GeoPark (GPRK US)C; Target price of US$20.00: Divesting non-core asset in Brazil - GeoPark is selling its 10% non-operated working interest in the Manati gas field in Brazil to Gas Bridge for US$27 mm. We do not see much upside to the Brazilian asset (in terms of growing reserves or through exploration opportunities) and this divestment may allow GeoPark to reallocate resources to its core operations. We would rather see management remaining focused on deploying capital on higher return assets such as Colombia and Ecuador. Even after this week’s share price appreciation, our Core NAV continues to be 60% above the current share price. Our unrisked NAV for the 2021 drilling programme is ~US$9.00 per share, which represents ~90% of the current share price.
Panoro Energy (PEN NO)c; Target price of NOK23.00: 2021 will be a transformational year - 2020 has been a difficult year for the oil and gas industry and 2021 is a turning point for Panoro. In Gabon, development activities at Ruche are expected to return to normal with gross production set to grow to 20 mbbl/d. The company will also appraise Hibiscus to test the 155 mmbbl upside case (=2x existing 2P reserves). The development of Hibiscus is expected to be sanctioned. Importantly, while the existing FPSO has a nominal oil processing capacity of 45-45 mbbl/d, processing expansion is possible which allows for a potential oil production plateau of 70 mbbl/d. We estimate the value of Panoro’s reserves in Dussafu at NOK10.40 per share. Derisking the contingent resources in Gabon could add ~NOK3 per share. We estimate that the upside at Hibiscus has a further unrisked NAV of ~NOK10 per share for a total unrisked NAV of NOK23 per share for the discovered and “to be appraised” volumes in Gabon. Overall, including Nigeria, South Africa and Tunisia, we estimate the unrisked value of the 2021 activities at NOK30 per share; which represents 2.3x the share price. Our target price of NOK23 per share has been set close to our ReNAV.
Pharos Energy (PHAR LN)c; Target price of £0.35: Low cost. Quickly scalable. High impact, quality exploration – Pharos is a £ mm market cap, ~12 mboe/d oil producer that acquired the Egyptian assets of Merlon in 2019. Under the stewardship of a blue-chip management team that turned Cairn Energy from a micro-cap into a successful E&P that returned US$4.5 bn to shareholders, Pharos has undergone a multi-faceted transformation, enhancing governance and rebalancing its asset portfolio. Given the recent macro challenges, this process appears to have gone unnoticed by many investors. Pharos now holds ~50 mmboe 2P reserves in Egypt and Vietnam. Vietnam provides stable cash flows even at low oil prices. Egypt production can be increased rapidly (up to x2.5 to 13 mbbl/d) with additional investment. Pharos also holds world class exploration assets in Israel, Egypt and Vietnam. With a healthy balance sheet (cash: ~US$38 mm, net debt:~US$36 mm), Pharos’ shares trade at EV/DACF multiples of 5,000 bbl/d, increasing production from the Shaikan field by~15%. FY20 gross production is expected to be at the upper end of the 35,000 – 36,000 bbl/d production guidance, with the field currently producing at ~39,000 bbl/d.
LEKOIL (LEK LN): Requisition from large shareholder to change the board of the company - LEKOIL has received a letter from Metallon, holding 15.4% of the company, requisitioning an extraordinary general meeting to vote on the replacement of the Chairman and the appointment of Michael Ajukwu, Thomas Richardson and George Maxwell as directors of the company.
Orca Exploration (ORC.A/B CN): 3Q20 results - 3Q20 WI production in Tanzania was 60.9 mmcf/d. At the end of September, Orca held US$79.2 mmm in working capital including US$98.5 mm in cash and long-term debt
of US$54.2 mm.
Tullow Oil (TLW LN): Capital Market Day – 2020 production to date averages 75 mbbl/d with FY20 production guidance of 73-77 mbbl/d. Assuming an oil price of US$45/bbl in 2021 and US$55/bbl flat nominal from 2022 onwards, Tullow expects to generate US$7 bn of operating cashflow over the next 10 years with capex of US$2.7 bn. The first phase of investment will start in 2Q21 with the commencement of a multi-well drilling programme in Ghana. In Suriname, the prospective Goliathberg-Voltzberg North-1 well will spud in 1Q21.
Victoria Oil & Gas (VOG LN): Positive licence update in Cameroon – The duration of the onshore Matanda licence has been extended by one year to December 2021. The gross unrisked prospective resources are now estimated at 1,196 bcf, up from 903 bcf previously. 19 gas prospects haven identified in shallower Tertiary-aged reservoirs, plus 7 prospects in deeper, Cretaceous-aged prospects. The Company believes the largest of these prospects has mean unrisked Prospective Resources of >65 bcf, with geological Chance of Success estimated at >40%.
Companies: VOG BPC ENQ GPRK JOG JYOGF TPC1 7M7 0GEA MAHAA PEN PHAR RBD REP SENX TLW
Wentworth Resources (WEN LN)C; Target price £0.40: 20% dividend increase is a testament to Wentworth’s strength – Without much surprise, given the slow pick-up in gas demand in the aftermath of COVID-19, FY20 production guidance has been marginally reduced from 65-75 mmc/f to 60-70 mmcf/d. Production has already increased to ~68 mmcf/d over July and August, including ~72 mmcf/d for August. Importantly, with US$16.7 mm in cash at the beginning of September and no debt, the company is increasing its interim dividend by 20% to US$1.2 mm with an overall expected total dividend distribution of ~US$3.6 mm (1.43p per share) for FY2020. The resulting ~9% dividend yield is one of the highest offered by the very small number of UK listed E&Ps that are still paying a dividend. Importantly Wentworth is able to pay this distribution while maintaining a healthy cash balance and even though gas sales are relatively low (60 70 mmcf/d gross). With TPDC now settling its invoices and gas realizations being effectively fixed, this level of distribution looks to be sustainable. We also note that the progressive recovery of gas demand and the near-term extension of the Kinyerezi-1 power station with 20 30 mmcf/d additional gross demand imply an increase in sales, revenue and cashflow. Wentworth’s Mnazi Bay field can already deliver 100 mmcf/d production without any additional capex.
IN OTHER NEWS
Maha Energy (MAHA-A SS): Production in August in Brazil – Average production in August was ~3,568 boe/d. A 3 day planned shutdown of the Tie Production Facilities affected production of oil and gas from the Tie field. The Tie field also suffered a string of electrical power failures and shortages during the month. Well testing and flow-back work on the GTE-4 short string (Agua Grande) necessitated the long string (Sergi) to be temporarily closed in.
President Energy (PPC LN): Well test results in Argentina – Following workover activities, well EV-x1 on the Estancia Vieja Field flowed 6.3 mmcf/d on test.
Jadestone Energy: New offtake agreements in Australia – Jadestone has developed a new operating strategy for the Stag field, utilising offtake tankers to directly offload Stag crude oil, in place of the existing long term leased FSO. This new operating model has significant environmental risk mitigants over the existing model, by eliminating the need for ship to ship oil transfers in field. These arrangements are expected to realise annual savings of approximately 20% over the current FSO operation.
EnQuest (ENQ LN): 1H20 results – 1H20 production was 66,055 boe/d. FY20 production is expected to be towards the upper part of the guidance range of 57,000-63,000 boe/d with FY20 capex of ~US$120 mm (unchanged). 1H20 gross production at Kraken was 38,967 bbl/d. Net debt at the end of June was US$1.35 bn, down from US$1.41 bn at YE19.
Ithaca Energy: Merging with third party ahead of a listing? – Media reports indicated that Delek, the owner of Ithaca Energy, is in discussions with a third party about a potential merger of its North Sea operations.
Results of UK 32nd Licensing Round - Premier Oil (PMO LN) was awarded a 50% interest in blocks 42/28e and 42/29b in the licence directly to the east of Tolmount and a 50% stake in blocks 42/27, 47/2b and 47/3g in the licence immediately to the west of Tolmount. Premier, Cairn Energy, MOL and Dyas, were also awarded block 28/9f adjacent to the Catcher Area fields. Block 28/9f contains the Cougar and Rapide prospects. Independent Oil & Gas (IOG LN) was awarded a 50% interest in a licence covering blocks 49/21e and 49/22b. Block 49/21e contains the Viper gas discovery (45 bcfe) and is located 5 km from Elland. Block 49/22b contains the Sinope South gas discovery (35 bcfe). Independent was also offered 100% WI in blocks 48/23d and 48/24c, between the Blythe and Harvey licences, containing the Allerdale, Driftwood and Bradfield prospects and a possible northwest extension of the Redwell field. Jersey Oil & Gas (JOG LN) has been awarded a 100% interest in part-block 20/5e. Part-block 20/5e is located within the Greater Buchan Area development acreage and contains an extension of the J2 oil discovery. Deltic Energy (DELT LN) has been awarded interests in blocks 41/05b (part) & 42/01b (part) (joint with Shell), 43/11 & 43/12b (part), 42/13b (part), 42/17, 42/18, 42/19, 42/20b and 42/22, 42/23 in the Southern North Sea and interests in block 22/17a (part) in the Central North Sea. Corallian Energy, in which Reabold Resources (RBD LN) holds a 34.9% interest, has been offered a 100% interest in the Victory gas discovery in block 207/1a, the Laxford gas discovery and Scourie prospects in blocks 214/29c and 214/30c, and the Oulton oil discovery in block 3/11a. Union Oil & Gas (UOG LN) has been offered a 100% interest in blocks 15/18e and 15/19c. Serica Energy (SQZ LN) has been offered a 100% interest in blocks 3/25b, 3/30, 4/26 and 9/5a. These blocks are in the vicinity of the Bruce area.
RockRose Energy (RRE LN): Acquisition by Viaro Energy completed – The transaction to acquire RockRose has now completed. The shares have ceased trading on the London stock exchange.
MIDDLE EAST AND NORTH AFRICA
Genel Energy (GENL LN): Receives payment from Kurdistan – Genel received a net payment for oil sales during July 2020 of US$11.3 mm.
Gulf Keystone Petroleum (GKP LN): 1H20 results – The Shaikan reservoir continues to perform in line with the company’s expectations, with current gross production of ~36,000 bbl/d and average 2020 gross production to 1 September 2020 of 36,272 bbl/d. Gulf Keystone has also received a net payment of US$7.8 mm for Shaikan crude oil sales during July 2020. FY20 production guidance for the Shaikan field (gross) has been set at 35-36 mbbl/d with net capex of US$40-48 mm (US$38.5 mm spent in 1H20). The company has identified a number of quick payback projects, which are expected to increase gross production by ~5,000 bbl/d for an aggregate gross cost of ~US$3 mm. Gulf Keystone held US$140 mm in cash on the 2 September.
Africa Oil (AOI/SS CN): Received dividend from Nigeria – Africa Oil has received a net payment of US$25 mm related to its 50% interest in Prime. The Company has applied US$17.7 mm of this dividend to pay down the BTG term loan, reducing the outstanding balance to US$176.9 mm. The company has received total dividends of US$137.5 mm since the closing of the Prime acquisition on 14 January 2020.
San Leon Energy (SLE LN): Investment in new Nigerian asset – San Leon is making a US$7.5 mm loan to Decklar Petroleum. Decklar is the holder of a Risk Service Agreement (RSA) with Millenium Oil and Gas Company on the Oza field in Nigeria. Until the loan and its interest are repaid, 100% of the available funds that can be distributed from Decklar’s RSA proceeds will be paid to San Leon. San Leon will also subscribe for a 15% equity interest in Decklar. The Oza Oil Field was formerly operated by Shell. The field was never tied into an export facility. The field has three wells and one side track drilled by Shell between 1959 and 1974.
EVENTS TO WATCH NEXT WEEK
09/09/2020: Tullow Oil (TLW LN) – 1H20 results
10/09/2020: Serica Energy (SQZ LN) – 1H20 results
10/09/2020: Jadestone Energy (JSE LN) – 1H20 results
11/09/2020: Hurricane Energy (HUR LN) – 1H20 results
07/09-11/09/2020: PetroTal (PTAL LN) – Potential operating update?
Companies: ENQ GKP JSE RBD WRL 0GEA PMO AOI GENL
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
88 Energy (88E LN/AU): Update in Alaska | Echo Energy (ECHO LN): Operation update in Argentina | Subsidies to the oil industry in Argentina | Energean Oil & Gas (ENOG LN): Neptune Energy not acquiring Edison UK and Norway | EnQuest (ENQ LN): 1Q20 update | Equinor (EQNR NO): Dry hole in Norway | Hurricane Energy (HUR LN): Problem with a well at Lancaster in the UK, FY20 production will be “substantially” lower than expected | Lundin Energy (LUP SS): Reduced FY20 production on guidance of Norwegian government curtailment |SDX Energy (SDX LN): 1Q20 results | Total (FP FP): Not buying Ghana from Occidental Petroleum
Companies: 88E AOI ECHO ENOG ENQ DNQ HUR LYV SDX TLW
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
Ascent Resources (AST LN): Entering Cuba | Diversified Gas and Oil (DGOC LN): Acquisition in the US | Phoenix Global Resources (PGR LN): Production shutdown and licence termination in Argentina | Premier Oil (PMO LN): Exiting Area A in Alaska following drilling results | Coro Energy (CORO LN) and Empyrean Energy (EME LN): Resources increase in Indonesia | Falcon Oil & Gas (FOG LN/FO CN): Farm out transaction in Australia | Oil Search (OSH AU): US$700 mm equity raise| Discovery in Norway | Baron Oil (BOIL LN)/Upland Resources (UPL LN): Relinquish UK licence | EnQuest (ENQ LN): FY19 results | IGas Energy (IGAS LN): FY results | Ithaca Energy (Delek): Cutting capex for the North Sea | OMV (OMV AG): 1Q20 trading update | Repsol (REP SM): 1Q20 update | Valeura Energy (VLE CN/VLU LN): Constrained gas sales in Turkey | Block Energy (BLOE LN): Shutting production in Georgia | Regal Petroleum (RPT LN): FY19 results | Chariot Oil & Gas (CHAR LN): Corporate update | Energean Oil & Gas (ENOG LN): Resources increase in Israel | SDX Energy (SDX LN): FY19 results and discovery in Egypt | Tethys Oil (TETY SS): Reduction of extraordinary dividend, capex reduction, FY20 production guidance
maintained | Africa Oil (AOI SS/CN): Tax update in Kenya | Giant gas development projects delayed | Kosmos Energy (KOS LN/US): Cost reduction and RBL redetermination | Vaalco Energy (EGY US/LN): Production update in Gabon
Companies: 88E AOI BLOE BOIL CHAR CORO DGOC EGY EME ENOG ENQ IGAS KOS OSH OMV PGR PMO REP ENW SDX TETY UPL VLU
GeoPark (GPRK US)C ; Target price: US$20: Constructed to handle US$25-30/bbl | Panoro Energy (PEN NO)C : Corporate update | Bahamas Petroleum Corporation (BPC LN): More money for Bahamas exploration | Echo Energy (ECHO LN): Cost cutting required to withstand low commodity prices | Jadestone Energy (JSE LN/CN): Vietnam first gas delayed from “not before 4Q21” to “no earlier than late 2022”. | Aker BP (AKERBP NO): Reducing capex, GY20 guidance maintained | EnQuest (ENQ LN): Reducing capex; Heather and Thistle/Deveron fields not restarting | Hurricane Energy (HUR LN): FY19 results | i3 Energy (I3E LN): Deal with contractor to drill wells at Serenity in the UK North Sea | Lundin Petroleum (LUP SS): Discovery in Norway | OKEA (OKEA NO): Suspend new project sanction | Majors cut cost and suspend buy back programmes | Total (FP FP): Discovery in the UK North Sea | Caspian Sunrise (CASP LN): Suspending drilling in Kazakhstan | Condor Petroleum (CPI CN): Update in Kazakhstan and Uzbekistan | DNO ASA (DNO NO): Reducing capex, cancelling dividend | Genel Energy (GENL LN): Reserves downgrade at Tawke in Kurdistan; restrained activities but dividend maintained | Energean Oil & Gas (ENOG LN): FY19 results | SDX Energy (SDX LN): Drilling update in Morocco | ExxonMobil (XOM US): Exiting Chad? | Kosmos Energy (KOS LN/US): Cutting capex budget and suspending dividend | Seplat Petroleum (SEPL LN): FY19 results
Companies: 0MDP PENUSD BPC ECHO JSE ARC ENQ HUR I3E LYV 3SX CASP NK1A GENL ENOG SDX 0R1M KOS SEPL
Genel Energy (GENL LN): Strong FY19 results, dividend maintained | EnQuest (ENQ LN): Highly leveraged and under-hedged | SDX Energy (SDX LN): Encouraging well result in Morocco | 88 Energy (88E LN): Production hole at Charlie-1 commences | Jadestone Energy (JSE LN): FDP delay allows redirection of capital | Hurricane Energy (HUR LN): Impressive FY19 results
Companies: GENL ENQ SDX 88E JSE HUR
Oil posted the biggest weekly plunge since 2008, capping its most dramatic week in recent memory as major producers prepare to drench the market with supply just as the coronavirus crushes demand. But prices jumped following the close, after President Donald Trump said the U.S. would fill the nation's strategic reserve. Losses for the week totalled 23% after the collapse of talks between members of the OPEC+ group triggered the biggest crash in a generation. Instead of reaching a deal to cut output to mitigate the fallout from the virus, producers led by Saudi Arabia and Russia embarked on a war for market share and pledged to pump more.
Companies: TGL TXP VLU EGY GTE CNE DGOC ENQ SQZ UKOG TRIN TLW PHAR
EnQuest (ENQ LN); BUY, £0.35: PSC award in Malaysia | Maha Energy (MAHA.A SS) (not covered): Production update
Companies: EnQuest PLC
nQuest (ENQ LN) – EnQuest awarded Block PM409 PSC offshore Malaysia | Great Eastern Energy Corporation* (GEEC LN): SP Angel site visit to India | Volga Gas* (VGAS LN): November production increases 50%
Companies: ENQ GEEC VGAS
EnQuest (ENQ LN); BUY, £0.35: Operating update
Production from January to October 2019 was 68.5 mboe/d (=1H19 production). FY19 production guidance is being reiterated at 63-70 mboe/d. Net debt at the end of October was US$1,561 mm down from US$1,638 mm at the end of June. EnQuest anticipates net debt to drop further to US$1.5 bn at YE19. Gross production at Kraken has averaged 34.3 mbbl/d with 90% production efficiency in the last few months.
EnQuest (ENQ LN): 26% increase in production | Echo Energy (ECHO LN) – CLM x-1: Commencement of Drilling
Companies: EnQuest PLC (ENQ:LON)Echo Energy PLC (ECHO:LON)
Aker BP (AKERBP NO) (not covered): Dry hole in Norway | EnQuest (ENQ LN); BUY, £0.35: Strong 1H19 results | Equinor (EQNR NO) (not covered): Buy back programme | Valeura Energy (VLE LN/VLE CN); BUY, £6.00: Second well test results at Turkish well
Research Tree provides access to ongoing research coverage, media content and regulatory news on EnQuest PLC.
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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
• 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.
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)
Pantheon announced that is has contracted a rig to drill the Talitha well and that drilling operations are expected to commence in January 2021. The well will target four independent reservoirs, in three separate trapping sequences, which the company estimates has the potential to contain in the region of a billion barrels of recoverable oil, although ongoing work is required to formally delineate the full potential of the targets.
Companies: Pantheon Resources 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
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
Oil rose to the highest in nearly three months with positive Covid-19 vaccine developments paving the way for a more sustained recovery in oil demand.
Futures rose 5% in New York this week for a third straight weekly gain as Pfizer Inc and BioNTech SE requested emergency authorisation of their Covid vaccine Friday. Moderna Inc also released positive interim results from a final-stage trial and said it is close to seeking emergency authorisation. Still, further gains were limited by broader market declines amid a dispute between the White House and the Federal Reserve over emergency lending programmes.
Even with vaccines on the horizon, a recovery in oil demand faces obstacles with governments under pressure to tighten restrictions and curb the spread of the virus. UK Prime Minister, Boris Johnson's officials are considering tougher pandemic rules placed on broader regions of England next month after a national lockdown is set to end and the country returns to its tiered system. Meanwhile, the shift toward working from home may have a lasting chill on gasoline demand, according to Federal Reserve Bank of Kansas City President Esther George.
The recent climb in headline prices has been accompanied by significant moves in timespreads, where traders bet on the price of oil in different months. The spread between West Texas Intermediate for December 2021 delivery and the following month moved to backwardation, while the closely watched gap between December 2021 and 2022 WTI contracts is close to also flipping.
West Texas Intermediate for December delivery, which expired Friday, rose 41 cents to settle at $42.15 a barrel.
The January contract rose 52 cents to end the session at $42.42 a barrel.
Brent for January settlement gained 76 cents to $44.96 a barrel. The contract rose 5.1% this week.
Pfizer and BioNTech's vaccine could be the first to be cleared for use, but first it must undergo a thorough vetting. The filing could enable its use by the middle to the end of December, the companies said in a statement. Yet, it could take at least three weeks for a US Food and Drug Administration decision.
Companies: FOG PVR 88E DGOC EME TRIN UOG
Jersey Oil & Gas announced today that is has entered into an agreement to acquire the entire share capital of CIECO V&C (UK) Limited, which is currently owned by two international entities headquartered in Japan. The acquisition secures an additional 12% working interest in Licence P2170 (Blocks 20/5b & 21/1d), which provides Jersey Oil & Gas with 100% of the licence. The licence contains the majority of the Verbier oil discovery in addition to three drill ready prospects: Verbier Deep, Wengen and Cortina. The acquired entity has approximately £15M of tax losses which will provide value to Jersey Oil & Gas. Consideration will consist of £150k in cash and contingent payments of i) £1.5M upon field development plan approval of Verbier within P2170 (as already discovered) by the OGA ii) £1.0M upon the 1st anniversary of attainment of first oil. The acquisition is conditional on OGA approval amongst other technicalities, which we do not anticipate will be problematic. The acquired entity will be free of debts.
Companies: Jersey Oil & Gas PLC
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
Acquisition of CIECO P2170 interest
Companies: JOG JYOGF TPC1
Low cost. Quickly scalable. High impact, quality exploration
Pharos is a £55 mm market cap ~12 mboe/d oil producer that acquired the Egyptian assets of Merlon in 2019. Under the stewardship of a blue-chip management team that turned Cairn Energy from a micro cap into a successful E&P that returned US$4.5 bn to shareholders, Pharos has undergone a multi-faceted transformation, enhancing governance and rebalancing its asset portfolio. Given the recent macro challenges, this process appears to have gone unnoticed by many investors. Pharos now holds ~50 mmboe 2P reserves in Egypt and Vietnam. Vietnam provides stable cash flows even at low oil prices. Egypt production can be increased rapidly (up to x2.5 to 13 mbbl/d) with additional investment. Pharos also holds world class exploration assets in Israel, Egypt and Vietnam.
Cash engine in Vietnam
Pharos produces ~6 mboe/d from two offshore assets with ~21 mmboe 2P reserves and 13 mmboe 2C resources (WI). The key asset is the TGT field (29.7% WI) with 24 mmboe 2P reserves plus 2C resources implying just 25% recovery factor. At US$22/bbl for Brent, production can be maintained flat. At US$40/bbl, the assets generate Free Cash Flow of US$20-25 mm per year. 6 new wells will be drilled from 4Q21 to grow production to 8 mboe/d. Obtaining approval to drill 9 more wells would add 9 mmboe WI 2P.
Scalable growth in Egypt
Pharos produces ~5.5 mbbl/d from the El Fayum licence (Western Desert) with 29 mmbbl 2P and 23 mmbbl 2C. A 3D campaign and >120 wells have improved the understanding of the geology where production growth is driven by waterflood and drilling. The pace of growth is proportional to the number of rigs directly reflecting the available funding. Without further investment, the assets break even at current oil prices but production declines fast. Four rigs and early investment maximizes value but requires additional funding or a partner.
High quality exploration
At El Fayum, there are 108 mmbbl prospective resources across the shallow horizons and the deeper Pre-Khatira play. North Beni Suef is also a promising licence. Israel is about chasing giant structures (Zhor/Tamar plays). In Vietnam, Pharos holds interests in the Phu Khanh frontier basin.
With a healthy balance sheet (cash: ~US$38 mm, net debt:~US$36 mm), Pharos’ shares trade at EV/DACF multiples of
Companies: Pharos Energy PLC
Trifast has reported FY21 interim results that highlight the tough operating conditions with material falls in revenue, and operating leverage driving sharp reductions in profitability. The c.£16m equity raise helped to cushion the financial impact and the ongoing recovery exiting the first half provides some optimism for the Group heading in to FY22. We reinstate our buy recommendation.
Companies: Trifast plc (TRI:LON)Trifast plc (25D:BER)
Today's news & views, plus announcements from KGF, MRO, UU, BAB, BRW, FUTR, GNS, HICL, LIO, AEXG, FUL, KWS
Companies: AEX GNS HICL
While a three-year plan would have been more than enough, the new CEO delivered a roadmap for the next ten years. The idea is to show how Tullow’s existing assets can generate sufficient cash for the next decade. Discipline is key, with deleveraging as top priority. Spending is on a tight budget ($2.7bn for the next ten years) with 90% of it going to develop the West African assets. The quest to regain investors’ trust continues.
Companies: Tullow Oil plc
Shanta Gold (AIM: SHG) has announced this morning its production and operational results for the quarter ended 30th September 2020 – see Fig 1. Overall this was a robust performance (from one of the most consistent operators in the sector) in the face of the pandemic and a very busy quarter for the company at corporate level. QoQ production fell to 19,973 oz and AISC rose to $883/oz – both caused by a temporary drop in grade – but the ongoing strength in the gold price resulted in a 16% and 46% increase in EBITDA QoQ and YTD respectively. There was an increase in net debt to $5.1m which can be explained by the $7.1m cash outlay for the West Kenya projects as well as the reduction in the hedge book (they also have $5.9m of gold dore in the gold room). The company remains on track to hit its full year guidance of 80-85koz of production at an AISC of $830-880/oz which would make it the third year in a row they have hit their unaltered guidance for the year. This would be a remarkable achievement for a major gold miner operating in a developed market let alone one operating in the South West corner of Tanzania. Likewise the fact the company has recorded zero lost time injuries makes it nearly three years in a row with no LTIs. With the greenlight for Singida and a scoping study completed for the West Kenya Project during the quarter, the company can look forward to leveraging this operational expertise across a larger and longer life production base (c.220Koz of annualised production). We continue to believe the market is still to wake up to this given a market cap of US$219m, next to no debt and EBITDA annualising at $90m.
Companies: Shanta Gold Limited