Panoro Energy (PEN NO)C; Target price NOK23.00 per share: Boosting returns in Gabon, gearing for exploration - BW Energy, the operator of the Dussafu licence is reviewing the development concept of Hibiscus and Ruche with a jack-up conversion instead of a new build wellhead platform. Overall, this could reduce the break-even of the project from US$30/bbl to US$25/bbl, reflecting the current low cost of barges. The operator now estimates that the project would achieve an IRR of 15% at US$30/bbl (US$35/bbl previously). Pending more visibility on the new development plan, gross capex could be 20% lower than the previously anticipated US$400 mm. The development is expected to restart in 4Q20. Net to Panoro’s 7.5% WI, the potential net savings would represent ~US$6 mm, almost ~8% of the current market cap. Given Panoro’s high cost of capital, this could be material as Panoro could redeploy the freed-up capital on other initiatives. Panoro shares trade in line with our 2P NAV of ~NOK10 per share that does not factor in the potential lower capex in Gabon. In addition, Panoro continues to offer near term diversified and high impact exploration upside with an aggregate unrisked value for the programme of almost NOK30 per share (~3x the current share price). An enhanced balance sheet with lower development cost in Gabon provides additional fire power to the exploration drilling activities. The Salloum West appraisal well (unrisked NAV of >NOK3 per share) is expected to be drilled in 1Q21. Subject to completion of farm-out transactions with Africa Energy, the company will then drill a very high impact exploration well drilled in South Africa (unrisked NAV of NOK15 per share). Drilling the upside at the Greater Hibiscus area later in 2021 has an unrisked value of NOK10 per share.
SDX Energy (SDX LN)C; Target price £0.40 per share: Initiating Coverage - SDX Energy is a £35 mm market cap full cycle exploration and production company with low cost (6 mboe/d) and reserves (>10 mmboe) in Egypt and Morocco. In contrast to most peers, SDX’s business is insulated from oil price moves with ~90% of the production being fixed-price gas on LT contracts. Recent drilling successes have opened up additional low risk/low cost/short cycle exploration and development upside in both countries. SDX will soon embark on a multi-year exploration programme. With infrastructure already in place, any discovery will be highly accretive and can be developed from SDX’s own source of funds. SDX shares trade at EV/DACF multiples of ~1.3x in 2020. Our 2P NAV is £0.27 per share, representing 70% upside. The prospective resources already identified have an unrisked NAV of £0.12 per share for Egypt (+75%) and £1.03 per share for Morocco (+600%). The main exploration drilling programme is restarting in 2021 but the company should test the LMS-2 well in Morocco in 4Q20, should COVID-19 restrictions be lifted. A success would derisk ~5 bcf WI resources at LMS-2 (+£0.13 per share) and a further ~20 bcf WI resources in the wider La Mimouna area (+£0.50 per share). Our target price of £0.40 per share (~ our ReNAV) represents ~150% upside.
IN OTHER NEWS
Trinity Exploration and Production (TRIN LN): 1H20 results – 1H20 production in Trinidad was 3,282 bbl/d. FY20 production is still expected to be in the range of 3,100 - 3,300 bbl/d. Trinity held US$19.7 mm in cash as at 30 June 2020.
ADX Energy (ADX AU) and Reabold Resources (RBD LN): Flow test results in Romania below expectations – Following acidisation, the flow rate of the Iecea Mica-1 well was below expectations.
BP (BP LN) and ENI (ENI IM): Discovery in Egypt - The Nidoco NW-1 exploratory well discovered gas-bearing sands for a total thickness of 100 m, of which 50 m is within the Pliocene sands of the Kafr-El-Sheik formations and 50 m within the Messinian age sandstone of the Abu Madi formations. The Great Nooros Area gas in place is now be estimated > 4 tcf.
Deltic Energy (DELT LN): Resources update – The Cadence, Cordova, Bathurst and Basset prospects hold 597 bcf, 124 bcf, 275 bcf and 128 bcf prospective resources (P50) respectively. These licences were recently offered to Deltic and are located in the Southern North Sea.
IGas Energy (IGAS LN): Acquiring Geothermal business – IGas is acquiring GT Energy, a developer of deep geothermal heat projects onshore UK. GT Energy's principal project is a 14 MW deep geothermal project in the Etruria Valley, Stoke-on-Trent. IGas will make an initial payment of £500,000 to be satisfied by the issue of 2,222,223 IGas ordinary shares. There could be further payments according to milestones associated with progress at GT Energy’s project. The maximum payable consideration is £12 mm with new ordinary shares of IGas not exceeding 29.9% of the share capital of IGas. GT Energy has entered into a term sheet with Gravis Capital Management to fund a significant proportion of the ~£20 mm project through a limited-recourse debt facility.
Independent Oil & Gas (IOG LN): Potential offer to acquire Deltic Energy (DELT LN) – Independent Oil & Gas is considering a possible all-share offer for the Deltic.
Premier Oil (PMO LN): Considering transaction with Chrysaor – Premier Oil is in discussions with Chrysaor as a potential alternative to the proposed equity raise. The preferred route remains the re-financing announced previously.
Union Jack Oil (UJO LN): Equity raise – Union Jack is raising £7 mm of new equity at a price of £0.16 per share. The proceeds of the fundraising will be used to (1) pay the deferred cash consideration due on first oil production at the Wressle development in 4Q20, (2) drill a side-track well at the Biscathorpe discovery in 2021 and (3) ongoing investment in the other conventional onshore drill-ready projects including a proposed low-cost, side-track well at the producing Keddington oilfield and a proposed conventional well at North Kelsey.
FORMER SOVIET UNION
Caspian Sunrise (CASP LN): 1H20 results – 1H20 production in Kazakhstan was 1,494 boe/d with production of 1,643 boe/d at the end of June. The company held US$0.2 mm in cash at the end of June.
MIDDLE EAST AND NORTH AFRICA
Energean (ENOG LN): New gas contract in Israel– Energean has signed two new Gas Sales and Purchase Agreements which, combined, represent quantities of gas of up to 1.4 bcm/y and increase total firm contracted gas sales from the Karish project to approximately 7.0 bcm/y on plateau.
Global Petroleum (GBP LN/AU): Raising £1.4 mm of new equity – Global is raising £1.4 mm of new equity priced at 0.75p per share. Subscribers are also being issued 1 warrant per share with a strike price of 1.5p.
Companies: BP/ CASP ENOG ENI PENUSD PMO RBD SDX
Panoro Energy (PEN NO)C; Target price NOK23.00: Showcasing Gabon – The important news is the very large resources estimate increase at Greater Hibiscus. The Hibiscus South and Mupale prospects are now mapped by the operator as part of the Hibiscus structure with overall recoverable volume of 155 mmbbl. This compares with current gross 2P reserves at Hibiscus of only 45 mmbbl. Net to Panoro’s 7.5% WI, this could add ~8 mmbbl, representing about 100% of the company YE19 WI 2P reserves in Gabon. One or two appraisal wells are expected to be required to confirm the new mapping of Greater Hibiscus with the wells likely to be drilled early next year. BW Energy indicated that the production capacity of the Ruche phase-1 development could be increased by ~50% to 60 mbbl/d at a nominal cost with simple debottlenecking work, should the increased resources be confirmed. We are increasing our target price from NOK20 to NOK23 per share in line with our new ReNAV that captures the risked value of the resources addition. Our new target price represents ~100% upside. Panoro was already one of the few names that offers material near term exploration upside. The likely addition of appraisal drilling on the Greater Hibiscus area enhances this profile with a total unrisked value for near term drilling of NOK29 per share.
IN OTHER NEWS
Arrow Exploration (AXL CN): Divesting assets in Colombia - Arrow is selling LLA-23 to COG Energy for a gross cash consideration of US$11.75 mm plus a contingent consideration of US$0.25 mm. Arrow will also transfer to COG its work obligations under various letters of credit in place to guarantee work commitments on LLA-23 for a total of ~US$7.3 mm.
Maha Energy (MAHA-A SS): 2Q20 results – 2Q20 production in Brazil was 3,602 boe/d. Maha held US$15.7 mm in cash at the end of June.
Getech (GTC LN): 1H20 update
Independent Oil & Gas (IOG LN): 1H20 results and project update in the UK – First gas at the core project in the Southern North Sea continues to be expected in 3Q21. The company had £104.1 mm in cash at the end of June including restricted cash of £72.6 mm. A further £36.7 mm of uncalled development carry was available at the end of June from CalEnergy Resources. £60 mm funds from the senior bond remain in escrow.
Ithaca Energy: 1H20 results – 1H20 production in the UK was 73 mboe/d. Forecast FY20 production is anticipated to be at the top end of the 63-68 mboe/d guidance range. Net debt at the end of June was US$1.3 bn.
Large gas discovery in Turkey – The Tuna-1 well encountered 11.3 tcf in the Turkish Black Sea.
Neptune Energy: 1H20 results – 2Q20 production was 149.6 mboe/d. FY production guidance is unchanged at 145-160 mboe/d. Net debt at the end of June was US$1.6 bn. The company also reiterates most of its financial guidance. FY20 expected exploration spend increased marginally to US$135 mm, reflecting positive drilling results and a further appraisal study at Isabella.
FORMER SOVIET UNION
Petroneft (PTR LN): Operational update in Russia – Licence 61 production in July was 1,589 bbl/d.
MIDDLE EAST AND NORTH AFRICA
Pharos Energy (PHAR LN): 1H20 results – 1H20 WI production of 12,093 boe/d had already been reported. FY20 cash capex is expected to stand at ~US$37 mm of which US$31.9 mm was spent in 1H20. Net debt at the end of June was US$36.1 mm. FY20 production guidance of 5.5 mboe/d for Vietnam and 5.0-6.0 mboe/d for Egypt is reiterated.
Tethys Oil (TETY SS): Production update in Oman – WI production from Blocks 3&4 onshore Oman amounted to 10,260 bbl/d. Oil production in Oman continues to be subject to production limitations under the OPEC+ agreement.
Africa Energy (AEC SS/AEF CN): Consolidation of Block 11B/12B interest and Impact Oil & Gas to become major shareholder in Africa Energy – Africa Energy is consolidating the interests of Impact Africa and Arostyle in Block 11B/12B offshore South Africa. Impact will subscribe for 509 mm shares in Africa Energy, resulting in Impact holding over 39% of Africa Energy’s enlarged share capital. Africa Energy will have also an option to acquire Arostyle’s indirect interests in the block which would result Arostyle being issued 64.5 mm shares in Africa Energy. The Luiperd-1X well is expected to be drilled this quarter.
BW Energy (BWE NO): 1H results and operational update in Gabon - Recent results of reprocessed seismic suggest an increase in the Greater Hibiscus (Gabon) oil-in-place volumes by potentially ~3.0x. Hibiscus South and Mupale are now mapped as part of the Hibiscus structure with overall recoverable volume of 155 mmbbl. This compares with current 2P reserves at Hibiscus of 45 mmbbl. Gross production from Dussafu averaged 15,991 bbl/d during 2Q20 with current production of 18 mbbl/d on four wells and FY20 production guidance of 15-16 mbbl/d. The connection and completion of the last two Tortue wells have been deferred to early 2021 with first oil expected in 2Q21.
FAR Limited (FAR AU): Update in Senegal – Cash calls for the SNE development for June, July and August are currently unpaid and total US$28.2 mm. As at 31 July 2020 FAR has cash of US$63.4 mm.
Lekoil (LEK LN): FY20 results – FY2o gross production at Otakikpo in Nigeria was 5,035 bbl/d. At the end of July, Lekoil held US$0.6 mm in cash.
EVENTS TO WATCH NEXT WEEK
03/09/2020: EnQuest (ENQ LN) – 2Q20 results
03/09/2020: Gulf Keystone Petroleum (GKP LN) – 2Q20 results
Companies: PHAR FAR GTC 0GEA PENUSD PTR TPL
• There were no surprises in the 1H20 financials. Current gross production in Gabon is >18 mbbl/d. While two Tunisian wells were temporarily shut-in in 3Q for pump replacements (1 mbbl/d) during 3Q20, FY20 production guidance is broadly maintained at 2.3-2.5 mbbl/d (2.3-2.6 mbbl/d previously).
• The important news is the very large resources estimate increase at Greater Hibiscus. The Hibiscus South and Mupale prospects are now mapped by the operator as part of the Hibiscus structure with overall recoverable volume of 155 mmbbl. This compares with current gross 2P reserves at Hibiscus of only 45 mmbbl.
• Net to Panoro’s 7.5% WI, this could add ~8 mmbbl, representing about 100% of the company YE19 WI 2P reserves in Gabon.
• One or two appraisal wells are expected to be required to confirm the new mapping of the Greater Hibiscus with the wells likely to be drilled early next year.
• BW Energy indicated that the production capacity of the Ruche phase-1 development could be increased by ~50% to 60 mbbl/d at a nominal cost with simple debottlenecking work, should the increased resources be confirmed.
• We are increasing our target price from NOK20 to NOK23 per share in line with our new ReNAV that captures the risked value of the resources addition. Our new target price represents ~100% upside.
Restarting activities in Tunisia
With US$19 mm in cash (including ~US$10 mm of restricted cash), the company is accelerating activities in Tunisia. One of the Tunisian wells taken offline is already back in production with the second well due to be brought back on imminently, restoring Tunisia production to 4,000 bbl/d. Overall, the 4Q20 programme is targeting the further addition of 2,200 bbl/d (unrisked) with average risked production of 5 mbbl/d in 4Q20.
Very exciting upcoming 6-9 months
Panoro was already one of the few names that offers material near term exploration upside. The likely addition of appraisal drilling on the Greater Hibiscus area enhances this profile with a total unrisked value for near term drilling of NOK29 per share. The Salloum West appraisal well (Unrisked NAV of >NOK3 per share) is now expected to be drilled in 1Q21 (2H20 previously). Subject to completion of farm-out transactions with Africa Energy, the company will then drill a very high impact exploration well drilled in South Africa (Unrisked NAV of NOK15 per share). Our unrisked NAV for the Greater Hibiscus appraisal wells is ~NOK11 per share. Panoro shares currently trade at a 25% discount to our ~NOK14 per share core NAV that does not give any value to the exploration drilling.
Companies: Panoro Energy ASA
PEN’s Q2 numbers were largely as expected, and we make few near-term estimate changes. Hibiscus and Mupale could be continuous structures, and if confirmed by one or two appraisal wells, their combined gross reserves could grow from 45 to 155 mmbbl. The company is also making progress on its Tunisian assets and have several well workovers lined up for the second half of the year. With >60% upside to core NAV and firm triggers ahead, the risk/reward is attractive.
EBITDA in line with estimate & only minor adjustments to outlook/guiding
Hibiscus and Mupale are likely to be connected structures
If confirmed by appraisal wells, >3x reserve upside from Hib/Mupale area
If confirmed, massive NAV increase and new production profile from ‘24
We lower our TP in PEN to NOK 20 (40) on the back of our updated view on the oil market. Our TP reflects a gradual recovery to USD 60 Brent in 2022, and the fact that PEN will need more time to convert its contingent resources and exploration potential into production. With a decent cash position and discretionary capex, it will endure the crisis, and is among the companies that will experience one of the sharpest rebounds in a gradually recovering oil market.
Panoro Energy (PEN NO)C; NOK20.00 Target Price: Foot on the accelerator in Tunisia
Diversified Gas & Oil (DGOC LN): Completing US acquisitions | Maha Energy (MAHA-A SS): 1Q20 results, reducing production guidance | Touchstone Exploration (TXP LN)C: New debt facility
ASIA AND AUSTRALASIA
China discovery estimated to hold 730+ mmbbl | Empyrean Energy (EME LN): Resources update in Indonesia | Jadestone Energy (JSE LN): 1Q20 results
Reabold Resources (RBD LN): Acquisition of further interests in West Newton in the UK | Neptune Energy: 1Q20 results | OKEA Energy (OKEA NO): Update in Norway
MIDDLE EAST AND NORTH AFRICA
DNO ASA (DNO NO): FY20 guidance | Genel Energy (GENL LN): Production update at Tawke in Kurdistan | ShaMaran Petroleum (SNM CN): Payment from Kurdistan
Orca Exploration (ORC.A/B CN): 1Q20 results – Gas deliveries in Tanzania were 56.3 mmf/d over the period. As at March 31 the Company held US$82.9 mm in working capital | Tullow Oil (TLW LN): No pre-emption by CNOOC in Uganda
Companies: NK1A GENL PENUSD TXP TLW
• There were no surprises in the 1Q20 financials.
• Panoro now produces 4,000 bbl/d (gross in Tunisia) and with the reopening of the country, work-over operations have restarted and production remains expected to reach 5,000 bbl/d very shortly.
• Additional side-tracks have the potential to add a further 500 bbl/d.
• The Salloum West 1 appraisal well is expected to be drilled in 4Q20.
• Production in Gabon is stable and with the hooking-up of the DTM-6H and DTM-7H wells, BW Energy (the operator) expects gross production to increase from 16 mbbl/d in 2020 to 21 mbbl/d in 2021 with the next phase of development taking gross production to 34 mbbl/d in 2023 and 39 mbbl/d in 2024 (Panoro WI: 7.5%).
• The overall offtake environment is returning to normal with the discount between physical prices and futures prices closing.
Firepower and flexibility
Panoro currently holds US$24 mm of cash (including ~US$10 mm of restricted cash). We forecast that even after the drilling of Salloum West and the repayment of debt obligations, the company will still hold ~US$14 mm of cash at YE20. The drilling programme in Tunisia can be accelerated or slowed down according to macro conditions.
One of the few E&P names still with near term upside
While the industry is eliminating exploration activities from its capex programme, Panoro is one of the few names that continues to offer near term exploration upside. Following the Salloum West appraisal well (Unrisked NAV of over NOK3.00 per share) in 2H20, a very high impact exploration well could be drilled in South Africa (Unrisked NAV of NOK15.00 per share). Our target price of NOK20.00 per share (based on our ReNAV) offers over 100% upside.
EBITDA in line with estimate
Benefitting from hedges and lifting schedule weighted towards H2
Balance sheet will remain robust – expect swift response to higher prices
Constructive report, but limited new information - expect neutral trading
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
Panoro Energy (PEN NO)C: Initiating coverage | 88 Energy (88E LN/AU): Acquisition in Alaska | BP (BP LN): Transaction in Alaska with Hilcorp renegotiated | Columbus Energy Resources (CERP LN): Oil discovery in Trinidad | Premier Oil (PMO LN) and Rockhopper Exploration (RKH LN): Sea Lion farm out (Falklands) exclusivity period extended | BP (BP LN): 1Q20 results | Equinor (EQNR NO): Dry hole in Norway | Getech (GTC LN): Business update | Hurricane Energy (HUR LN): Business update in the UK North Sea |IGas Energy (IGAS LN): Shutting some production in the UK | Lundin Energy (LUP SS): 1Q20 results | OKEA (OKEA NO): 1Q20 update in Norway | OMV (OMV AG): 1Q results | Premier Oil (PMO LN): Court approves schemes of arrangement | Royal Dutch Shell (RDSA/B LN): 1Q20 results and dividend reduction | RockRose Energy (RRE LN): Operational update in the UK | UK Oil & Gas (UKOG LN): £1.275 mm equity raise | Caspian Sunrise (CASP LN): Operating update in Kazakhstan | Exillon Energy (EXI LN): February and March production in Russia | Nostrum Oil & Gas (NOG LN): 1Q20 update in Kazakhstan | PetroNeft (PTR LN): Operations update | Genel Energy (GENL LN): Update in Kurdistan – While negotiations are ongoing the KRG will not exercise the notice of an intention to terminate the Bina Bawi PSC | ShaMaran Petroleum (SNM CN): Business update in Kurdistan | Tethys Oil (TETY SS): Production reduction in Oman | Total (FP FP): Dry hole in Lebanon | Aminex (AEX LN) and Solo Oil (SOLO LN): Licence extension in Tanzania | Far Limited (FAR AU): Update in Senegal | Lekoil (LEK LN): Final payment with Nigerian partner rescheduled | Orca Exploration (ORC.A/B CN): FY19 results | Savannah Energy (SAVE LN): Financial and operating update in Nigeria | San Leon Energy (SLE LN): Special dividend | Seplat Petroleum (SEPL LN): 1Q20 results
Companies: 88E AEX PENUSD BP/ CASP CERP DNQ EXI FAR TTA HUR GENL GTC IGAS LEK LYV NOG 3SX OMV ORC/B PMO PTR RKH RDSA RRE SAVE SLE SEPL 0VH4 TETY SCIR UKOG
Current gross production in Gabon is 17.5 mbbl/d while Tunisia is generating ~4.0 mbbl/d (gross). This in line with our expectations. However because of COVID-19, the timing of hook-up of the DTM-6 well has been delayed from June to later this year (we assume 4Q20). As a result gross FY20 production guidance in Gabon is reduced from 16-18.5 mbbl/d to 15-16.5 mbbl/d. Activities to ramp-up production in Tunisia will restart once COVID-19 restrictions lessen. With opex and taxes representing less than US$25/bbl in 2020, existing cash resources (US$24 mm) plus the value of the hedges (US$9 mm) can cover all cost until from April until YE20 (G&A of ~US$4 mm plus US$14 mm remaining capex plus US$3 mm debt principal repayment plus interest) and still leave US$11+ mm cash at YE20 at Brent price averaging less than US$25/bbl from April to December 2020. Our target price of NOK20 per share is unchanged and represents 180% upside. Converting possible reserves to 2P reserves could boost our 2P NAV from ~NOK9.00 per share to ~NOK13.00 per share. In Tunisia the drilling of Salloum West and near field appraisal could add NOK4.00 per share. At the moment, plans to drill S. Africa well around YE20 are maintained and could add NOK15.00 per share.
Panoro is a Oslo listed US$40 mm market cap African E&P with ~15 mmbbl 2P reserves in Gabon and Tunisia and ~2 mbbl/d WI production. In the past years, Panoro has been turned around into the full cycle E&P it is today. With solid foundations and a strong shareholder register, Panoro is embarking into a growth phase where it is aiming to (1) double production in Gabon, (2) apply its knowledge of the Gabon geology to replicate recent exploration success, (3) expand its Tunisia business through exploration and acquisitions and (4) drill a high impact exploration well in South Africa. From the time Gabon reaches full plateau production, Panoro plans to return to shareholders 50% of net profits. With a small amount of debt and opex below US$17/bbl, Panoro can operate in a sub US$30/bbl world. Our target price NOK20 per share reflects ReNAV and implies over 200% upside.
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
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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
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
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)
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