GeoPark (GPRK US)C; Target price of US$20.00: Drilling success at first well in CPO-5 campaign - The Indico 2 appraisal well encountered 161 feet of net pay and flowed ~ 5,500 bbl/d of 35.2 degrees API light oil, with a 0.1% water cut. This appears to be a relatively low risk appraisal well. The well pays back in less than three months. The Indico 2 well could add imminently 1.5 mbbl/d net production to GeoPark’s ~40 mbbl/d (as of the end of 3Q20), which bodes well for the FY21 production guidance of 40-42 mboe/d. GeoPark expects to spud a well at the Aguila prospect by the end of November. GeoPark will then drill 5-6 wells (including 3-4 exploration wells) at CPO 5 in 1H21. Upon success and depending on oil prices, GeoPark could potentially drill additional development, appraisal or exploration wells at CPO-5 during 2H21. Even after the recent share price appreciation, the shares trade at ~50% discount to our Core NAV and ~25% discount to our 2P NAV of ~US$11 per share. Our unrisked NAV for the 2021 drilling programme is ~US$9.00 per share (mostly associated with Colombia), which represents over 100% of the current share price.
Tethys Oil (TETY SS)C; Target price of SEK75.00: Farming out exploration asset in Oman – Tethys is farming out 50% WI in Block 49 to EOG Resources. EOG will also have the option to assume operatorship of the Block and increase its interest to 85% for any operation relating to unconventional hydrocarbon resources. In return EOG will refund all costs incurred on the Block and fund the Thameen-1 exploration well, up to a combined amount of US$15 mm. The parties will retain 50% each of any operations relating to conventional hydrocarbon resources. We view this transaction as an endorsement of the quality of Tethys Oil’s asset. The Thameen prospect is expected to be spudded in December.
IN OTHER NEWS
88 Energy (88E LN): Resources update in Alaska – Total Prospective Resources of 1.77 bn boe have been estimated at the Ice Wine project. The Seabee formation is estimated to hold 1.4 bn bbl.
Alvopetro Energy (ALV CN): Update in Brazil – Gas sales at the Caburé Project was 10.8 mmcf/d (plus 84 bbl/d of condensates) in October. The company held US$2.2 mm in working capital surplus at the end of September.
Touchstone Exploration (TXP LN/CN): 3Q20 results – 3Q20 production in Trinidad was 1,310 bbl/d. The company had net debt of US$14.1 mm at the end of September. Drilling operations are ongoing at the Cascadura Deep-1 prospect.
Aker BP (AKERBP NO): Minor discovery in Norway – Exploration well 6607/12-4 on the PL 127 C licence encountered 3-6 mmboe (recoverable) at the Jurassic/Triassic primary target and 6-18 mmboe at the secondary Lower Cretaceous target.
ConocoPhillips (COP US): Discovery in Norway – Wildcat well 6507/4-1 on licence PL 1009 has encountered 55 180 mmboe of recoverable resources in the Lange Formation (primary target), with moderate but uncertain reservoir quality. The gas/water contact was not encountered.
Premier Oil (PMO LN) and Chrysaor: Operational update – Premier production from January to the end of October was 62.5 mboe/d with FY20 production guidance reduced from 65-70 mboe/d to 61-64 mboe/d on restrictions at Catcher. FY20 capex guidance is now US$325 mm (US$340 mm previously). Net debt at the end of October was US$2.05bn (up from US$1.97 bn at the end of June). Summer maintenance work at Catcher took longer than expected and production had to be shut down in early November due to a fire. Production is expected to restart next week. First gas at Tolmount remains on track for 2Q21. Chrysaor’s production averaged 175 mboe/d to the end of October. Chrysaor’s FY20 forecast remains unchanged at 170-180 mboe/d. The merger transaction between Premier and Chrysaor is expected to complete in 1Q21.
Serinus Energy (SENX LN): 3Q20 results – Production over January to September was 2,415 boe/d including 1,841 boe/d in Romania and the balance in Tunisia. The production exit rate the end of September was 2,211 boe/d including 1,730 boe/d in Romania. The duration of the Satu Mare licence in Romania has been extended by one year until October 2021 with a commitment to drill two new wells. Serinus carried a working capital deficit of US$22.3 mm (including US$15.6 mm due to the EBRD) at the end of September.
Valeura Energy 9VLE CN/VLU LN) : 3Q20 update – 3Q20 production in Turkey was 615 boe/d. The company held US$32.2 mm in working capital at the end of September. The company continues to evaluate inorganic opportunities, spanning Eastern Europe and the greater Mediterranean region. Valeura will only consider assets that would add both cash flow in the near term and opportunities for significant follow-on organic growth in the medium term.
FORMER SOVIET UNION
Zenith Energy (ZEN LN: Exiting Azerbaijan – The Contract Exploration Area of the 25-year Rehabilitation, Exploration, Development and Production Sharing Agreement has been terminated.
MIDDLE EAST AND NORTH AFRICA
Energean Oil & Gas (ENOG LN): Resources update in Israel – Gross 2P reserves at the Karish, Karish North and Tanin fields have been estimated at 3.5 tcf and 99.6 mmbbl of liquids. Approximately 241 mmboe of gross 2C resources associated with Karish North have been upgraded into the 2P category following approval of the Field Development Plan by the Israeli government. Liquids production from the fields is now expected to average 28 mbbl/d over a plateau period of approximately five years. Gross best estimate risked prospective resources across the Karish and Tanin leases and Block 12 are estimated at 2.2 tcf of gas plus 33.4 mmbbl of liquids. The Geological Probability of Success of these prospective resources ranges from approximately 15% to 79%.
Africa Energy (AEC SS, AFE CN): 3Q20 update in South Africa - The Gazania-1 exploration well on Block 2B is now expected to spud in 2Q21. At September 30, 2020, the Company had cash of US$39.1 mm and no debt.
FAR Limited (FAR AU): Selling Senegal – FAR is selling its 13.67% stake in the Sangomar project offshore Senegal to ONGC for US$45 mm in cash. In addition ONGC will repay US$66 mm in working capital. There is also a contingent payment of up to US$55 mm if the oil price increases above US$58/bbl.
Kosmos Energy (KOS US/LN): 3Q20 results – 3Q20 net production in Africa and the USA was 56,700 boe/d. FY20 production is expected to be 61,000 - 62,000 boe/d (62,000-70,000 boe/d previously) with US$140-150 mm capex. Net debt at the end of September was US$2.1 bn. Gross production rates at Jubilee averaged ~87,700 bbl/d during the quarter with FPSO uptime of around 98%. TEN production averaged ~49,600 bbl/d gross in 3Q20 with FPSO uptime of 98%. Production in Equatorial Guinea averaged ~33,000 bbl/dd gross.
Victoria Oil & Gas (VOG LN): Positive update in Cameroon – The litigation with CHL regarding the payment of a royalty has been settled. Overall, Victoria will have to pay CHL a total of US$12.5 mm at a monthly rate of US$0.09 to US$0.1 mm. The fish that prevented production at the La-1089 well has now been removed. Following the perforation of two sand intervals in the Upper Logbaba formation, the well flowed 19 mmcf/d on test. The company believes that the full potential of the well is likely to exceed the capacity of the plant, which is 20 mmcf/d.
EVENTS TO WATCH NEXT WEEK
17/11/2020: Nostrum Oil & Gas (NOG LN) - 3Q20 results
18/11/2020: BWE Energy (BWE LN) - 3Q20 results
19/11/2020: SDX Energy (SDX LN) - Capital Markets Day
Companies: 88E DETNOR AKERBP DETNOR DETNF ARC ALV ALVOF A6Y COP ENOG GPRK KOS PMO SENX TETY TETY TXP VLE VOG
Premier Oil (PMO LN): Trading update, operational resilience tempered by financial position | Victoria Oil & Gas (VOG LN): Positive remediation at La-108 as CHL settlement agreed
Companies: Premier Oil plc (PMO:LON)Victoria Oil & Gas PLC (VOG:LON)
Companies: PMOIF PMO PQQB
Bahamas Petroleum (BPC LN): Comprehensive trading update | Premier Oil (PMO LN): Chrysaor merger receives required creditor support | Trinity Exploration & Production (TRIN LN): Acquisition of seismic and well log data, onshore Trinidad | Independent Oil & Gas (IOG LN): Rig contract secured with Noble
Companies: BPC PMO TRIN IOG
SDX Energy (SDX LN)C; Target price £0.45 per share: Growing the prize, accelerating drilling - Sales in Morocco are now almost back to pre COVID 19 levels (90%). This is important for cash flow. SDX has now mapped additional prospects on the South Disouq license, resulting in gross prospective resources increasing by 139 bcf to 233 bcf. Drilling in Egypt is being accelerated to start in 2Q21 with two initial wells targeting 165 bcf, including the new Hanut prospect with 139 bcf gross prospective resources and a 33% Chance of Success. The volumes targeted by the first part of the programme are 5x larger than what we were previously anticipating (34 bcf). At the end of September, SDX held US$9.2 mm in cash with the majority of the 2020 capex programme having already been incurred. With no debt and expected FY21 cashflow of ~US$30 mm (largely unaffected by oil price movements), this leaves the company with ample liquidity to fund the upcoming drilling programme. Overall, we estimate the prospects the company will target with the drill bit over the next twelve months at £0.38 per share, which represents 2.4x the current share price. The main items are the LMS-2 well test in Morocco (£0.14 per share) and the Hanut well in Egypt (£0.16 per share). This does not include the potential for additional look-alike prospects to LMS-2 to be drilled in 2021. While the company continues to deliver positive updates and the materiality of the upcoming drilling is growing, the shares continue to trade at EV/DACF multiples of only 1.3x in 2020 and 0.5x in 2021.
IN OTHER NEWS
Diversified Gas & Oil (DGOC LN): Partnership agreement with Oaktree Capital – Diversified and Oaktree are partnering to jointly pursue US PDP acquisitions with individual transaction valuations over US$250 mm. Oaktree and Diversified will fund equal portions of any acquisitions, however Oaktree will provide Diversified a 5.0% upfront promote of its funded working interest (2.5% incremental) at the time of an acquisition. In addition, upon achieving a 10.0% unlevered IRR on its investment, Oaktree will convey to Diversified 15.0% of its working interest (7.125% incremental).
Maha Energy (MAHA-A SS): Production update in Brazil – Sales production for the month of September totalled ~ 3,255 boe/d, During the month of September the dual GTE-4 oil producing well was shut down for 14 days, due to workover operations. Fishing operations to date have been unsuccessful and a more rigorous workover operation is now scheduled during the fourth quarter to restore production from the AG zone. Production from the GTE-4 well (Sergi zone) resumed on the 28th of September. Tartaruga had issues during the month with unreliable power from the local grid – back up generation has been is installed and production is stabilizing.
Parex Resources (PXT CN): Buy back and operation update in Colombia – Parex plans to buy back up to a further 10% of its share capital by YE20. 3Q20 production was 44.2 mboe/d and 4Q20 production is expected to be 44-48 mboe/d with US$40-50 mm capex. The company plans to drill the Cayena horizontal exploration well on the Fortuna block and one appraisal well at the Boranda Block. At Block LLA-94, the Grulla well will be re-entered. The company held US$350 mm in cash at the end of September.
Phoenix Global Resources (PGR LN): 1H20 results – 1H20 production in Argentina was 4,369 boe/d. At 30 June 2020 the group had cash of US$1.4 mm and total borrowing US$317.7 mm.
Proposed changes in Trinidad’s fiscal regime - The government of Trinidad is proposing to lift the threshold for the imposition of the very punitive Supplemental Petroleum Tax (SPT) from US$50/bbl to U$75/bbl.
Getech (GTC LN): 1H20 results – 1H20 revenue totalled £2.1 mm. The orderbook was £2.9 mm at the end of June. The company held £2.8 in cash at the end of June. Getech is currently negotiating with two potential Energy Transition acquisition targets. Key sectors of focus are mining, geothermal energy and the hydrogen economy.
Hurricane Energy (HUR LN): Update in the UK – 3Q20 production averaged 13,600 bbl/d with current production of 14,500 bbl/d.
Independent Oil & Gas (IOG LN): No offer to buy Deltic Energy (DELT LN) – Independent will not make an offer to acquire Deltic with two approaches rejected by Deltic.
Lundin Energy (LUNE SS): Acquisition of exploration licences in Norway – Lundin is acquiring from Idemitsu interests in a portfolio of licences in the Barents Sea, including a 10% WI in the Wisting oil discovery and a further 15% WI in the Alta oil discovery with an overall 70 mmboe net contingent resources. The proceeds consist of US$125 mm in cash.
OMV (OMV AG): 3Q20 update – 3Q20 production was 444 mboe/d.
Premier Oil (PMO LN): Merger with Chrysaor – Premier Oil is merging with Chrysaor. The Transaction is expected to result in Premier’s stakeholders owning up to 23% (including 5.45% by Premier’s shareholders) of the combined group. A cash payment of US$1.23 bn will be made to financial creditors of Premier. The transaction provides ~US$0.61 on the dollar cash recovery for existing creditors plus US$0.14 in shares for an overall recovery of 75%. The combined entity had >250 mboe/d at the end of June and 2P reserves of 717 mmboe as YE19. The acquisition of the BP assets by Premier will not go ahead.
Repsol (REP SM): 3Q update – 3Q20 production was 615 mboe/d.
UK Oil & Gas (UKOG LN): Raising £2.2 mm of new equity – UK Oil & Gas has raised £2.2 mm of new equity priced at 0.16 p per share to fund its share of initial drilling and seismic costs in Turkey.
FORMER SOVIET UNION
JKX Oil & Gas (JKX LN): Operating update in Russia and Ukraine – 3Q20 WI production was 10,245 boe/d including 4,727 boe/d in Ukraine and 5,519 boe/d. The company held US$18.8 mm net cash at the end of September.
Tullow Oil (TLW LN): RBL Redetermination – Tullow’s RBL credit facility has been redetermined with US$1.8 bn of debt capacity. As a result, the Group retains ~US$500 mm liquidity headroom of undrawn facilities. The next redetermination will commence at the end of November and is expected to be completed in January 2020.
Companies: UKOG TLW SDX REP PXT PMO PGR OMV 0GEA LYV JKX HUR GTC DGOC
Premier Oil (PMO LN): Premier agrees to merge with Chrysaor | Solo Oil (SOLO LN): US$5.5m cash injection received
Companies: Premier Oil plc (PMO:LON)Solo Oil Plc (SCIR:LON)
Proposed merger with Chrysaor
Companies: Premier Oil plc
Premier Oil (PMO LN): Extension of Stable Platform Agreement agreed | Vaalco Energy (EGY LN): 3D seismic and production update | Upland Resources (UPL LN): Extension to work sharing agreement
Companies: Premier Oil plc (PMO:LON)Upland Resources Ltd (UPL:LON)
Stable platform agreement with creditors extended
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
Discussions on alternative transactions
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: Pipeline allowed to restart this week, Bretana to be back on line by the end of August – There were no surprises in the 2Q20 financials. As at August 17, 2020, PetroTal had cash resources of US$13.5 mm, with accounts payable and accrued liabilities of ~ US$37 mm (a reduction of US$12 mm from the end of June). Of this amount, only US$28 mm is due in 2020. Importantly, PetroTal indicated that favourable discussions between the Government of Peru and the communities has resulted in the protestors allowing operations at the export pipeline to restart this week. The Company expects that it will be able to recommence oil production at Bretana by the end of August 2020. Our Core NAV for the company at Brent price of US$45/bbl (flat, no escalation) and 12.1 mbbl/d production in 2021 (declining thereafter) is £0.23 per share, representing ~100% upside to the current level. At US$50/bbl for Brent, our Core NAV would be £0.35 per share (x3 current level).
IN OTHER NEWS
Premier Oil (PMO LN): 1H20 results and refinancing
FORMER SOVIET UNION
Nostrum Oil & Gas (NOG LN): 1H20 results
MIDDLE EAST AND NORTH AFRICA
SDX Energy (SDX LN): 1H20 results
Cairn Energy (CNE LN): Woodside Petroleum pre-empt sales of Senegal asset
EVENTS TO WATCH NEXT WEEK
26/08/2020: Pharos Energy (PHAR LN) – 2Q20 results
27/08/2020: BW Energy (BWE NO) – 2Q20 results
27/08/2020: Panoro Energy (PEN NO) – 2Q20 results
Companies: NOG PMO CNE PTAL SDX
Eco (Atlantic) Oil & Gas* (ECO LN): 1H 20 results, remains fully funded ahead of active drilling campaign | Union Jack Oil* (UJO LN): Further progress at West Newton | Premier Oil (PMO LN): 1H20 results and comprehensive refinancing package outlined
Companies: Union Jack Oil Plc (UJO:LON)Premier Oil plc (PMO:LON)
Debt rescheduling progress; H1 2020 results
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Parkmead’s portfolio has evolved to the point where it is now a full-cycle E&P company with a low-cost Dutch production base and a broad spectrum of high-quality UK growth opportunities, encompassing material development projects and an attractive range of risk/reward exploration. Recently, it has diversified into renewables, future proofing its equity story and opening up a new ‘investor-friendly’ avenue of growth. A core strength of this management team is its commercial acumen and portfolio-driven approach to optimising value. Parkmead has been in portfolio construction mode to date but is now well positioned to start crystallising its intrinsic value. We initiate with a risked-NAV based price target of 155p/sh. Investors would do well to get on-board with a management team that has a strong track record of delivering shareholder value.
Companies: Parkmead Group PLC
Edison Investment Research is terminating coverage on Diversified Gas & Oil (DGOC), Vermilion Energy (VET) and Circle Property (CRC). Please note you should no longer rely on any previous research or estimates for these companies. All forecasts should now be considered redundant.
Companies: Diversified Gas & Oil PLC
Pan African Resources (PAF) has announced that it is to acquire 100% of Mogale Gold and Mintails SA Soweto Cluster from Mintails’ liquidator for ZAR50.0m (US$3.2m). Combined, the two assets host a mineral resource of 243Mt (in tailings), containing 2.36Moz gold. As such, consideration equates to US$1.31 per oz of contained gold cf an average valuation of US$9.88/oz for London-listed pre-production gold assets (see Gold stars and black holes, published in January 2019). Closure of the deal is subject to the usual due diligence, including the evaluation the assets’ amenability to retreatment.
Companies: Pan African Resources PLC
Savannah’s acquisition of a key strategic Nigerian gas asset with strong growth potential has been ignored by the market. Its significant exploration success in Niger has also gone unrewarded. Delivery of the strong free cash flow potential these assets offer will re-rate the shares, which are materially undervalued. Management’s tenacity in getting the Seven Energy acquisition across the line alongside the impressive early progress with the acquired assets should give investors confidence. We initiate with a Buy rating and risked-NAV based price target of 49p/sh.
Companies: Savannah Energy Plc
EQTEC has announced today that the Company and Scott Bros. Enterprises Limited have agreed to extend the exclusivity period of the Billingham MOU until 18 December 2020. The Billingham MOU has been subject to previous extensions, as announced on 23 October 2019, 23 June 2020 and 18 September 2020.
Companies: EQTEC PLC (KEU1:FRA)EQTEC PLC (EQT:LON)
Panoro Energy (PEN NO)c; Target price of NOK23.00: Revisiting Gabon - BW Energy provided an update on Dussafu with FY20 production guidance expectation marginally below previous guidance (14.25 mbbl/d versus 15 16 mbbl/d) due to COVID-19 restrictions and OPEC+ quotas. This results in FY20 opex expected to be US$19/bbl which is slightly above the previous guidance of US$17-18/bbl. The drilling of DTM-7H, and the tie-in of DTM-6H and -7H, has been deferred to mid-2021 with first oil expected in 3Q21 and our estimate of the timing of the field production ramp-up has been delayed by one quarter. BWE continues to expect production from the Dussafu area to reach >30 mbbl/d in 2023 and ~40 mbbl/d in 2024. The Hibiscus development is expected to offer 15% IRR at
Companies: TGL TGA 88E FEC JSE LUPE LUNE LNDNF LYV NOG GB_NTRM NSTRY 3NO PANR P3K PTHRF PTAL TETY TETY AOI ENOG PEN SDX EGY
Salt Lake Potash's AGM update reported that the Lake Way project is now 74% complete. Construction of the process plant is on-schedule with practical completion and first SOP production planned for Q1/21. Drawdown of the Senior Facility Agreement funds and repayment of the Taurus bridge loan is expected soon.
Companies: Salt Lake Potash Limited
• In an Important development, PetroTal has signed a contract with an international oil trader for a pilot shipment to export 0.12 mmbbl into the Atlantic region using the Amazon river through Brazil. The shipment will be sold FOB Bretana, priced at the forward month Brent ICE price, and paid within two weeks of loading at Bretana. There are no subsequent oil price adjustments.
• At November 19, 2020, PetroTal had cash resources of US$9.8 mm, with accounts payable and accrued liabilities of ~US$39 mm, a reduction of ~US$11 mm from the end of 2Q20. The company has been paid US$5.5 mm for delivery of 0.192 mm bbl of oil to Petroperu in October. Production is constrained to ~5,000 bbl/d pending the reopening of the export pipeline.
• We understand that the pilot should start in December. This would not only provide ~US$5 mm in cash to PetroTal but also allow production to return to recent levels (11.5 mbbl/d), effectively unlocking the fundamental value of the asset.
Balance sheet considerations
The potential financial derivative liability has been reduced from US$22.5 mm at the end of June to US$17 mm at the end of September. Of the US$39 mm current payables 46% are not due before 2021 and we note that the company still holds US$13 mm in account receivables and US$4.7 mm in inventory.
Financials on “a back to normal” scenario with flat production
We are now assuming production remains constrained at 5 mbbl/d over 4Q20 with minimum capex with cashflow and receivables being used to repay the due payables over the period.
On production of just ~11.5 mbbl/d during 2021, we estimate operating cashflow of US$85 mm at US$48/bbl Brent. This would result in free cashflow of >US$40 mm assuming capex of US$20 mm to maintain production and US$20 mm to repay the remaining payables. This compares with a current market cap of just US$75 mm, suggesting FY21 free cashflow would represent over 50% of the current market cap in a no growth scenario assuming production can be exported.
Our target price of £0.45 per share represents 6x the current share price.
Companies: PetroTal Corp.
88 Energy has raised A$10m (before expenses) at a price of A$0.006 (0.33p) to fund the ongoing evaluation of the Company's portfolio and to enable it to identify and exploit new opportunities on the Alaskan North Slope. The net proceeds will fund 88E's share of any potential costs associated with the drilling of the Harrier and Merlin prospects at Project Peregrine, scheduled to commence in Q1/21. Harrier and Merlin are on trend and south of the ConocoPhillips Harpoon and Willow discoveries, and are estimated to contain >1bn boe of gross unrisked net prospective resources. Lying at a depth of 5,000ft, both prospects can be drilled at a gross cost of cUS$15m, providing shareholders with access to a huge potential resource at a relatively low cost. Following strong industry interest, a preferred bidder has been selected, with 88 Energy looking to conclude the farm-out of Project Peregrine in the next few weeks. Following yesterday's placing, we value the Merlin and Harrier prospects at 0.5p/share (risked) in aggregate, increasing to 8.0p/share unrisked. We update our target price to 2.3p (a 597% premium to the placing price and reiterate our BUY recommendation).
Companies: 88 Energy Limited
Central Asia Metals (CAML LN) following a successful ramp up at Sasa, progress in the environmental clean up and confirmation of the remedial costs in line with the previously guided US$1.5m the company has declared an interim dividend of 6p/sh. This will be paid on 11 December 2020 with a record date of 20 November 2020.
Companies: Central Asia Metals Plc
Hargreaves’ AGM statement confirms a positive start to FY21, building on the resilient FY20 performance. Trading is in line with expectations, the Industrial Services business has won a number of new contracts, and Hargreaves Land is said to be close to announcing the completion of its first plot sale at Blindwells. In our view, the shares are yet to reflect the earnings growth forecast for the next three years or the prospect of a 20p total dividend, which is expected to be paid first in FY22 as previously restricted HRMS profits are distributed. A further update on trading will be provided in early December, ahead of interims at the end of January.
Companies: Hargreaves Services plc
Jubilee today releases its audited annual accounts for the year ending June 30 2020. As expected, the results show the real progress made through the year. Production up, revenues up (132% to £54.8), Operating profit up (226% to £15.9m and EPS up (96% to 0.94/sh). We have seen solid progress on the expansion in the chrome and PGM projects in South Africa and consolidation of ownership of the projects against a background of Covid – which Jubilee successfully navigated. The year also saw robust plans for expansion in Zambia at the Sable Refinery in Kabwe. Security of supply has been achieved by three transactions which tie up dump resources all set to feed into the (to be) expanded Sable Refinery and making Jubilee a producer of scale in Zambia. We see fair value in Jubilee at 12p and present our first forecasts for the company (FY2021E).
Companies: Jubilee Metals Group PLC
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
We believe that Pantheon Resources is on the cusp of generating substantial shareholder value by progressing the appraisal and commercialisation of its world-class Alaskan oil & gas discoveries, all of which benefit from 3D seismic and well penetrations. Of its six identified targets in Alaska, Pantheon Resources has established resource estimates for three, which have a combined success-case recoverable resource potential of 720 million barrels of oil. Our current fair value estimate includes the equivalent of 147 million barrels of oil or 20.5% of the defined success-case potential resources. We see scope for future value creation from commercial and geological derisking. The board of Pantheon Resources has high-profile Alaskan pedigree, commercial acumen, substantive technical backgrounds and deep oil & gas experience, which we believe will favour successful value creation for shareholders. All-in, we see a positive multi-year trajectory of value creation for the company. We are initiating on Pantheon Resources and see fair value at 75p/sh.
Companies: Pantheon Resources plc
Oil declined for a second session as rising Covid-19 cases threatened to derail demand with tougher restrictions in major US cities on the horizon.
Futures fell 2.4% in New York on Friday, but still posted the largest weekly gain in a month as optimism from news of a potential Covid-19 vaccine breakthrough jolted markets earlier in the week. Despite the measure of hope for the long-term, US cities from the West to East coasts have imposed stricter measures to slow surging case counts, raising concerns that the virus will further crimp demand for fuel. Gasoline futures also slumped.
Before concerns over lockdowns set in, futures also got support from signs the OPEC+ alliance is inching closer to delaying a planned output increase in January. But downbeat demand forecasts from the International Energy Agency and OPEC have clouded hopes of a recovery. At the same time, governors of states along the US West Coast issued travel advisories, following measures recently imposed in New York and Chicago.
Meanwhile, crude supply in Libya is rising. The country's production rose to 1.145 million barrels a day on Friday, according to a spokesman for its state-run National Oil Corp.
West Texas Intermediate for December delivery lost 99 cents to settle at $40.13 a barrel. The contract rose 8.1% this week.
Brent for January settlement slid 75 cents to $42.78 a barrel.
Gasoline for December delivery declined 2.7% to $1.1254 a gallon.
In Europe, where motorway traffic is down by almost 50% in some countries, demand is stuttering anew. That is impacting crude, with six supertankers of unwanted North Sea oil continuing to float in the region. Meanwhile, vehicle miles travelled on US highways fell last week in another sign Americans are keeping off the roads amid the pandemic.