Q2 23: Better than feared, more revenues from multiclient in H2

A mixed set of results across the segments, but overall revenues fared worse annually due to declining contract revenues with a modest quarterly improvement. The upward trend in the multiclient pre-funding sales continues. Another debt facility of a $75m term loan to partly finance the payment due in March 2024 was announced, giving the company some financial flexibility but cash flow generation is still in doubt as the net debt could rise by the year-end.

Q4 22: revenues confirm healthy recovery, 2023 signals further growth

PGS is enjoying the uptick in global upstream investments with attractive prospects in the medium term. The 44% annual jump in Q4 FY22 revenues and the 38.5% yoy increase in FY22 revenues is a precursor to FY2023. No equity financing on the horizon also bodes well for the stock. The rising operational costs are an important gauge of performance which management will have to keep in check. The cost of refinancing an outstanding loan will be on the market’s radar.

Healthier and rosier: strong cash flow and a declining leverage ratio mark the Q3

PGS, the integrated player in marine services for oil and gas companies, managed to finish Q3 FY2022 with a healthier balance sheet. The company can now take a deep breath before refinancing in Q3 FY2023. Q2 revenues from MultiClient late sales also bumped up the Q3 cash flow from operating activities. The current macro environment leads the management to remain upbeat about the near and medium term – a period PGS sails into with a healthier level of leverage.

Q2: all good

All in all, a positive set of results, especially with the $100m capital increase completed. Management continues to see ” an improving marine seismic market” with the order book up by 15% qoq (and confirming the technical decline in Q1). Gross cash costs are guided at c. $500m vs $485m previously, but this is due to higher project activity. Refinancing is now expected to be done ahead of Q3 23.

Q1: declining backlog is technical, outlook remains positive

The stock is down 8% at pixel time, essentially giving back the gains from yesterday after the announcement of the summer contracts with Equinor. While the results were slightly below consensus and explain part of this retreat, we believe the declining order book, for the fifth consecutive quarter, might have sparked some worries. During the call, management explained this was more due to technical reasons, with the order book now stated on an IFRS basis vs adjusted previously.

Q4: in a fragile state with slower recovery

While the mid-term picture is supportive (i.e. careful spending in the previous cycle tightened the supply and should boost prices and future investments), PGS cannot afford to wait with its upcoming maturities. The stock is down 40% at pixel time, as the company says it is assessing “alternate ways to address upcoming debt maturities”. Obviously not a good signal for equity holders. PGS has $160m of debt due in H2 22, $375m in 2023 and $628m in 2024.

Q3: focus on debt comes back

Mixed results with an EBITDA c. 15% below consensus, but positive cash, and due to a release in working capital. On the outlook, gross cash costs are expected to be $400-420m, and down from $425m previously. Contract rates have recovered by 55% in Q3 vs Q1 and Q4 is estimated to be slightly lower. Management commented that it expected to be in a position to repay 2022 debt maturities with cash flow and be able to refinance 2023-24 maturities.

Q2: resilient MultiClient

Mixed release with segment revenues improving 15% qoq but already communicated to the markets in the preliminary update, while the segment EBITDA is stable at $84m. The order book is up 10% at $255m with good visibility for the rest of the year. The company guides for gross cash costs of $425m from $400m due to increased activity and higher fuel prices.

Q1: vessels to stay active in 2021

After the refinancing, the company now focuses on its operations. The cost-cutting programme is visible with EBITDA up by 4% yoy, while revenues were down 20% yoy. PGS has reactivated one vessel for the summer season and now seems fitted for the level of activity foreseen in 2021 (Q2 is close to fully booked and Q3 is in good progress).

Q4: profitability before growth

After the disastrous Q2/Q3, revenue bounced back 70% qoq but remains down 40% yoy. With the refinancing almost over, the company continues to focus on costs. The latter are expected below $400m, down $100m from 2020’s initial guidance. While exploration spending will remain low in 2021, PGS will at least benefit from the less competitive environment.

Q3: debt rescheduling in progress

The company, currently in default, has entered into a lock-up agreement with lenders. The agreement includes the extension of maturities and postpones debt amortization to September 2022. While not all lenders have signed the agreement (80% in aggregate, but only 50.4% of the lenders of the RCF due in 2020), PGS intends to implement the amendments under an English law scheme, which would require consent from 75% of lenders.

Agreement with lenders – Q3 above

Binding agreement with majority of lenders - positive Reduced dept amortisation of USD 275m from 2020-2022 Q3 EBITDA 88m vs. consensus of USD 72m on lower cost Fundamentals weak – We fear that PGS will burn cash in 2021

Q3 revenues below consensus

Q3 revenues 6% below consensus (USD 115m vs. USD 122m) USD 26m in governmental covid aid incl in revenues – adj rev USD 92m We forecast neg FCF in Q3 – not supportive for the ongoing refi Stay away until refinancing is complete – M.cap of EV is now ~10%

Agreement with principle lenders – Positive

Support from: 62% of TLB owners, 81% of RCF holders and 100% of ECF With this, cash outflow from 2020-2022 has been reduced by USD ~275m No maturity before 2024 – except from RCF step down in sept 2022 Clearly positive – fundamentals however continues to worsen

Creditors will likely avoid a technical default

On Friday, PGS faces an RCF stepdown of USD 135m. Without the ability to repay, PGS commenced negotiations with all lenders before the summer. Apart from refusing the USD 600m multi-client offer from TGS, PGS has not updated the market. We believe creditors are in a very challenging situation, new equity will not help (m.cap 13% of EV) and another “amend and extend” appears to be the likely solution. Sell case has largely played out – up to Hold.

Union Jack Oil (UJO LN) - Full year 2023 results

Union Jack has released its 2023 results, showing the operating cash flow generated by Wressle and the ability to redeploy this to fund the company’s wider work programme. We expect the work programme to ramp up over the next 12+ months, with more drilling in the USA following the recent Andrews 1-17 success, further planned development at Wressle, further activity at West Newton, and the potential for drilling at Biscathorpe.

Union Jack Oil+ (UJO, House Stock at 24p) - Union Jack Oil+ (UJO, House Stock at 24p)

Union Jack Oil* (UJO LN) - Drilling activity accelerating into 2H24

Union Jack is an Aim-listed company with a portfolio of oil and gas production and appraisal assets located onshore UK and the US, which initiated cash returns to shareholders in 2022.

Chariot Limited (AIM: CHAR): Drilling at the second well onshore Morocco has commenced

• Chariot has started to drill the Dartois prospect onshore Morocco. The well is targeting a different reservoir system and trapping style than the Gaufrette prospect. • The main target at Dartois is estimated to hold 12 bcf of gross prospective resources. Success would de-risk a total of 20 bcf of gross prospective resources (+8 bcf) in the Dartois area. • A rig-less well test would be run in case of success. • Our unrisked NAV for the well is £0.05 per share with a ReNAV of £0.02 per share.

Oil & Gas - Cavendish sector note

Chariot, Jersey Oil & Gas, Savannah Energy, Touchstone Exploration, Kistos Holdings, i3 Energy, Tullow Oil, Harbour Energy, Serinus Energy, Gulf Keystone Petroleum, Caspian Sunrise, Equinor, IOG Source: FactSet, weekly change 13/05/2024-17/05/2024 Oil notched a weekly gain while futures stayed in a narrow range, with the outlook for supply and inflation in focus. West Texas Intermediate settled above $80 a barrel, posting a 2.3% weekly gain and the third advance in four weeks. Lower US crude sto

SP Angel Morning View: Gold prices soar to >$2,450/oz as China debt and geopolitical fears drive prices

NextSource Materials - Initiation

NextSource is uniquely positioned to build a leading vertically integrated position, ex China, in the supply of Lithium-ion battery anode material which is essential for the Energy Transition. The company is commissioning phase 1 of its world-class Molo graphite mine in Madagascar and is in the final permitting process for its first Battery Anode Facility (BAF) to be located in Mauritius. The company is backed by Vision Blue, established by Sir Mick Davis, former CEO of Xstrata. On our calculat

Pan African Resources - Upgraded FY24 production guidance

On 9 May, Pan African announced that it was narrowing its production guidance for the year ending 30 June 2024 to 186–190koz (cf 180–190koz previously), notwithstanding the cessation of production from surface sources at Evander in H2. Group AISC guidance was maintained at US$1,325–1,350/oz (at ZAR18.50/US$) however. Consequently, we have increased our H2 production forecast by 2.5% as well as increasing our H224 gold price by 9.2% to result in a US$20.6m positive variance in H224e revenue, only

Zeus Industrials Round-Up - 9 May 2024

Economic and industrial data has started the second quarter on slightly weaker grounds than Q1 as Manufacturing PMI in the UK, Eurozone and US all reported April indexes below March levels. Cracks seem to be appearing as recent drops in new orders and rising input costs are quickly dampening confidence. Inflation did, however, fall MoM across the board with the exception of the US, where volatile energy prices caused a modest MoM increase in the inflation rate.

SP Angel Morning View:Copper short squeeze continues as speculation CMOC and Trafigura caught out

LIBERUM: Trident Royalties: State approval secured for Green River

SP Angel Morning View: Anglo moves to refocus group to copper and iron ore to fend off BHP

Hybridan Small Cap Feast - 17 May 24

17th May 2024 * A corporate client of Hybridan LLP ** Arranged by type of listing and date of announcement *** Alphabetically arranged **** Potential means Intention to Float (ITF) has been announced Dish of the day Admissions: Delistings: Scirocco Energy (SCIR.L) has left AIM. UK Commercial Property REIT (UKCM.L) has left the Premium Segment of the Main Market. What’s baking in the oven? ** Potential**** Initial Public Offerings: 7th May: Time To ACT plc, an engineering business focused on tech

Hilton Food Group+ (HFG, House Stock, 940p) - Robust trading continues

Chariot - Gaufrette finds reservoir/gas shows but is sub-economic

The RZK-1 well has reached TD on time and on budget, encountering the Gaufrette Main target on prognosis. Whilst post well analysis has confirmed the presence of good quality reservoir (exceeding pre-drill expectations) and multiple gas shows, the reservoirs are interpreted to be largely water-bearing and therefore sub-economic. Whilst the results have not delivered a material gas accumulation, the presence of strong gas shows and excellent reservoir development is encouraging for future explora