PetroTal (PTAL LN/TAL CN)C; Target price £0.45 per share: Resumption of production - PetroTal has recommenced production at Bretana with current production of 11 mbbl/d. This followed multiple agreements between the Peruvian government and local communities. Although the export pipeline is not open yet, Petroperu has been carrying out maintenance activities. The government is expecting the pipeline to be re-opened in time to receive Bretana’s oil production. Meanwhile PetroTal is also selling ~1.3 mbbl/d to Iquitos. We view the resumption of production as an important step, demonstrating the support of the local communities. This is encouraging for the forthcoming re-opening of the export pipeline. We have factored in our forecasts the delays associated with the prolonged shut-in with only one development well to be drilled in 4Q20 boosting production from December. With an inventory of eight new oil wells to develop the 2P reserves, we anticipate the company to ramp-up development activities in 2021. We are currently assuming FY21 cash capex of US$40 mm (including the repayment of payables) to grow production to ~14 mbbl/d by YE21 (12.5 mbbl/d in average over 2021). Assuming production of just ~10 mbbl/d during 4Q20, this would lead to FY20 operating cash flow (before working capital movement) of ~US$30 mm (including ~US$15 mm in 4Q20), resulting in EV/DACF multiples of ~4x in 2020. On only ~12.5 mbbl/d production in 2021, we estimate EV/DACF of ~1x at US$48/bbl. Our Core NAV for the company at a Brent price of US$45/bbl (flat, no escalation) and 12.5 mbbl/d production in 2021 (declining thereafter) is £0.25 per share, representing >120% upside to the current level. At US$50/bbl for Brent, our Core NAV would be £0.35 per share (x3.5 current level).
IN OTHER NEWS
Bahamas Petroleum (BPC LN): Update in Trinidad and the Bahamas and US$12 mm placing– Drilling at the Perseverance #1 well in the Bahamas is expected to start in late 2020. The well is targeting recoverable P50 prospective oil resources of 0.77 bn bbl with an upside of 1.44 bn bbl. In Trinidad, the work programmes look to increase production from 400-450 bbl/dd to 500 bbl/d by YE20 and to 2,500 bbl/dd by YE21. In a separate statement, BPC indicated that the unrisked NPV10 of the Perseverance prospect is estimated at >US$2.5 bn at US$40/bbl. Bahamas Petroleum has also raised US$12 mm of new equity priced at 2p per share representing 30% discount to the previous close. The transaction to divest 100% WI in the Inniss-Trinity asset will not complete and BPC will retain the asset.
Echo Energy (ECHO LN): 1H20 results – 1H20 production in Argentina was ~2,150 boe/d. The company held US$1.2 mm in cash at the end of the period with a loan of US$24.2 mm.
Occidental Petroleum (OXY US): Selling Colombia onshore to Carlyle - Occidental Petroleum is selling its onshore assets in Colombia to Carlyle for US$825 mm. The Colombia assets sale includes the company’s operations and working interests in the Llanos Norte, Middle Magdalena and Putumayo Basins.
Total (FP FP): Exiting Foz do Amazonas in Brazil – Total is transferring to Petrobras its equity interest in five exploration blocks in the Foz do Amazonas Basin, located 120 kilometers offshore Brazil.
Cairn Energy (CNE LN): 1H20 results – 1H20 net oil production was 22.4 mbbl/d. The company held US$84 mm in cash at the end of June and no debt. FY20 net production guidance has been set at 21-23 mbbl/d in the upper range of the previous guidance of 19-23 mbbl/d with US$135 mm capex. The company plans to pay a US$250 mm special dividend following the divestment in Senegal. A ruling on the India tax dispute continues to be expected after the summer.
Equinor (EQNR NO): Discovery in Norway - Equinor has encountered 13-38 mmboe recoverable resources at the Swisher prospect in PL 248 C.
Lundin Energy (LUNE SS): Increasing reserves at Norway field – The gross 2P reserves at the Greater Edvard Grieg Area have been increased by ~50 mmboe) to 350 mmboe due to the continued outperformance of the field. The expected plateau production period from the Greater Edvard Grieg Area has been extended by a further year to late 2023.
Royal Dutch Shell (RDS A/B LN): 2Q20 update – 2Q20 production is expected to be 2,970-3,110 mboe/d.
Total (FP FP): Maintaining dividend distributions – Total announced that its dividend is supported at Brent price of US$40/bbl. This is in stark contrast to BP and Shell that have materially reduced distributions.
FORMER SOVIET UNION
Block Energy (BLOE LN): Update in Georgia - Block has shut-in the West Rustavi field's production at wells WR 16aZ and WR-38Z to conserve gas resources until the gas sales pipeline is complete late in 2020. The company held US$2.3 mm in cash at the end of June.
Enwell Energy (ENW LN): Ruling overturned in Ukraine – A previous ruling that had found that the Svystunivsko-Chervonolutskyi exploration licence had not been awarded regularly has been overturned in favour of Enwell by the Appellate Administrative Court.
Petroneft (PTR LN): FY19 results – FY19 gross production in Russia was 1,614 bbl/d. The company held ~64 mmbbl WI 2P reserves at YE19. At YE19, Petroneft held US$0.3 mm in cash with current debt of US$4.3 mm.
MIDDLE EAST AND NORTH AFRICA
Gulf Keystone Petroleum (EKP LN): Receives payment from the KRG – Gulf Keystone has received net payment of US$9.8 mm for Sales at Shaikan in August.
ShaMaran Petroleum (SNM CN): Receives payment from the KRG – ShaMaran has received net payment of US$6.8 mm for sales at Atrush in August.
United & Gas (UOG LN): 1H20 results – WI production in Egypt from the end of February to the end of June averaged 1,975 boe/d, increasing from 1,709 boe/d on the 1st of March to 2,716 boe/d on the 30th of June. 2H20 WI production is forecasted at 2,300 boe/d. The company held US$1.3 mm at the end of June.
Savannah Energy (SAVE LN): Update in Nigeria – Average gross production in the year-to-date period ended 31 August 2020 was 20.4 mboe/d. At the end of August, the group held US$84.7 mm in cash (including US$34.9 mm set aside for debt service) with net debt of US$426.8 mm. The company forecasts FY20 production of 21 23 mboe/d with capex of US$45 mm.
Vaalco Energy (EGY US/LN): Operating update in Gabon – 3Q20 net production is estimated at 4,370 bbl/d at the midpoint of the FY20 guidance. The company expects to have US$37 mm in cash at the end of 3Q20. A 3D seismic campaign will be run in 4Q20.
Companies: BPC CNE DNQ GKP LYV 0KAK PTR PTAL RDSA RDSB SAVE 0VH4 EGY TTA
Despite a lack of update on the Indian tax dispute (with the panel expecting to give an award after the end of the summer), the results are decent. Production averaged 22.4kboed, at the higher end of the 19-23kbpd guidance and the full-year guidance is also raised to 21-23kbpd. The sale of Senegal to Woodside has been approved by shareholders and remains subject to government approval.
Companies: Cairn Energy PLC
Cairn Energy (CNE LN): Interim results, FY 2020 production guidance narrowed to 21,000-23,000bopd | Echo Energy (ECHO LN): Initial assessment of the Monte Aymond gas project confirms commercial viability | Jersey Oil & Gas (JOG LN): Interim results, JOG continues to finalise development plan for GBA
Companies: CNE ECHO JOG
The stock was up 12% on Friday, 25/09, sparked by the positive outcome on Vodafone’s dispute with the Indian tax authorities. This is encouraging for Cairn, but note that both cases differ. While the tax authorities simply erased Vodafone’s tax bill, they owe up to $1.4bn to Cairn, and could offer more resistance.
Cairn Energy (CNE LN): Sale of Senegal interests take another step forward | Pantheon Resources (PANR LN): Talitha Production Unit extension secured | Chariot Oil & Gas (CHAR LN): Material resource upgrade, offshore Morocco
Companies: CNE PANR CHAR
PetroTal (PTAL LN)C; Target price £0.45: Pipeline allowed to restart this week, Bretana to be back on line by the end of August – There were no surprises in the 2Q20 financials. As at August 17, 2020, PetroTal had cash resources of US$13.5 mm, with accounts payable and accrued liabilities of ~ US$37 mm (a reduction of US$12 mm from the end of June). Of this amount, only US$28 mm is due in 2020. Importantly, PetroTal indicated that favourable discussions between the Government of Peru and the communities has resulted in the protestors allowing operations at the export pipeline to restart this week. The Company expects that it will be able to recommence oil production at Bretana by the end of August 2020. Our Core NAV for the company at Brent price of US$45/bbl (flat, no escalation) and 12.1 mbbl/d production in 2021 (declining thereafter) is £0.23 per share, representing ~100% upside to the current level. At US$50/bbl for Brent, our Core NAV would be £0.35 per share (x3 current level).
IN OTHER NEWS
Premier Oil (PMO LN): 1H20 results and refinancing
FORMER SOVIET UNION
Nostrum Oil & Gas (NOG LN): 1H20 results
MIDDLE EAST AND NORTH AFRICA
SDX Energy (SDX LN): 1H20 results
Cairn Energy (CNE LN): Woodside Petroleum pre-empt sales of Senegal asset
EVENTS TO WATCH NEXT WEEK
26/08/2020: Pharos Energy (PHAR LN) – 2Q20 results
27/08/2020: BW Energy (BWE NO) – 2Q20 results
27/08/2020: Panoro Energy (PEN NO) – 2Q20 results
Companies: NOG PMO CNE PTAL SDX
PetroTal (PTAL LN)C; Target price £0.45: Production at Bretana restarts – In anticipation of the re-opening of the ONP, Bretana oil production recommenced on July 15, 2020 and achieved over 12,000 bbl/d when all seven wells were online. Oil deliveries have also already commenced to the Iquitos refinery and approximately 40,000 bbl are expected be delivered during July 2020. Oil is being barged to the Saramuro Pump Station and will be delivered into the ONP immediately after it reopens , now expected in early August 2020. To manage the company’s inventory and barge storage capacity, Bretana production has been reduced to approximately 8,000 bbl/d pending the restart of the pipeline. While the share price has already increased 30% over the last three weeks, we continue to see PetroTal as a value and growth stock. The company’s value based on its 2P reserves only (2P NAV of £0.28 per share) represents 2x the current share price and our Core NAV is 3x current levels. Assuming production of ~12 mbbl/d in 2021 (i.e. the level achieved when the field was restarted) PetroTal’s share price implies EV/DACF multiples of 1.7x in 2021 and 0.2x in 2022. On a production/capex low case, we estimate that PetroTal generates aggregate Free Cash Flow over 2021-2022 equal to the company’s market cap.
IN OTHER NEWS
ExxonMobil (XOM US): Further volumes discovered in Guayana | Karoon Energy: Softening terms for acquisition of Brazilian asset | President Energy (PPC LN): Operational update in Argentina | Total (FP FP): Significant discovery in Suriname
Jadestone Energy (JSE LN): 2Q20 update | Repsol (REP SM): Compensation in Vietnam | ENI (ENI IM): Large volume confirmed in Vietnam
ADX Energy (ADX AU): Operational update in Austria and Romania | ENI (ENI IM): 2Q20 results, lower capex | EnQuest (ENQ LN): UK Acquisition | Equinor (EQNR NO): Dry hole in Norway | Hurricane Energy (HUR LN): Operational update in the UK | Lundin Energy (LUNE SS): 2Q20 results | OMV (OMV AG): 2Q20 results/dividend reduction/Volumes discovered at Hades (Norway) reduced | Royal Dutch Shell (RDSA/B LN): 2Q20 results | Total (FP FP): 2Q20 results, Dividend distributions maintained | Zenith Energy (ZEN LN): Acquisition of Italian assets terminated
FORMER SOVIET UNION
Enwell Energy (ENW LN): Negative licence update | Nostrum Oil & Gas (NOG LN): 1H20 trading update in Kazakhstan
MIDDLE EAST AND NORTH AFRICA
BP (BP LN), ENI (ENI IM), Total (FP FP): Discovery in Egypt | DNO (DNO NO): 2Q20 results | ShaMaran Petroleum (SNM CN), Gulf Keystone Petroleum (GKP LN) and Genel Energy (GENL LN): Payment in Kurdistan | Sound Energy (SOU LN)C: Raising up to £4.5 mm of new equity
Angola lowering tax | Cairn Energy (CNE LN): Divesting Senegal and returning cash to shareholders | Total (FP FP): Divesting mature assets in Gabon | Savannah Energy (SAVE LN): FY20 results and update in Nigeria | Seplat Petroleum (SEPL LN): 1H20 results | Tullow Oil (TLW LN): 1H20 update | Victoria Oil & Gas (VOG LN): 2Q20 update in Cameroon
EVENTS TO WATCH NEXT WEEK
04/08/2020: BP (BP LN) – 2Q20 results
04/08/2020: GeoPark (GPRK US) – 2Q20 results
04/08/2020: Gran Tierra Energy (GTE LN/CN) – 2Q20 results
05/08/2020: Parex Resources (PXT CN) – 2Q20 results
07/08/2020: Frontera Energy (FEC CN) – 2Q20 results
Companies: 0R1M KAR BP/ CNE NK1A ENI ENQ DNQ GENL HUR JSE LYV NOG OMV PTAL REP RDSA SAVE SEPL SOU TTA TLW VOG
Positive deal for Cairn which will pay a special dividend and look for potential acquisitions. While the intention to farm down Senegal was clear, selling the assets in such an early state is interesting for Cairn, which de-risks its portfolio substantially.
Cairn Energy (CNE LN): Resolution of Cairn India proceedings could take place this year | JKX Oil & Gas* (JKX LN): 20-year extension granted at the Zaplavska field, Ukraine | Deltic Energy (DELT LN): Deltic board receives backing from largest shareholder | Reabold Resources (RBD LN): IMIC-1 well update, well requires acidization
Companies: CNE JKX DELT RBD
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: ARC AOI CNEC CNE DGOC EGY ENOG ENQ GENL GKP 0MDP GTE HUR IOG JSE KOS LYV 0GEA 3SX ORC/B PENUSD PHAR PMO PTAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
Panoro Energy (PEN NO)C; target price: NOK20.00: Balance sheet withstanding US$25/bbl | PetroTal (PTAL LN/TAL CN)C: Temporary Shut In of Bretana Oil Field Due to COVID-19 Pipeline Closure | Cairn Energy (CNE LN): Dry hole in Mexico – The Ehecatl-1 exploration well on Block 7 did not encounter hydrocarbons | Diversified Gas and Oil (DGOC LN): 1Q20 trading update and dividend payment | Frontera Energy (FEC CN): 1Q20 update; dividend suspended; FY20 production guidance withdrawn | Maha Energy (MAHA-A SS): Low production in Brazil in April | G3 Exploration (G3E LN): Production suspended by receivers in China | Aker Bp (AKERBP NO): Reducing FY20 capex, cutting dividends | Equinor (EQNR NO): 1Q20 results | Total (FP FP): 1Q20 results, maintaining dividend | Repsol (REP SM): 1Q20 results and discoveries in Mexico | Cadogan Petroleum (CAD LN): FY19 results | DNO (DNO NO): 1Q20 results and well results in Kurdistan | Genel Energy (GENL LN): 1Q20 production update at Tawke |Tethys Oil (TETY SS): 1Q20 results | Aminex (AEX LN): Agreeing to pay CGT in Tanzania to complete farm out
Companies: PENUSD PTAL NK1A GENL AEX CAD TTA DNQ REP TETY ARC G3E 0GEA DGOC CNE
Cairn Energy (CNE LN): Disappointment offshore Mexico
Bahamas Petroleum Corporation (BPC LN): Delaying exploration activities in the Bahamas | i3 Energy (I3E LN): Canadian acquisition | Touchstone Exploration (TXP LN/CN): FY19 results | Cairn Energy (CNE LN): FY20 capex reduced but production guidance maintained | ENI (ENI IM): Capex reduction and new production guidance | Equinor (EQNR NO): Reducing spending | IGas Energy (IGAS LN): Update in the UK | Independent Oil & Gas (IOG LN): FY19 results | Lundin Petroleum (LUP SS): Reducing dividends, increased plateau at Johan Sverdrup | OMV (OMV AG): Reducing costs | Repsol (REP SM): Corporate update | RockRose Energy (RRE LN): Corporate update, maintaining dividends | Serinus Energy (SEN LN): FY19 results | Block Energy (BLOE LN): Acquiring Georgian assets from Schlumberger | Regal Petroleum (RPT LN): Acquisition in Ukraine | Gulf Keystone Petroleum (GPRK LN): Operating update in Kurdistan | Africa Oil (AOI SS/CN): Reserves update | Vaalco Energy (EGY US/LN): Operating update in Gabon
Companies: BPC I3E TXP CNE ENI DNQ IGAS IOG LYV OMV REP RRE SENUSD BLOE ENW GKP AOI EGY
Cairn Energy (CNE LN): Production and development expenditure reduced; exploration deferred | Parkmead Group (PMG LN): LNG oversupply hits cash flows | Bowleven (BLVN LN): Interim results, sufficiently funded to reach FID at Etinde
Companies: CNE PMG BLVN
Research Tree provides access to ongoing research coverage, media content and regulatory news on Cairn Energy PLC.
We currently have 257 research reports from 8
Central Asia Metals (CAML LN) following a successful ramp up at Sasa, progress in the environmental clean up and confirmation of the remedial costs in line with the previously guided US$1.5m the company has declared an interim dividend of 6p/sh. This will be paid on 11 December 2020 with a record date of 20 November 2020.
Companies: Central Asia Metals Plc
Parkmead’s portfolio has evolved to the point where it is now a full-cycle E&P company with a low-cost Dutch production base and a broad spectrum of high-quality UK growth opportunities, encompassing material development projects and an attractive range of risk/reward exploration. Recently, it has diversified into renewables, future proofing its equity story and opening up a new ‘investor-friendly’ avenue of growth. A core strength of this management team is its commercial acumen and portfolio-driven approach to optimising value. Parkmead has been in portfolio construction mode to date but is now well positioned to start crystallising its intrinsic value. We initiate with a risked-NAV based price target of 155p/sh. Investors would do well to get on-board with a management team that has a strong track record of delivering shareholder value.
Companies: Parkmead Group PLC
Edison Investment Research is terminating coverage on Diversified Gas & Oil (DGOC), Vermilion Energy (VET) and Circle Property (CRC). Please note you should no longer rely on any previous research or estimates for these companies. All forecasts should now be considered redundant.
Companies: Diversified Gas & Oil PLC
Pan African Resources (PAF) has announced that it is to acquire 100% of Mogale Gold and Mintails SA Soweto Cluster from Mintails’ liquidator for ZAR50.0m (US$3.2m). Combined, the two assets host a mineral resource of 243Mt (in tailings), containing 2.36Moz gold. As such, consideration equates to US$1.31 per oz of contained gold cf an average valuation of US$9.88/oz for London-listed pre-production gold assets (see Gold stars and black holes, published in January 2019). Closure of the deal is subject to the usual due diligence, including the evaluation the assets’ amenability to retreatment.
Companies: Pan African Resources PLC
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
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)
Oil declined for a second session as rising Covid-19 cases threatened to derail demand with tougher restrictions in major US cities on the horizon.
Futures fell 2.4% in New York on Friday, but still posted the largest weekly gain in a month as optimism from news of a potential Covid-19 vaccine breakthrough jolted markets earlier in the week. Despite the measure of hope for the long-term, US cities from the West to East coasts have imposed stricter measures to slow surging case counts, raising concerns that the virus will further crimp demand for fuel. Gasoline futures also slumped.
Before concerns over lockdowns set in, futures also got support from signs the OPEC+ alliance is inching closer to delaying a planned output increase in January. But downbeat demand forecasts from the International Energy Agency and OPEC have clouded hopes of a recovery. At the same time, governors of states along the US West Coast issued travel advisories, following measures recently imposed in New York and Chicago.
Meanwhile, crude supply in Libya is rising. The country's production rose to 1.145 million barrels a day on Friday, according to a spokesman for its state-run National Oil Corp.
West Texas Intermediate for December delivery lost 99 cents to settle at $40.13 a barrel. The contract rose 8.1% this week.
Brent for January settlement slid 75 cents to $42.78 a barrel.
Gasoline for December delivery declined 2.7% to $1.1254 a gallon.
In Europe, where motorway traffic is down by almost 50% in some countries, demand is stuttering anew. That is impacting crude, with six supertankers of unwanted North Sea oil continuing to float in the region. Meanwhile, vehicle miles travelled on US highways fell last week in another sign Americans are keeping off the roads amid the pandemic.
Companies: FOG PVR 88E DGOC EME TRIN UOG
Panoro Energy (PEN NO)c; Target price of NOK23.00: Revisiting Gabon - BW Energy provided an update on Dussafu with FY20 production guidance expectation marginally below previous guidance (14.25 mbbl/d versus 15 16 mbbl/d) due to COVID-19 restrictions and OPEC+ quotas. This results in FY20 opex expected to be US$19/bbl which is slightly above the previous guidance of US$17-18/bbl. The drilling of DTM-7H, and the tie-in of DTM-6H and -7H, has been deferred to mid-2021 with first oil expected in 3Q21 and our estimate of the timing of the field production ramp-up has been delayed by one quarter. BWE continues to expect production from the Dussafu area to reach >30 mbbl/d in 2023 and ~40 mbbl/d in 2024. The Hibiscus development is expected to offer 15% IRR at
Companies: TGL TGA 88E FEC JSE LUPE LUNE LNDNF LYV NOG GB_NTRM NSTRY 3NO PANR P3K PTHRF PTAL TETY TETY AOI ENOG PEN SDX EGY
Salt Lake Potash's AGM update reported that the Lake Way project is now 74% complete. Construction of the process plant is on-schedule with practical completion and first SOP production planned for Q1/21. Drawdown of the Senior Facility Agreement funds and repayment of the Taurus bridge loan is expected soon.
Companies: Salt Lake Potash Limited
• In an Important development, PetroTal has signed a contract with an international oil trader for a pilot shipment to export 0.12 mmbbl into the Atlantic region using the Amazon river through Brazil. The shipment will be sold FOB Bretana, priced at the forward month Brent ICE price, and paid within two weeks of loading at Bretana. There are no subsequent oil price adjustments.
• At November 19, 2020, PetroTal had cash resources of US$9.8 mm, with accounts payable and accrued liabilities of ~US$39 mm, a reduction of ~US$11 mm from the end of 2Q20. The company has been paid US$5.5 mm for delivery of 0.192 mm bbl of oil to Petroperu in October. Production is constrained to ~5,000 bbl/d pending the reopening of the export pipeline.
• We understand that the pilot should start in December. This would not only provide ~US$5 mm in cash to PetroTal but also allow production to return to recent levels (11.5 mbbl/d), effectively unlocking the fundamental value of the asset.
Balance sheet considerations
The potential financial derivative liability has been reduced from US$22.5 mm at the end of June to US$17 mm at the end of September. Of the US$39 mm current payables 46% are not due before 2021 and we note that the company still holds US$13 mm in account receivables and US$4.7 mm in inventory.
Financials on “a back to normal” scenario with flat production
We are now assuming production remains constrained at 5 mbbl/d over 4Q20 with minimum capex with cashflow and receivables being used to repay the due payables over the period.
On production of just ~11.5 mbbl/d during 2021, we estimate operating cashflow of US$85 mm at US$48/bbl Brent. This would result in free cashflow of >US$40 mm assuming capex of US$20 mm to maintain production and US$20 mm to repay the remaining payables. This compares with a current market cap of just US$75 mm, suggesting FY21 free cashflow would represent over 50% of the current market cap in a no growth scenario assuming production can be exported.
Our target price of £0.45 per share represents 6x the current share price.
Companies: PetroTal Corp.
88 Energy has raised A$10m (before expenses) at a price of A$0.006 (0.33p) to fund the ongoing evaluation of the Company's portfolio and to enable it to identify and exploit new opportunities on the Alaskan North Slope. The net proceeds will fund 88E's share of any potential costs associated with the drilling of the Harrier and Merlin prospects at Project Peregrine, scheduled to commence in Q1/21. Harrier and Merlin are on trend and south of the ConocoPhillips Harpoon and Willow discoveries, and are estimated to contain >1bn boe of gross unrisked net prospective resources. Lying at a depth of 5,000ft, both prospects can be drilled at a gross cost of cUS$15m, providing shareholders with access to a huge potential resource at a relatively low cost. Following strong industry interest, a preferred bidder has been selected, with 88 Energy looking to conclude the farm-out of Project Peregrine in the next few weeks. Following yesterday's placing, we value the Merlin and Harrier prospects at 0.5p/share (risked) in aggregate, increasing to 8.0p/share unrisked. We update our target price to 2.3p (a 597% premium to the placing 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)
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
We believe that Pantheon Resources is on the cusp of generating substantial shareholder value by progressing the appraisal and commercialisation of its world-class Alaskan oil & gas discoveries, all of which benefit from 3D seismic and well penetrations. Of its six identified targets in Alaska, Pantheon Resources has established resource estimates for three, which have a combined success-case recoverable resource potential of 720 million barrels of oil. Our current fair value estimate includes the equivalent of 147 million barrels of oil or 20.5% of the defined success-case potential resources. We see scope for future value creation from commercial and geological derisking. The board of Pantheon Resources has high-profile Alaskan pedigree, commercial acumen, substantive technical backgrounds and deep oil & gas experience, which we believe will favour successful value creation for shareholders. All-in, we see a positive multi-year trajectory of value creation for the company. We are initiating on Pantheon Resources and see fair value at 75p/sh.
Companies: Pantheon Resources plc