Cairn Energy (CNE LN): Production and development expenditure reduced; exploration deferred | Parkmead Group (PMG LN): LNG oversupply hits cash flows | Bowleven (BLVN LN): Interim results, sufficiently funded to reach FID at Etinde
Companies: CNE PMG BLVN
H1 results to December 2019
Oil price update – what does it mean for oil and gas equities?
Companies: BLVN GENL GEEC GKP HTG HUR IOG JOG LAM PANR PMO RKH SENX
Etinde FEED contract awarded
Etinde onshore gas supply LOI
FY 2019 results
This note takes a look at UK oil and gas sector equities from the supermajors down to the small cap E&Ps, the extent to which they outperform a simple bet on oil prices, and whether there are common characteristics that can allow investors to pick winners in the space. We conclude that outperformance is possible and has been achieved by numerous names in the last ten years, with the core hallmarks being asset base augmentation, either by progressing assets and/or via acquisition, and possessing the agency to achieve this. We also include profiles of the oil and gas stocks in our coverage.
Companies: BLVN GENL GEEC GKP HTG HUR IOG JOG LAM PANR PMO RKH SEN
Following continued delays of a Brexit agreement, few sectors within the UK market have remained attractive to investors despite low valuations. One sector which has continued to outperform despite the political drama has been the UK video gaming sector (henceforth UK gaming), which we are fans of. We believe a combination of sector-leading growth, strong cash conversion and timely cyclical positioning support our positive view on the UK video gaming sector.
Companies: ABBY AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CDM CSRT TIDE CYAN DTG DEMG ELM EMR FPO FDEV GTLY GENL GHH GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KAPE KEYS KWS KCT KGH LAM LIT LOK MACF MANO MOD OXIG PCA PANR APP SRE PHC PMO RBW RMM RBGP REDD RSW RNO ROR SUS SCPA SEN SHG SOLG SOM SUMO TM17 INCE TWD TRAK TRI VNET VTC ZOO ZTF
In January, we provided a list of 11 stocks for 2019 that we believed would perform strongly with attractive catalysts that could lead to material outperformance. In this Quarterly Research Outlook, we revisit these views, analysing what has happened and how the remaining six months of the year could play out.
Companies: AMS ANX ARS ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE CYAN DTG DEMG ELM EMR FPO FST GTLY GENL GRI GEEC GKP HMI HAYD HEAD HILS HTG HUR HYR IBPO IOG INDI JHD JOG KAPE KEYS KCT KGH LAM LIT LOK MACF MANO PCA PANR PXC PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG SOM TWD TRAK TSG TRI VNET VTC ZOO ZTF
We’re just over three months in to 2019 and we’ve seen a 10% UK market rally, retracing much of the Q4 decline, such is the nature of fickle market sentiment. That said, many of the issues we wrote about three months ago that were impacting markets remain: notably Brexit, trade wars, geopolitics and global monetary policy. The 2019 rally thus far feels somewhat fragile, with competing forces of optimism on a potential trade deal which could underpin the rally, against the deterioration in underlying economic data that could ultimately undermine the recent market gains. In this context, we look at what the lead indicators and the market are telling us about the industrial cycle and the stocks most exposed to various industrial trends. The Q4 derating in short cycle industrials and autos had been vicious and while these sectors have seen a more solid footing in 2019, with earnings downgrades being priced in, it will likely take a trough in lead indicators before short cycle stocks can start to perform again and re-rate relative to the market.
Companies: ARS CYAN HYR LIT SOM ABBY AMS AMER ANX ATYM AVON BLVN PIER BUR CGS CAML CALL CSRT TIDE DTG DEMG EMR FPO FST GTLY GENL INCE GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO INDI JHD JOG KEYS KCT KGH LAM LOK MACF MNO MANO MOD MKLW OXIG PCA PANR APP PXC PHC PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TRAK TRI VNET VTC ZOO ZTF
Network International Holdings—Pleading enabler of digital commerce across the Middle East and Africa region, operating across over 50 highly underpenetrated payment markets that contain a total population of 1.5 bn. 2018 rev $298m, underlying EBITDA $152m. Due April. No new funds to be raised. Secondary sell down. Targeting 25% of at least 25%.
Techniplas –global producer and support services company providing highly engineered and technically complex components, making the supply chain to original equipment manufacturers more efficient. FYDec17 rev $515m.
Companies: MWE IND SAVE MOS MCM AAU HUW BLVN FA/ PMG
Bowleven has announced its interim results for the six months to 31 December 2018. The accompanying statement reveals that the Company retains over US$15 million in cash and financial investments. This should be more than sufficient to fund Bowleven through to a final investment decision on the Etinde permit offshore Cameroon, when it is due to receive an additional US$25 million from its partners. In the meantime, we maintain our Buy rating and 32p/share price target.
See what's trending this week...
The market has not faced quite so many conflicting challenges for a number of years, whether related to global geopolitics, trade wars, ongoing Eurozone issues or the “will they, won’t they” saga of Brexit. In our Best Ideas, we sought to highlight stocks that present investors with interesting opportunities following recent market moves. Those stocks, we believe, warrant investor attention, in many cases for uncorrelated or stockspecific reasons, regardless of the near-to-medium term market direction. These stocks, in general, represent attractive and well-managed businesses or assets, with share price catalysts and where valuations or recent stock performance provide investors with a good entry point.
Companies: 7DIG ABBY AMS ANX ARS ATYM AVON BLVN PIER CGS CAML CALL CSRT TIDE DTG DEMG ELM EMR FPO FST GTLY GENL GRI GEEC HDY HMI HAYD HEAD HILS HTG HUR IBPO IOG INDI JHD JOG KEYS KCT KGH LAM MACF MOD MKLW OXIG PCA APP PMO RBW RMM REDD RSW RNO RKH RBGP ROR SUS SCPA SHG SOLG TWD TRAK TRI VNET VTC ZTF
Research Tree provides access to ongoing research coverage, media content and regulatory news on BowLeven.
We currently have 41 research reports from 6
Oil fell, paring a weekly gain, as investors weighed improving supply fundamentals against doubts surrounding China's economic growth.
Futures in New York slid 2% Friday but notched a 13% increase for the week. Major producers continue to scale back production. US explorers laid down another 21 oil rigs, bringing the total to the lowest since 2009. Beijing abandoned its economic growth target for this year due to “great uncertainty” over the coronavirus, triggering concerns over a demand recovery.
Yet, output cuts by major producers have helped shrink inventories globally at the same time that OPEC+ works to implement its pledged reductions. The alliance's programme this month is on the way to trimming 9.7 million barrels of daily crude output -- roughly 10% of global supplies and stockpiles at the storage hub at Cushing, Oklahoma, shrank by the most on record last week.
West Texas Intermediate crude for July delivery dropped 67 cents to settle at $33.25 a barrel.
Brent for July settlement fell 93 cents to end the session at $35.13 a barrel on the ICE Futures Europe exchange.
Gasoline futures fell 0.7% to $1.0382 a gallon.
China's oil demand earlier this month was probably at 92% of levels at the same time last year, IHS Markit said, and full-year consumption is likely to be around 8% lower than in 2019.
Companies: FOG PVR 88E DGOC EME TRIN UOG
Anglo Asian Mining is an AIM listed precious and base metals producer running flagship Gedabek operations in western Azerbaijan which include three producing mines and processing facilities. The Company targets 75-80koz GEOs in 2020 with low cost operations providing capital for organic growth opportunities within the highly prospective +1,000km2 land package, with the potential for additional attractive targets outside Azerbaijan as well as 25% of FCF dividend programme.
Companies: Anglo Asian Mining
Falcon is uniquely placed in the current challenging commodity price environment with its strong cash position (US$11.5m at 31 March 2020), fully funded drilling programme and high quality assets. Following the farm down of a 7.5% participating interest to partner Origin Energy in return for an A$150.5m increase in the gross cap carry, we believe Falcon is fully funded through one of the greatest periods of uncertainty the oil and gas industry has ever faced. At a time when many in the industry fight for their very survival, we believe Falcon has managed to secure a fantastic deal for shareholders, which should see the Company through to the potential monetisation of its 22.5% participating interest. We maintain our price target at 40p, a 426% premium to the current share price and reiterate our BUY recommendation.
Companies: Falcon Oil & Gas
Savannah Energy is an AIM-listed E&P company with two sets of assets: (i) in-production gas and oil fields and a regional monopoly gas distributon network in South East Nigeria (well away from the risky Delta area); and (ii) licenses over 50% of a prolific oil basin in Niger.
Companies: Savannah Energy
Companies: Hurricane Energy
Sylvania's share price has fallen 53% since its peaked on the 21st Feb, as the global economy hit the brakes. The short term demand outlook for PGMs is miserable, with supply chains breaking down as both luxury goods and car sales sales collapse.
Companies: Sylvania Platinum
In this note, we analyze the indebtedness of 35 international E&Ps publicly listed in the UK, Canada, Norway, Sweden and the USA. For each company, we look at (1) cash position, (2) level and nature of debt (including covenants), (3) debt service and principal repayment framework and (4) Brent price required from April to YE20 to meet all the obligations and keep cash positions intact. We also estimate YE20 cash if Brent were to average US$20/bbl from April to YE20. While the oil demand and oil price collapse are of unprecedented historical proportions and the opportunities to cut costs much more limited than in 2014, most companies (with a few exceptions) entered the crisis in much better position than six years ago, with stronger balance sheets and often already extended debt maturities. In addition, this time around, many E&Ps have already been deleveraging for 1-2 years and are not caught in the middle of large developments that cannot be halted. The previous crisis also showed that debt providers could relax debt covenants for a certain period as long as interest and principal repayment obligations were met. This implies that as long as operations are not interrupted and counterparties keep paying their bills (Kurdistan), the storm can be weathered by most for a few quarters.
With (1) Brent price of about US$50/bbl in 1Q20, (2) reduced capex programmes, (3) material hedging programmes covering a large proportion of FY20 production at higher prices and (4) limited principal repayments in 2020, we find that most companies can meet all their costs and obligations in 2020 at Brent prices below US$40/bbl and often below US$35/bbl) from April until YE20 and keep their cash intact, allowing them to remain solvent at much lower prices for some time. In particular, Maha Energy and SDX Energy are cash neutral at about US$20/bbl. When factoring the divestment of Uganda, Tullow needs only US$9/bbl to maintain its YE20 cash equal to YE19. Canacol Energy, Diversified Gas and Oil, Independent Oil & Gas, Orca Exploration, Serica Energy and Wentworth Resources are gas stories not really exposed to oil prices and Africa Oil has hedged 95% of its FY20 production at over US$65/bbl.
Companies: AKERBP AOI CNE CNE DGOC EGY ENOG ENQ GENL GKP GPRK GTE HUR IOG JSE KOS LUPE MAHAA OKEA ORC.B PEN PHAR PMO PTAL PXT RRE SDX SEPL TETY TGL TLW TXP WRL
Gold – Robust pricing, improved returns and increased interest
The robust gold price, currently sitting comfortably above $1,700/oz, has been one of the bright spots of the current COVID crisis, although the roots of the price increase were seen well before from mid-2019 on geopolitical and trade concerns. Gold mining companies have been reaping the rewards of the higher price with forecast profits and cash expected to grow significantly. The increase in gold price has been reflected by share price appreciation for most of the gold-mining sector; gold miners, those companies developing gold projects and even gold explorers have all seen an uptick in share prices. Those companies in production should see considerably higher profits and we expect the level of dividends back to shareholders to rise.
The rate of M&A in the sector might also increase, as in previous high price periods, with some companies assuming that these prices can be sustained – however, they will have to be careful as a rash of M&A in previous cycles has shown that there may be a price to pay later on and the industry can ill afford a return to eye-wateringly large write-downs on the other side of this cycle. Gold miners will also have to behave prudently as there will, of course, be a temptation for higher throughput and production, regardless of grade, to generate more cash – a decreasing profit margin perhaps, but a lengthening mine life; as in everything there is a balance to be made to ensure sensible returns.
We are most heartened by a renewed interest in the previously (seemingly) ignored junior explorers which we think is a theme that will develop and continue.
Companies: AURA CMCL CNG GDP JLP ORR
Another impressive year for Iofina, which has reporting a second consecutive year of record iodine production and EBITDA. It also launched its new CDB extraction division, reduced debt through a successful fundraise and delivered the next phase of expansion in its core iodine business with the start-up of IO#8 on time and within budget. Weak oil prices have affected brine water supplies to this plant, causing it to be idled. However, management is optimistic IO#8 will restart in H2 as oil prices recover. We are reinstating estimates that assume a gradual restart from August, and have set a new DCF-based price target of 32p/sh, down from 35p previously.
An independent resource audit by Gaffney, Cline & Associates (GCA) has significantly increased the resources at the Mako gas field following the JV's highly successful drilling campaign in Q4/19. GCA have increased the 2C gross recoverable dry gas volumes when compared to its previous resource assessment (in January 2019) by 79% to 495Bcf, slightly ahead of the internal 493Bcf assessment. In the upside case, the 3C resources have increased by 108% to 817Bcf, significantly higher than the 3C internal resource estimate of 666Bcf. Following the GCA resource upgrade, the Mako field has been proven to be one of the largest gas fields ever discovered in the West Natuna Basin and is believed to be the largest undeveloped resource in the region. Located close to existing infrastructure and well established markets, we believe Mako is an attractive proposition, which we currently value at US$18.3m or 3.2p using a US$6/mcf long term gas price.
Companies: Empyrean Energy
April 2020 production payment
Companies: Gulf Keystone Petroleum
Petropavlovsk PLC (LSE: POG) have released their FY2019 results and Q1 trading update this morning. The company had already released production numbers for last year. Overall the numbers reflected a strong operational performance although various financial/other parameters thwarted positive changes below the EBITDA line. Conversely net cash from operations reduced by 43% due to lower cash from prepayment as part of the group’s forward sale facility with the banks, yet net debt came down to $561m. . We show the key figures in Table 1.
An independent resource audit by Gaffney, Cline & Associates (GCA) has significantly increased the resources at the Mako gas field following the JV's highly successful drilling campaign in Q4/19. GCA have increased the 2C gross recoverable dry gas volumes when compared to its previous resource assessment (in January 2019) by 79% to 495Bcf, slightly ahead of the internal 493Bcf assessment. In the upside case, the 3C resources have increased by 108% to 817Bcf, significantly higher than the 3C internal resource estimate of 666Bcf. Following the GCA resource upgrade, the Mako field has been proven to be one of the largest gas fields ever discovered in the West Natuna Basin and is believed to be the largest undeveloped resource in the region. Located close to existing infrastructure and well established markets, we believe Mako is an attractive proposition, which we conservatively value at US$18.3m (risked) or 3.2p using a US$6/mcf long term gas price, unrisked our valuation of Mako increases to US$25.2m or 4.3p per share. We value Empyrean as a whole at 19.0p per share a 280% premium to the share price and reiterate our BUY recommendation.
Valuation – We have updated our Mako model, with gas first in 2023 (previously 2022). Using a long term gas price of US$6/mcf, and a 10% discount factor we value the 42.1Bcf of net 2C resources at US$18.3m (risked) or 3.2p per share. We include a 30% risking to account for any potential commercial risks (including political and fiscal changes), cost risks (associated with potential development cost variations) and timing risks (to allow for any project delays). Unrisked our valuation increases to US$24.7m or 4.3p per share.
A key sensitivity to our valuation is the gas price, at US$8/mcf our valuation of Mako increases to US$31.0m or 5.3p per share (risked), US$44.3m or 7.6p per share (unrisked) and at US$10/mcf our valuation increases to US$40.8m or 7.0p per share (risked), US$58.4m or 10p per share (unrisked).
Combined, we value Empyrean's portfolio at 19p per share, a 280% premium to the share price.
Oil posted its biggest monthly advance on record, just a few weeks after prices made a dramatic plunge below zero. Crude surged about 88% in May, with US futures on Friday rising above $35 a barrel for the first time since March, driven by massive supply curbs by producers across the world. Still, prices are well below levels at the start of the year, and demand that was crushed by the coronavirus crisis may need to show a sustained improvement for the rally to extend further.
For now, the outlook for consumption looks bleak, though it is on the mend. While virus-related lockdowns are easing, demand is not yet roaring back in the US Fuel sales that were clobbered in European nations such as Spain and Italy will take time to recover. China is a bright spot, but the rest of Asia is still struggling.
The number of rigs drilling for oil in the US fell for the eleventh week, stemming the massive glut of crude that flooded the market. Yet there is a risk that oil's advance could tempt producers to turn on their taps again.
US crude futures fluctuated Friday, as Federal Reserve Chairman Jerome Powell defended aggressive action to shield the economy as the coronavirus pandemic took hold. Prices surged at the close, with West Texas Intermediate oil settling 5.3% higher at $35.49 a barrel, after falling as much as 4% earlier in the day. Futures posted the biggest monthly jump in data going back to 1983.
Brent crude for July, which expires Friday, rose 4 cents to $35.33, closing below WTI for the first time since 2016. The global benchmark has rallied almost 40% this month. The more active August contract rose 5% to settle at $37.84.
Meanwhile, US President Donald Trump is poised to sign a measure that would punish Chinese officials for imprisoning more than one million Muslims in internment camps, as he looks to rebuke Beijing over its crackdown in Hong Kong and its response to the coronavirus. He has also discussed putting targeted sanctions and trade measures on China's financial sector.
More on the oil market:
As the fallout from crude's historic plunge continues, the Securities and Exchange Commission and the Commodity Futures Trading Commission have both opened probes into the $4.64 billion United States Oil Fund ETF.
As China's demand recovery outpaces the rest of Asia, falling fuel exports from the refining giant are providing a much-needed buffer for other processors in the region still grappling with lowered consumption and poor margins.
An early look at Saudi Arabia's crude exports for May shows that historic production cuts have done little to squelch the kingdom's flood of oil to China, which is just getting back on its feet from the coronavirus.
Shearwater sells resilience and today's trading update shows us how resilient demand has been for its products and services. The Group has swung to EBITDA profitability and cash flow is well ahead of expectations. The macro themes of cyber security and remote working are supportive of robust demand levels going forward. We are maintaining our forecasts. Buy.
Companies: Shearwater Group