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
• 3Q20 production at South Disouq of ~49 mmcf/d was above our expectations (47 mmcf/d). With maintenance activities at South Disouq expected in 4Q20, the FY20 production and capex guidances are re iterated.
• SDX held ~US$10 mm in cash at the end of September and the US$10 mm EBRD debt facility (undrawn) will be re-established in the coming days. These resources, combined with our estimated operating cashflow of ~US$30 mm cashflow in 2021, provide ample funding for the 2021 capex programme that we estimate at ~US$27 mm, including a busy exploration programme.
• In Egypt, Sobhi is expected to come on stream in 1Q21. A production well will be drilled at Ibn Ynus in 2Q/3Q21 immediately followed by the Hanut prospect with 139 bcf gross prospective resources. In 2022, SDX will drill Mohsen (26 bcf) and Warda (14 bcf).
• In Morocco, SDX will test the high impact LMS-2 well and drill a total of four wells including an exploration well in the OYF cluster where infrastructure is already in place and a Nappe exploration well in the core producing area targeting horizons located below the producing reservoir. This deeper horizon potentially holds larger individual pools of gas compared to the pools from which SDX is currently producing.
Revisiting the value build to YE22
Our 2P NAV for the company at the end of 2020 is ~£0.27 per share, representing ~70% upside per share. Overall, we value the prospects the company will target with the drill bit in 2021 at £0.34 per share, which represents 2x the current share price. The main components are the LMS-2 well test in Morocco (£0.14 per share) and the Hanut well in Egypt (£0.17 per share). In 2022, further drilling success in Morroco (assuming two small prospects at the BMK/OYF prospects and one Nappe follow-on prospect) and Egypt (Mohsen and Warda) would take our unrisked NAV at YE22 for the firm to £0.81 per share. This represents 5x the current share price.
EV/DACF and distribution considerations
The shares trade at EV/DACF multiples of only 1.4x in 2020. In 2021, assuming a normalized year in Morocco, we estimate an EV/DACF multiple of only 1.1x, falling further to 0.3x at YE22. SDX is also looking at putting in place a shareholder distribution programme in the near future.
Our target price of £0.40 per share reflects our ReNAV.
Companies: SDX Energy PLC
SDX Energy (SDX LN): 3Q 2020 results underline significant operational progress | Zephyr Energy (ZPHR LN): Operations ramp up ahead of spudding the State 16-2 well
Companies: SDX Energy PLC (SDX:LON)Zephyr Energy PLC (ZPHR:LON)
SDX Energy delivered a strong performance over the first nine months of 2020 as production increased predominantly due to South Disouq continuing to perform ahead of expectation since coming onstream in late 2019. Production in Egypt was unaffected by COVID-19, while a few customer shut-ins in Morocco had returned to c 90% capacity by September 2020. The drilling programmes in both Egypt and Morocco were also successfully concluded, with highlights including the Sobhi discovery in South Disouq and a potential 233bcf in a further six prospects, together with confirmation of the extension of prospectivity to the north of the company’s core area in Morocco. Our mid-case RENAV valuation has increased to 45.0p/share (+11%) as we adjust our short-term oil price assumptions and revise our production and capex estimates.
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
Union Jack Oil* (UJO LN): Union Jack spuds the West Newton B-1 well | Mosman Oil & Gas* (MSMN LN): Stanley-4 flows at 200bopd | SDX Energy (SDX LN): Robust gas production base
Companies: UJO MSMN SDX
• Production is slightly over guidance with a particular strong performance at South Disouq.
• Importantly, 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).
• In Morocco, further analysis of the LMS-2 well results and a re interpretation of the 3D seismic across SDX’s concessions has revealed that larger structures similar to LMS-2 are present throughout the Company’s acreage, including in horizons slightly deeper than the core production and development areas which are close to infrastructure. The Company is evaluating options to target these structures with dual target wells in the core production area as part of the 2021 drilling programme, which the company is also seeking to accelerate to 1H21.
12 months of high impact drilling
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.
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
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. With the financial support of Waha Capital, a large Middle East fund and a >19% shareholder in SDX, the company is looking to make accretive acquisitions.
Morocco: capturing growing demand with very profitable supply
SDX holds 75% WI in five Gharb basin licences onshore with ~6 mmcf/d gross production. WI 2P reserves are only ~6 bcf over multiple small pools but gas is sold at U$10-11/mcf and costs US$7 mm. Gas demand in the area is growing but it is still constraining potential production. Recent drilling success opened up >40 bcf of additional WI resources, which could allow SDX to capture new customers in new markets and materially grow production and cash flow.
Egypt: >110 bcf in production. Growing inventory of low risk prospects. High capital efficiency
The key asset is the South Disouq licence (SDX WI: 55%) onshore Nile Delta. SDX is chasing four different proven plays. SDX has already discovered >110 bcf with 1H20 production of ~53 mmcf/d (gross). ~100 bcf gross prospective resources have been mapped across five prospects with typical chance of success (CoS) of ~40-50%. The prospective resources volumes are expected to grow materially with the ongoing mapping of additional targets. Although realized prices are fixed at ~US$2.85/mcf, a typical 20 bcf discovery costs only US$0.35/mcf to drill and tie back. NPV15 for a gas discovery is ~US$0.6 mm/bcf (US$0.6/mcf), implying ~70% return on risked exploration capex.
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.
SDX Energy (SDX LN): H1 2020 results, production reaches record levels | Hurricane Energy (HUR LN): New CEO appointment
Companies: SDX Energy PLC (SDX:LON)Hurricane Energy Plc (HUR:LON)
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
GeoPark (GPRK US)C; Target price US$20: Strong quarter, more drilling than expected – 2Q20 production of 36.9 mboe/d was slightly ahead of our expectations (35.8 mboe/d). Importantly the company ended the period with ~US$158 mm in line with the end of March. 70-80% of the 6.5-7.5 mboe/d production that had been temporarily shut down has been restored. GeoPark is also accelerating drilling activities in 2H20 beyond the level previously indicated by Parex Resources. GeoPark, the operator of Llanos-34, anticipates drilling 6-8 wells on the licence (Parex had previously indicated 4-6 wells only at Llanos-34 and Cabrestero) and 1-2 wells at CPO-5. As a result, we are increasing our 2H20 production from 41 mboe/d to 42 mboe/d. This has also positive implications for 2021 production that we now forecast at 47.7 mhoe/d (+1.7 mboe/d). The new drilling programme will probably include some exploration wells at CPO-5 and Llanos-34. Overall FY20 capex budget is increased from US$45-50 mm to US$65-75 mm. Unsurprisingly, given the challenging environment at the Morona block, the company is exiting Peru. GeoPark was very quick to react to the fall in oil prices with steeper reductions in activities than expected. Equally, GeoPark is re-instating drilling activities faster than expected. This reflects the combination of a strong balance sheet, operatorship and the low cost and flexible nature of GeoPark’s onshore operations. These continue to be key features of GeoPark’s business. GeoPark is now part of a very small group of companies offering exposure to exploration upside. Our unrisked value for the FY20 exploration programme is ~US$3.30/share. Our Core NAV is ~ US$18 per share, ~100% above the current share price.
Echo Energy (ECHO LN): Restructuring of Argentine asset | President Energy (PPC LN): Drilling programme in Argentina | Trinity Exploration and Production (TRIN LN): 2Q20 operating update in Trinidad | Aker BP (AKERBP NO): 2Q20 results | Equinor (EQNR NO): Small discovery in Norway | OKEA Energy (OKEA NO): 2Q19 results | Premier Oil (PMO LN): 1H20 update | Reabold Resources (RBD LN): Potential offer to acquire Deltic Energy (DELT LN) rejected | Valeura Energy (VLU LN): Trading update in Turkey | Tethys Petroleum (TPL.H CN): Well test results at exploration well in Kazakhstan
Companies: SDX PMO ARC DNQ 0MDP RBD
SDX Energy (SDX LN): Sale of 50% interest in NW Gemsa | Zoltav Resources* (ZOL LN): US$9m loan secured from ARA Capital
Companies: SDX Energy PLC (SDX:LON)Zoltav Resources Inc (ZOL:LON)
PetroTal (PTAL LN/TAL CN)C; Target: £0.45: Initiating coverage – PetroTal is a production and reserve growth story in Peru with a market cap of ~£90 mm. Management’s experience of operating in the jungle and their deep in country relationships are key. Project execution has been excellent. The Bretaña field (48 mmbbl 2P reserves) was acquired from Gran Tierra in late 2017 with production of 1 mbbl/d achieved in 3Q18. By YE19 that figure had grown to >13 mbbl/d. While COVID-19 forced a shut down of the export infrastructure and Brent prices collapsed to ~US$20/bbl, PetroTal has managed to negotiate with Petroperu a reduction in transport fees and a rephasing of a contingent payment. With the recent US$18 mm equity raise strengthening the balance sheet and production expected to restart in July, PetroTal is returning to growth. Bretaña could produce 20 mbbl/d. PetroTal’s shares trade at ~ one quarter of our Core NAV of £0.46 per share and at one third of the company’s value based on its 2P reserves only (2P NAV of £0.28 per share). On flat production, the share price implies EV/DACF multiples of 1.0x in 2021 turning negative in 2022. Importantly PetroTal’s only material liabilities consist of (1) an oil linked contingent payment over three years to Petroperu on very flexible terms and (2) trade payables of US$49 mm with attractive payment terms. We forecast ~US$45 mm of capex (incl. servicing the payables) in 2H20. This is covered by (1) US$28 mm in cash from a recent equity raise plus collecting pending invoices from oil sales, (2) >US$10 mm of VAT receivables and (3) ~US$25 mm operating cash flow (US$11-12/bbl net backs) in 2H20 at US$38/bbl. At ~US$45/bbl and 12 mbbl/d in 2021, we forecast PetroTal generates ~US$90 mm cash flow with ~US$35 mm cash capex (incl. servicing the payables). Our target price of £0.45 per share (~our Core NAV) represents 4.5x the current share price.
i3 Energy (I3E LN): Corporate update | Parex Resources (PXT CN): Trading update in Colombia | Phoenix Global Resources (PGR LN): FY19 results | Royal Dutch Shell (RDSA/B LN): Dry hole in Brazil | IGas Energy (IGAS LN): Trading update | Serinus Energy (SEN LN): Deferred EBRD debt repayment | Union Jack (UJO LN): Additional interest in UK asset | SDX Energy (SDX LN): Update in Egypt and Morocco| ShaMaran Petroleum (SNM CN): Payment from KRG and debt restructuring | United Oil & Gas (UOG LN): Reserves and production update in Egypt | FAR (FAR AU): Not paying cash call in Senegal | Lekoil (LEK LN): Update in Nigeria | San Leon Energy (SLE LN): FY19 results | Savannah Energy (SAVE LN): Trading update | Victoria Oil & Gas (VOG LN): Trading update in Cameroon
Companies: SEN SDX PTAL PGR VOG PXT SAVE RDSA FAR
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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
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)
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
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
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)
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
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
Union Jack’s latest drilling update of the West Newton B-1 well (WNB-1) outlines that the Kirkham Abbey formation is hydrocarbon bearing which supports pre-drill expectations and previous drilling results from the A-1 and A-2 wells. The secondary target (the Cadeby formation) was always deemed to be much higher risk and therefore we had not previously valued this interval, therefore today’s update has no impact on the material base case resource estimates at West Newton (146MMBbl oil, 211Bcf gas). The JV partners continue drilling activities with a side-track of WNB-1 to further appraise the Kirkham Abbey which we fully expect to yield positive results given significant de-risking achieved to date. As such, we retain our STRONG BUY stance and 0.82p/share TP.
Companies: Union Jack Oil Plc
Interim results reflect the severe impact of Q1 lockdowns on the business followed by a recovery in Q2 with the EU leading the rebound, helped by a strong domestic appliance sector, while the UK and automotive sectors have both been slower to recover. Finances were boosted by the £15.4m placing proceeds, with c£40m of financial headroom providing management with the security and confidence to pursue their growth agenda. We re-establish forecasts indicating an EPS decline of 49% for the remainder of this year followed by growth of 45% in FY22. Our price target is reintroduced at 175p, offering 24% upside.
Companies: Trifast plc