations. In our view, the market shows disappointment over the level of margins in renewables, which have been stable since Q1.
Governments play a key role in the speed of the energy transition, and higher environmental targets logically benefit Neste. This CMD was therefore useful as it updated on Neste’s estimates post Fit for 55 in Europe and Biden’s climate pledges in the US. Nothing ground-breaking but, overall, management seems confident in its ability to maintain the current level of margins, thanks to the strong growth foreseen, and despite the oil & gas sector increasing its diversification efforts.
Comparable EBIT is down 20% qoq, with Porvoo’s turnaround impacting the results. In renewables, the margin is unchanged qoq. The disappointment happened (the stock is down 8.5% at pixel time) while the turnaround was planned. Another reason is the timid outlook, which guides for a lower margin in Q4, but to remain healthy. This is a repeat of Q4 20, where the company ultimately delivered good margins. Our take is that expectations are high for the biofuel champion, leaving no room for error.
In Renewable Products, the comparable sales margin was $699/ton, an 8% decline qoq but a 2% improvement yoy, which is reassuring after the cautious tone in Q4. For the rest, net debt is up on a negative CFFO, because of a large change in working capital due to the inventory build-up before the major turnaround at Porvoo and the completion of Bunge’s refinery in Rotterdam.
While the Q4 figures remain strong and in line with the rest of the year, the outlook guides for sales margins “to be lower than the very high level of Q4 20, but to stay healthy”. Given the bullish estimates on the company, this outlook weighs on the stock. Yet, with Neste’s successful renegotiation of its term contracts and the ever-increasing environmental mandates, the company could mitigate the price increase in the feedstock.
After adopting a cautious stance in Q1, the second dividend instalment has been approved. This is despite the oil refineries reporting a negative result and shows management’s confidence in its renewables division for the remainder of the year, thanks to the hedging in place.
The renewables division has been particularly resilient in this crisis with higher volumes than expected, due to good operational performance and a turnaround in postponements. Renewables margins were down by only 10% over the quarter, partly due to sales optimisation. Lastly, management expects stable sales in the third quarter. All of this is positive for the company, and reassuring after the cautious stance taken in Q1.
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Good news for Reabold, which is set to receive £5.2m of the second tranche payment from Shell imminently for the Victory gas field it acquired last year. The final £4.4m payment is due once the development approval for the field is received from the NSTA in the coming months. These funds will allow RBD to progress its two onshore gas developments in the UK and Italy and consider further distributions to shareholders. Partner funding of these projects remains an issue, but RBD’s risk/reward profi
Companies: Reabold Resources plc
88 Energy, Falcon Oil & Gas, Trinity Exploration & Production, Plexus Holdings, Baron Oil, Harbour Energy, EnQuest, Capricorn Energy, Arrow Exploration, Southern Energy, Serinus Energy, SDX Energy, Panoro Energy, Eco (Atlantic) Oil & Gas, OKEA ASA, Equinor Source: FactSet, weekly change 27/11/23-1/12/23 Oil extended declines, closing out a sixth straight weekly drop, as the OPEC+ output cuts announced Thursday failed to dispel the market’s gloom over swelling global supplies. West Texas Intermed
Companies: BOIL POS TRIN 88E
Last week we attended a site visit to i3’s assets in central Alberta in Canada – the company’s largest producing area. We were left with a favourable impression of the magnitude of the company’s operations in the region, of the professional operational running of these, and of the overall level of opportunity in this well-established oil and gas province.
Companies: i3 Energy Plc
On 22 November, Pan African Resources (PAF) announced that operations to date in FY24 had performed in line with, or better than, expected, with gold production for H124 anticipated to be in the range 94,000–98,000oz (cf 92,307oz in H123). As a result, it increased its production guidance for FY24 to 180,000–190,000oz, which caused us to increase our production estimate in turn by 1.9% (or 3,575oz) to 189,725oz. The change made only a modest difference to our EPS forecasts for FY24 (see Exhibit
Companies: Pan African Resources PLC
Companies: HHR CLBS SND
We have been roadshowing Trident Royalties all week during which time the company released an announcement that they have entered into a commitment letter with BMO and CIBC for a new $40m revolving credit facility (RCF), with the potential to increase the facility to $60m via an accordion feature. The proceeds from the $40m are going to be used to repay the existing secured debt facility of $40m with Macquire in Q1 next year.
Companies: Trident Royalties Plc
Hartshead has secured a funding solution with partner Rockrose Energy to fund 100% of the Phase I development costs. Under the agreement, Hartshead has the option to exchange an additional 20% licence interest for an uncapped free carry, thereby covering the total cost of the Phase I development project (financing backstop). Importantly, Hartshead maintains at its election the option not to proceed with the RockRose financing solution, and introduce other financing solutions (eg project debt, pr
Companies: Hartshead Resources NL
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Southern Energy delivered solid 3Q results with the focus of attention now turned towards the completion of 4 drilled uncompleted wells (“DUCs”). We see our investment thesis for Southern Energy – premised on the scale, location, quality, deliverability, low-cost nature of the company's Gwinville gas field in Mississippi, USA – very much strengthening based on our structural commodity price outlook and our growing confidence in the highly prolific Gwinville gas field, sharpening our interest in
Companies: Southern Energy Corp.
Jersey Oil & Gas, Serica Energy, Trinity Exploration & Production, Longboat Energy, Ithaca Energy, Neptune Energy, Pantheon Resources, Nostrum Oil & Gas, Kufpec, ORLEN.
Companies: TRIN LBE JOG
The front of this note takes a look at the UK oil and gas sector, why domestic production is advantageous, what the main political parties think, and what could happen going forward. The latter part contains a review of the companies in our coverage – some that are UK centric, which give exposure to the note’s wider theme, and others that are focused elsewhere.
Companies: TLOU PTAL HTG ENW ITM BLVN RKH HBR UJO GMS JOG MATD CEG GENL AXL
DEC’s Q3/23 trading update was in line with expectations as the company continued to deliver despite further commodity price headwinds. The Q3/23 Adjusted EBITDA margin of 52% (H1/23: 52%) reflects the quality of DEC’s asset base and its ability to efficiently manage every aspect of its operations. Average net daily production in Q3/23 was 134Mboepd (H1/23: 142Mboepd), with exit rate production of 134.4Mboepd. DEC has maintained its dividend at US$0.04375 per share. Since its IPO in 2017, DEC ha
Companies: Diversified Energy Company PLC
Thor today announces the final downhole gamma results for the reverse circulation drill programme undertaken at the Wedding Bell and Radium Mountain projects in the USA. Downhole gamma readings are a commonly used proxy for physical uranium assays.
Companies: Thor Energy Plc
Companies: CPH2 TIDE MRL BRCK JNEO