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Oil fell, paring a weekly gain, as investors weighed improving supply fundamentals against doubts surrounding China's economic growth. Futures in New York slid 2% Friday but notched a 13% increase for the week. Major producers continue to scale back production. US explorers laid down another 21 oil rigs, bringing the total to the lowest since 2009. Beijing abandoned its economic growth target for this year due to “great uncertainty” over the coronavirus, triggering concerns over a demand recovery. Yet, output cuts by major producers have helped shrink inventories globally at the same time that OPEC+ works to implement its pledged reductions. The alliance's programme this month is on the way to trimming 9.7 million barrels of daily crude output -- roughly 10% of global supplies and stockpiles at the storage hub at Cushing, Oklahoma, shrank by the most on record last week. Prices: West Texas Intermediate crude for July delivery dropped 67 cents to settle at $33.25 a barrel. Brent for July settlement fell 93 cents to end the session at $35.13 a barrel on the ICE Futures Europe exchange. Gasoline futures fell 0.7% to $1.0382 a gallon. China's oil demand earlier this month was probably at 92% of levels at the same time last year, IHS Markit said, and full-year consumption is likely to be around 8% lower than in 2019.
Companies: FOG PVR 88E DGOC EME TRIN UOG
Operational update
Companies: Hurricane Energy
Anglo Asian Mining is an AIM listed precious and base metals producer running flagship Gedabek operations in western Azerbaijan which include three producing mines and processing facilities. The Company targets 75-80koz GEOs in 2020 with low cost operations providing capital for organic growth opportunities within the highly prospective +1,000km2 land package, with the potential for additional attractive targets outside Azerbaijan as well as 25% of FCF dividend programme.
Companies: Anglo Asian Mining
Savannah Energy is an AIM-listed E&P company with two sets of assets: (i) in-production gas and oil fields and a regional monopoly gas distributon network in South East Nigeria (well away from the risky Delta area); and (ii) licenses over 50% of a prolific oil basin in Niger.
Companies: Savannah Energy
Falcon is uniquely placed in the current challenging commodity price environment with its strong cash position (US$11.5m at 31 March 2020), fully funded drilling programme and high quality assets. Following the farm down of a 7.5% participating interest to partner Origin Energy in return for an A$150.5m increase in the gross cap carry, we believe Falcon is fully funded through one of the greatest periods of uncertainty the oil and gas industry has ever faced. At a time when many in the industry fight for their very survival, we believe Falcon has managed to secure a fantastic deal for shareholders, which should see the Company through to the potential monetisation of its 22.5% participating interest. We maintain our price target at 40p, a 426% premium to the current share price and reiterate our BUY recommendation.
Companies: Falcon Oil & Gas
Sylvania's share price has fallen 53% since its peaked on the 21st Feb, as the global economy hit the brakes. The short term demand outlook for PGMs is miserable, with supply chains breaking down as both luxury goods and car sales sales collapse.
Companies: Sylvania Platinum
In this note, we analyze the indebtedness of 35 international E&Ps publicly listed in the UK, Canada, Norway, Sweden and the USA. For each company, we look at (1) cash position, (2) level and nature of debt (including covenants), (3) debt service and principal repayment framework and (4) Brent price required from April to YE20 to meet all the obligations and keep cash positions intact. We also estimate YE20 cash if Brent were to average US$20/bbl from April to YE20. While the oil demand and oil price collapse are of unprecedented historical proportions and the opportunities to cut costs much more limited than in 2014, most companies (with a few exceptions) entered the crisis in much better position than six years ago, with stronger balance sheets and often already extended debt maturities. In addition, this time around, many E&Ps have already been deleveraging for 1-2 years and are not caught in the middle of large developments that cannot be halted. The previous crisis also showed that debt providers could relax debt covenants for a certain period as long as interest and principal repayment obligations were met. This implies that as long as operations are not interrupted and counterparties keep paying their bills (Kurdistan), the storm can be weathered by most for a few quarters. With (1) Brent price of about US$50/bbl in 1Q20, (2) reduced capex programmes, (3) material hedging programmes covering a large proportion of FY20 production at higher prices and (4) limited principal repayments in 2020, we find that most companies can meet all their costs and obligations in 2020 at Brent prices below US$40/bbl and often below US$35/bbl) from April until YE20 and keep their cash intact, allowing them to remain solvent at much lower prices for some time. In particular, Maha Energy and SDX Energy are cash neutral at about US$20/bbl. When factoring the divestment of Uganda, Tullow needs only US$9/bbl to maintain its YE20 cash equal to YE19. Canacol Energy, Diversified Gas and Oil, Independent Oil & Gas, Orca Exploration, Serica Energy and Wentworth Resources are gas stories not really exposed to oil prices and Africa Oil has hedged 95% of its FY20 production at over US$65/bbl.
Companies: AKERBP AOI CNE CNE DGOC EGY ENOG ENQ GENL GKP GPRK GTE HUR IOG JSE KOS LUPE MAHAA OKEA ORC.B PEN PHAR PMO PTAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
Gold – Robust pricing, improved returns and increased interest The robust gold price, currently sitting comfortably above $1,700/oz, has been one of the bright spots of the current COVID crisis, although the roots of the price increase were seen well before from mid-2019 on geopolitical and trade concerns. Gold mining companies have been reaping the rewards of the higher price with forecast profits and cash expected to grow significantly. The increase in gold price has been reflected by share price appreciation for most of the gold-mining sector; gold miners, those companies developing gold projects and even gold explorers have all seen an uptick in share prices. Those companies in production should see considerably higher profits and we expect the level of dividends back to shareholders to rise. The rate of M&A in the sector might also increase, as in previous high price periods, with some companies assuming that these prices can be sustained – however, they will have to be careful as a rash of M&A in previous cycles has shown that there may be a price to pay later on and the industry can ill afford a return to eye-wateringly large write-downs on the other side of this cycle. Gold miners will also have to behave prudently as there will, of course, be a temptation for higher throughput and production, regardless of grade, to generate more cash – a decreasing profit margin perhaps, but a lengthening mine life; as in everything there is a balance to be made to ensure sensible returns. We are most heartened by a renewed interest in the previously (seemingly) ignored junior explorers which we think is a theme that will develop and continue.
Companies: AURA CMCL CNG GDP JLP ORR
An independent resource audit by Gaffney, Cline & Associates (GCA) has significantly increased the resources at the Mako gas field following the JV's highly successful drilling campaign in Q4/19. GCA have increased the 2C gross recoverable dry gas volumes when compared to its previous resource assessment (in January 2019) by 79% to 495Bcf, slightly ahead of the internal 493Bcf assessment. In the upside case, the 3C resources have increased by 108% to 817Bcf, significantly higher than the 3C internal resource estimate of 666Bcf. Following the GCA resource upgrade, the Mako field has been proven to be one of the largest gas fields ever discovered in the West Natuna Basin and is believed to be the largest undeveloped resource in the region. Located close to existing infrastructure and well established markets, we believe Mako is an attractive proposition, which we currently value at US$18.3m or 3.2p using a US$6/mcf long term gas price.
Companies: Empyrean Energy
April 2020 production payment
Companies: Gulf Keystone Petroleum
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.
Companies: Petropavlovsk
An independent resource audit by Gaffney, Cline & Associates (GCA) has significantly increased the resources at the Mako gas field following the JV's highly successful drilling campaign in Q4/19. GCA have increased the 2C gross recoverable dry gas volumes when compared to its previous resource assessment (in January 2019) by 79% to 495Bcf, slightly ahead of the internal 493Bcf assessment. In the upside case, the 3C resources have increased by 108% to 817Bcf, significantly higher than the 3C internal resource estimate of 666Bcf. Following the GCA resource upgrade, the Mako field has been proven to be one of the largest gas fields ever discovered in the West Natuna Basin and is believed to be the largest undeveloped resource in the region. Located close to existing infrastructure and well established markets, we believe Mako is an attractive proposition, which we conservatively value at US$18.3m (risked) or 3.2p using a US$6/mcf long term gas price, unrisked our valuation of Mako increases to US$25.2m or 4.3p per share. We value Empyrean as a whole at 19.0p per share a 280% premium to the share price and reiterate our BUY recommendation. Valuation – We have updated our Mako model, with gas first in 2023 (previously 2022). Using a long term gas price of US$6/mcf, and a 10% discount factor we value the 42.1Bcf of net 2C resources at US$18.3m (risked) or 3.2p per share. We include a 30% risking to account for any potential commercial risks (including political and fiscal changes), cost risks (associated with potential development cost variations) and timing risks (to allow for any project delays). Unrisked our valuation increases to US$24.7m or 4.3p per share. A key sensitivity to our valuation is the gas price, at US$8/mcf our valuation of Mako increases to US$31.0m or 5.3p per share (risked), US$44.3m or 7.6p per share (unrisked) and at US$10/mcf our valuation increases to US$40.8m or 7.0p per share (risked), US$58.4m or 10p per share (unrisked). Combined, we value Empyrean's portfolio at 19p per share, a 280% premium to the share price.
Condor Gold is developing the La India gold mine in Nicaragua within a large, relatively underexplored, licence area with a history of previous gold production dating from the 1930s to the mid-1980s. Initial expectations are for the production of around 100,000oz gold per year from open-pit mining of the main La India vein system and nearby high-grade satellite mineralisation. Production at this level would place Condor Gold among the five largest gold producers on London’s AIM Market. The first phase of open-pit mining is expected to evolve to underground operations later in the mine’s life and significant additional exploration targets offer scope for the discovery of completely intact vertical epithermal mineralised systems on the down-thrown side of faults ling to the south of the current proposed mining area at La India.
Companies: Condor Gold
Tawke update
Companies: Genel Energy
Another impressive year for Iofina, which has reporting a second consecutive year of record iodine production and EBITDA. It also launched its new CDB extraction division, reduced debt through a successful fundraise and delivered the next phase of expansion in its core iodine business with the start-up of IO#8 on time and within budget. Weak oil prices have affected brine water supplies to this plant, causing it to be idled. However, management is optimistic IO#8 will restart in H2 as oil prices recover. We are reinstating estimates that assume a gradual restart from August, and have set a new DCF-based price target of 32p/sh, down from 35p previously.
Companies: Iofina
