Market Update: 24 April 2023
Union Jack Oil PLC (AIM:UJO)* - Positive operational update
Egdon Resources PLC (AIM:EDR) - Wressle lifts production guidance
Europa Oil & Gas (Holdings) PLC (AIM:EOG) - Wressle tops 1H23 results
Touchstone Exploration Inc (AIM:TXP, TSX:TXP, OTC:PBEGF) - Royston testing update
Hurricane Energy PLC (LSE:HUR) - Prax confirms terms
Vår Energi (FRA: J4V) - Solid 1Q results
Energy News
Brent Oil US$81.3/bbl vs US80.5/bbl last Friday
WTI Oil US$77.8/bbl vs US$77.1/bbl last Friday
Henry Hub Gas US$2.20/mmBtu vs US$2.22/mmBtu last Friday
UK NBP Futures 95p/therm vs 98p/therm last Friday
TTF Dutch Futures €40/MWh vs €41/MWh last Friday
- The US Baker Hughes rig count was up 5 units to 753 rigs last week (+58 y/y), with oil rigs up 3 to 591 and gas rigs up 2 to 159 units, with the number of frac spread units also estimated down 4 units w/w to 283 (+14 y/y).
- SLB (Schlumberger) told markets that it expected tangible market growth in North America in 2023, but at a lower rate than originally anticipated at the start of the year, mainly as a result of ongoing weakness in gas prices.
Company News
Union Jack Oil PLC (AIM:UJO)* 22.9p, Market Cap £25m: Positive operational update
- Union Jack provided an update following interim results from its asset partners that included commentaries on UK projects in which the Company has an interest.
- The Wressle oilfield (40% WI) continues to exceed expectations, producing under natural flow with zero water cut. The installation of the micro-turbines for site electrical power at Wressle resulted in a c.10% increase in oil production to average 770b/d gross during March. The second stage is the installation of a 1.4MW gas engine.
- A new seismic interpretation and mapping exercise on the Wressle field has highlighted a potentially significant increase in resources from the producing Ashover Grit reservoir and the results of the analysis are now being incorporated into the field development plan and an updated independent reserve report expected in June.
- The partners pointed to ongoing work to further develop the field and to utilise the associated gas being produced from Wressle, which is expected to lead to further increases in oil production during 2H23.
- Drilling on the Biscathorpe (45% WI) and North Kelsey (50% WI) prospects remain dependent upon the outcome of the planning appeals, but with a positive decision drilling would be expected in 1H24.
- Lastly, the Company said a drilling location in the east of the Keddington field (55% WI) has been identified targeting 0.18mb of incremental resources, with planning in place and plans to drill an appraisal well in 2H23.
A positive update from the operator of the Wressle field, on which the increasing production volumes continue to drive Union Jack’s revenues, shareholder returns and the wider investment proposition. Upgrade works are ongoing and a new CPR is expected to highlight a material reserve upgrade on the producing Ashover Grit reservoir that may lead to a near-term development well that accesses the additional volumes, with the environmental permit application likely to determine the timeline. We expect the Company’s cash generation over the medium term to continue to not only provide potential for further direct return of value to shareholders, via share buybacks or special dividends, but also allow for further investment in its portfolio. The anticipated uptick in drilling and development activity across the portfolio should provide investors with the greatest potential for value creation over the next 12M.
*SP Angel acts as Nominated Advisor and Broker to Union Jack Oil
Egdon Resources PLC (AIM:EDR) 2.4p, Market Cap £13m: Wressle lifts production guidance
- Egdon reported average 1H23 production up 27% y/y to 253boe/d for the 6M ended 31st January, generating £3.7m revenues, £2.1m EBITDA and a £0.7m profit, with £5.5m net cash at 31st January.
- The Company increased average FY23 production guidance from 225-245boe/d to 240-250boe/d, driven by outperformance on the Wressle field (30% WI, operator).
- Egdon is making progress on submitting planning and permitting for further development at Wressle and is finalising a drilling programme on exploration and development/redevelopment projects for 2023-24.
- The Company also highlighted plans to develop energy storage, hydrogen and renewable energy projects utilising its reputation, existing assets, knowledge of the UK's onshore geology and core technical skills.
Robust production continues to generate positive cash flow that allows confidence that Egdon should be fully funded for its current investment plans. There is an active programme of development activity on the Wressle field to boost volumes, but the Company expects that exploration and appraisal drilling over the next 12M will largely be conditional on the outcome of the ongoing planning appeals at Biscathorpe and North Kelsey. Unfortunately for the Company, the outlook for its significant portfolio of onshore UK shale-gas assets continues to look bleak.
Europa Oil & Gas (Holdings) PLC (AIM:EOG) 1.1p, Market Cap £11m: Wressle tops 1H23 results
- Europa reported average 1H23 production up 29% y/y to 268boe/d for the 6M ended 31st January, generating £3.7m revenues, £1.7m in net operating cash flow and a £1.5m profit, with £5.1m net cash at 31st January.
- As with its joint venture partners, production from the Wressle field (30% WI) has driven this improvement with potential for further oil production gains from ongoing projects currently under development.
- The Company’s offshore Ireland licence has been extended to 31 January 2024 and is currently undergoing a farm-out process, which aims to attract a partner by YE23 to assist in funding the drilling of the prospect.
- Progress continues with the development of the Serenity oil discovery in the Central North Sea, which is currently focussed on developing the discovered oil via a unification agreement with Sinopec’s Tain field.
Production continues at a high level from Wressle and the resultant positive cash flow supported by high commodity prices will likely be partly allocated to execute on the stated strategy of building a more balance portfolio of assets by adding appraisal and near-term developments to the Company’s existing asset base. The new CEO, Will Holland, also highlighted positive developments in the energy stance of Irish politicians that should smooth the regulatory path towards drilling an exploration well on the offshore FEL 4/19 licence, subject to funding.
Touchstone Exploration Inc (AIM:TXP, TSX:TXP, OTC:PBEGF) 59p, Market Cap £137m: Royston testing update
- Touchstone announced that the initial production test of the lowest section of the Royston-1X sidetrack well on the onshore Trinidad Ortoire block (80% WI) confirmed the presence of light oil at non-commercial rates.
- The first of potentially five production tests of the Royston-1X well evaluated the lowest and least prospective section in the sub-thrust sheet of the Herrera Formation, which proved to have oil in a low permeability reservoir.
- The Company will continue testing operations with potentially four additional tests targeting an aggregate 384 gross feet, with a testing programme to evaluate each identified sand interval independently.
Following stuck pipe in the original discovery well, investors are hoping that the Royston sidetrack will ultimately confirm the commerciality of the previously tested zones and the deeper potential, with Touchstone looking to high grade its asset portfolio in targeting the Herrera turbidite fairway around its core Ortoire licence. First gas from the Coho development in 2H22 has transformed the Company into a sustainable cash flow generating production-based E&P that can now grow production volumes through a combination of additional drilling and well optimisation, as well as take its learnings from Coho in the development of the larger Cascadura project. We look forward to further test results.
Hurricane Energy PLC (LSE:HUR) 7.48p, Market Cap £149m: Prax confirms terms
- Prax E&P (private) confirmed the financial terms for the recommended sale of Hurricane for 4.15p/sh in firm proceeds and up to 8.35p/sh in deferred consideration, which values the Company at up to £249m (12.5p/sh).
- Two leading independent, third-party proxy advisory firms, ISS and Glass Lewis, have issued supportive recommendations in support of the deal. A General Meeting is planned for 4th May.
- Prax commented that it is trying to acquire other producing oil and gas assets, noting that the UK M&A market has a limited credible buyer universe and numerous large companies looking to exit their UK positions.
Despite the increase in shareholder activism seen in the last 12M across the E&P sector, the exhaustive nature of the sales process and support of ~45% of the shareholder base is likely to ease the deal’s passage. More importantly, Prax has hired a management team led by Alessandro Agostini, Oliver Dunn and Iain McKendrick, which has a considerable track record in executing upstream deals and considers Hurricane as the first step and the platform to build an upstream division through the acquisition of further, complementary UK continental shelf upstream assets.
Vår Energi (FRA: J4V) NOK26.5, Market Cap NOK66.1bn: Solid 1Q results
- Vår reported average 1Q23 net production flat q/q at 214kboe/d (62% liquids), with NGL recovery reduced to maximise gas sales, and reiterated FY23 production guidance of 210-230kboe/d.
- The Company’s development portfolio is progressing according to plan with the Frosk, Bauge and Hyme projects expected to come onstream and the production target of above 350kboe/d by end-2025 maintained.
- The Board declared a 1Q23 dividend of NOK1.148 per share to be distributed on 10th May.
Vår shareholders will hope that the guided flat average FY23 production of between 210-230kboe/d continues to benefit from the relatively strong commodity price environment to generate material operating cash flows that are being used to progress 17 sanctioned development projects in Norway. The capital allocations policy also pays a regular quarterly dividend (~18% annualised yield) while allowing for management to continue to pursue accretive M&A opportunities based on value and scale. However, with the European Majors and industry peers also offering double-digit shareholder returns, investor focus will likely remain on progress of a raft of new projects through the development hopper as the Company targets a 50% increase in production volumes to above 350kboe/d by end-2025.
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
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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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