Market Update: 17 February 2023
Enquest PLC (AIM:ENQ) - 2023 guidance disappoints
Jadestone Energy PLC (AIM:JSE) - Interim debt facility closed
LON:ITH - 4Q22 in line with guidance
Energy News
Brent Oil US$83.3/bbl vs US85.0/bbl yesterday
WTI Oil US$76.9/bbl vs US$78.3/bbl yesterday
Henry Hub Gas US$2.35/mmBtu vs US$2.52/mmBtu yesterday
UK NBP Futures 122p/therm vs 132p/therm yesterday
TTF Dutch Futures €49/MWh vs €53/MWh yesterday
- Crude oil prices remain stuck in neutral on the contrary signs of US inventory growth pointing to oversupply and improved market sentiment on Chinese demand rebounding.
- The US EIA storage report detailed a draw of 100bcf to 2,266bcf last week, with storage levels up 16.9% y/y. Also, the 2.1bcf/d Freeport LNG terminal in Texas is now expected to recommence operations later this month.
- The UK’s offshore regulator has asked Equinor for further information on the environmental impact of its proposed £8bn Rosebank development in the UK North Sea.
- Media reports that there is currently a 99.8GW pipeline for offshore UK wind projects, which includes 13.7GW fully operational and 13.6GW under construction, placing the UK second only to China (137GW) in global terms.
Company News
Enquest PLC (AIM:ENQ) 19p, Market Cap £359m: 2023 guidance disappoints
- EnQuest reported average FY22 net production up 6% y/y to 47.3kboe/d, which generated $500m of free cash flow that reduced net debt levels to $717m at YE22, further reduced to $698m by end-January.
- The Company’s $220m FY23 capex budget includes new wells on Magnus and Golden Eagle, but the Company plans to defer drilling at its Kraken field following last year’s changes to the Energy Profits Levy.
- EnQuest guided average FY23 production of 42-46kboe/d and operating costs to rise ~6% to $425m (up $3.5/b y/y), with January’s 48kboe/d average falling due to maintenance shutdowns at Kraken, Magnus and GKA.
The stock is down over 10% in early trading on the back of lower 2023 production guidance and higher operating costs. Strong commodity prices, albeit capped by its hedging requirements, enabled EnQuest’s stable production to generate $0.5bn of free cash flow in 2022, which was used to reduce its debt load. However, operational results have been mixed across its portfolio limiting upside and the impact of the UK Energy Profits Levy has clearly impacted investment, reducing production, cash flow and therefore the pace of deleveraging. Following last year’s refinancing, we wait to see if ongoing cash flow strength causes the Company to re-evaluate its strategy and capital allocation policy this year.
Jadestone Energy PLC (AIM:JSE) 87.9p, Market Cap £392m: Interim debt facility closed
- Jadestone announced an interim $50m debt facility with two international banks for a term of nine months that carries an initial margin of 450bp over the Secured Overnight Financing Rate (SOFR currently at 4.31%).
- The Company said the reserves-based lending facility (RBL) workstreams were progressing in line with management expectations and expected to close at end-1Q23, superseding the interim facility.
Despite being in a net cash position, Jadestone is looking to improve its financial flexibility by securing a long-term RBL funding source for the Akatara gas development that would allow the Company to also pursue its M&A growth strategy. Jadestone plans to give FY23 operational and financial guidance once the Montara field FPSO (100% WI) has resumed production this quarter, at which point we expect investor focus to transfer to its operational and M&A catalysts.
LON:ITH 191p, Market Cap £1.92bn: 4Q22 in line with guidance
- Ithaca announced average FY22 production of 71.4kboe/d and average 4Q22 production of 80.8kboe/d, ahead of management guidance of 77-80kboe/d, with prior FY23 production guidance given at 72-80kboe/d.
- The Company estimates FY22 net unit opex costs up $1/boe y/y to $19/boe, substantially driven by higher cost of fuel gas and diesel, and $416m net capex.
- Ithaca announced an initial interim dividend of $133m payable in 1Q23, which is expected to be followed by two further dividend payments following 1H23 results and at end of the financial year (implied ~17% yield).
It has been a difficult few months for investors since the IPO, with the share falling over 20% as Ithaca was hit with the double whammy of a pullback in energy prices and an expanded 35% Energy Profits Levy on UK producers. 4Q22 operational results are in line with guidance and the Company has initiated its stated dividend policy. Nonetheless, it will take time for Ithaca to differentiate itself from its larger peers, Harbour Energy ($500m or c.16% total shareholder return in 2022) and Var Energi (trading at 14.5% dividend yield), by articulating and then delivering on its growth pipeline, despite the negative UK media attention surrounding its Cambo and Rosebank development projects.
Research
David Mirzai – David.Mirzai@spangel.co.uk – 0203 470 0473
Sales
Richard Parlons – Richard.Parlons@spangel.co.uk - 0203 470 0472
Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471
Rob Rees – Rob.Rees@spangel.co.uk - 0203 470 0535
Abigail Wayne – Abigail.Wayne@spangel.co.uk - 0203 470 0534
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Sources of commodity prices
Oil Brent - ICE
Natural Gas - NYMEX
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