August production payment received
Companies: Gulf Keystone Petroleum Ltd.
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 MAHAA PMO AOI GENL
Gulf Keystone Petroleum (GKP LN): H1 2020 results underline challenging period | Jadestone Energy (JSE LN): 20% transportation cost savings achieved at Stag | President Energy (PPC LN): Preliminary workover well success
Companies: GKP JSE PPC
H1/20 production of 37.2 kbbl/d – FY guidance reinstated
Impressive opex of USD 2.6/bbl and limited capex scheduled for H2
70% of H2 production hedged
Combination of actuals and outlook is supportive in our view
H1/20 gross production of 37,159 bopd
Opex of USD 2.6/bbl and 50% capex reduction reduced cash burn
70% of H2 production hedged
Net cash and increasing Brent price supportive for the bond pricing
H1 2020 results
July production payment received
Union Jack Oil* (UJO LN): OGA approves acquisition of additional interest in PEDL253 | Tower Resources* (TRP LN): Considerable read across potential confirmed offshore Namibia | Gulf Keystone Petroleum (GKP LN): June 2020 payment received from KRG | Genel Energy (GENL LN): US$9.8m net received in June
Companies: UJO TRP GKP GENL
June production payment received
Gulf Keystone Petroleum (GKP LN): 50% yoy reduction in capex spend | Cadogan Petroleum (CAD LN): Resumption of production
Companies: Gulf Keystone Petroleum Ltd. Cadogan Petroleum Plc
May production payment received
Genel Energy (GENL LN): May sales payments received from the KRG | Gulf Keystone Petroleum (GKP LN): Prudent approach to capital discipline | Mosman Oil & Gas* (MSMN LN): Sale of Welch to complete early next month
Companies: GENL GKP MSMN
April 2020 production payment
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 LUNE MAHAA OKEA ORC/B PEN PHAR PMO TAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
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In H1, 2020 and the period directly following (Q3, 2020), EQTEC has made substantial operational progress, significantly boosting its project pipeline and strengthening its balance sheet with an over-subscribed £10m fund raising in July 2020. Revenue generation in H1, 2020, however, was constrained due to the impacts of Covid-19 and severe fires in California. We now forecast revenue of €2.4m in 2020E, compared with our previous forecast of €7.0m. Importantly, no projects have been cancelled. Delayed revenue is expected to flow into 2021E. Select new projects, having been secured in 2020, are expected to reach financial close in 2021E and 2022E, in addition to those existing projects under development in those years. As a result, we are increasing our 2021E and 2022E forecasts.
Companies: EQTEC Plc
Central Asia Metals (CAML LN) reported robust interim results in the context of the H1 2020 backdrop; solid production and the company’s fundamentally low cost base meant that CAML remained profitable despite the sharp pullback in commodity prices during the period which led to a 17% YoY decline in revenue to US$70.8m. Consequently, EBITDA was down 25% YoY to US$42.5m despite a decline in unit costs of 6% YoY at Kounrad and 9% YoY at Sasa to US$0.48/lb and US$0.43/lb respectively which cushioned the impact of the weaker the top line. With no significant one offs in the period, EPS of US$0.10/sh. was 33% lower YoY.
Companies: Central Asia Metals Plc
H1 2020 results; progress on concept selection
Companies: Jersey Oil & Gas Plc
Talitha Shelf Margin Deltaic LKA resource report
Companies: Pantheon Resources Plc
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.
Companies: Cairn Energy Plc
Another set of record results from Iofina, with H1 2020 benefiting from improved iodine pricing, solid cost controls and robust operational performance. Some of the shine will be taken off by the cautionary tone over the impact of COVID-19 on current iodine demand and pricing. Nevertheless, these results on top of the recent debt refinancing again demonstrate the continued improvements Iofina is delivering both operational and financially. It now has a solid platform of diversified low cost iodine production from five plants, a range of iodine and non-iodine specialty chemicals products, an improved balance sheet and a new lending partner with which to deliver its ‘prudent growth’ ambition.
Companies: Iofina Plc
H1/20 has been a highly successful period for United Oil & Gas, during which time it has successfully transformed into a full-cycle E&P company. Key to this success has been the Abu Sennan acquisition, with net production increasing to 2,700boepd at the end of June. The significant production and reserve additions delivered as part of the 2019-20 drilling campaign emphasises the considerable upside that still remains in the block. Post period, United were granted a 100% operated working interest and an 18-month extension to the Walton-Morant licence, offshore Jamaica. At 229mmbbls, the Walton-Morant licence has the potential to have a major impact on United, which we value at US$724.3m or 76.8p/share unrisked. We update our valuation, increasing our price target to 19.1p/share, a 549% premium to the current share price and reiterate our BUY recommendation.
Companies: United Oil & Gas Plc
EQTEC announced (last Friday afternoon) an extension of the exclusivity period of the Billingham MOU until 22 November 2020. The extension of the MOU exclusivity period is with the aim of finishing the preparation of a legally binding option agreement with Scot Bros. which, if agreed, will grant EQTEC and its partners the right, but not the obligation, to purchase the entire issued share capital of Billingham EFW Limited (the project SPV) from Scott Bros. subject to an agreement on consideration and other terms.
West Newton B-1 drilling update
Companies: Union Jack Oil Plc
Jersey Oil & Gas has announced that it has selected a greenfield four-legged platform to develop the Greater Buchan Area which will utilise existing export pipeline infrastructure. We see near-term scope to increase materially our fair value estimate from 268p. We believe that today's news is price material and that it sets the scene for a near-term catalyst rich outlook for the company. It is an opportune time, in our opinion, to gain exposure to the Jersey Oil & Gas investment opportunity.
Ready to steppe it up – initiating coverage
Companies: Enwell Energy Plc
Hargreaves’ FY20 results are very solid indeed. As previously reported, the only noticeable impact from COVID was in the slippage of Blindwells’ land sales, which were due to conclude during the lockdown period. Site activity has resumed and sales remain on track to conclude in the current year. A final dividend of 4.5p has been declared and the outlook statement is measured but confident. We reintroduce forecasts today, effectively reinstating our pre-COVID expectations. Hargreaves is well positioned to deliver a period of significant, renewed growth with the prospect of a double digit dividend yield from FY22 as HRMS profits are distributed.
Companies: Hargreaves Services Plc
Chariot’s interims represent something of a line in the sand for the new management team, with historic oil-focussed deepwater exploration spend written-off, demonstrating its recent corporate and strategic ‘reboot’, which has ushered in a more entrepreneurial approach. Strategy has shifted away from higher-risk frontier exploration in favour of opportunities that better fit the energy transition. With the annual cash burn cut 45% to US$2.5m, no remaining work commitments and period-end cash of US$5.8m, management has a clear path ahead to deliver on its ambitions.
Companies: Chariot Oil & Gas Ltd.
A number of REITs have the ability to thrive in current market conditions and thereafter. Not only do they hold assets that will remain in strong demand, but they have focus and transparency. The leases and underlying rents are structured in a manner to provide long visibility, growth and security. Hardman & Co defined an investment universe of REITs that we considered provided security and “safer harbours”. We introduced this universe with our report published in March 2019: “Secure income” REITs – Safe Harbour Available. Here, we take forward the investment case and story. We point to six REITs, in particular, where we believe the risk/reward is the most attractive.
Companies: AGY ARBB ARIX BUR CMH CLIG DNL HAYD NSF PCA PIN PXC PHP RE/ RECI SCE SHED VTA
Davenport owns three perpetual mining licenses and two exploration licences covering 659km2 in the South Harz potash basin in central Germany. Davenport's experienced European-based management is now focussed on developing Europe's largest potash inventory of 5.3 billion tonnes at 10.8% K2O.
Companies: Davenport Resources Ltd.