Market Update: 1 June 2023
Borders & Southern Petroleum (AIM:BOR)* - Farm-out process progressing
Mosman Oil and Gas Ltd (AIM:MSMN)* - Amadeus Basin update
United Oil & Gas PLC (AIM:UOG) - ASD-3 tests positively
Trinity Exploration & Production PLC (AIM:TRIN) - New capital allocation policy
Energy News
Brent Oil US$72.6/bbl vs US$72.8/bbl yesterday
WTI Oil US$68.0/bbl vs US$68.6/bbl yesterday
Henry Hub Gas US$2.28/mmBtu vs US$2.31/mmBtu yesterday
UK NBP Futures 57p/therm vs 58p/therm yesterday
TTF Dutch Futures €24/MWh vs €25/MWh yesterday
- Crude oil prices edged lower as the API reported a 5.2mb build in US crude oil and fuel stocks (vs 1.2mb draw expected) but has opened higher as the US debt ceiling deal was voted through by the House last night.
- European energy prices spiked by 15% yesterday following news of an outage to repair a leak at Equinor’s Hammerfest LNG export plant in Norway, before giving up most of those gains by market close.
- EU natural gas storage levels rose 2.1% w/w to 68.6% full (vs 50.6% 5-year average), with strong builds in Germany and Italy contributing to aggregate storage of 776TWh.
- Equinor and BP cited cost pressures in postponing a final investment decision for three years on the $10bn Bay du Nord development offshore eastern Canada, which was expected to deliver 200kb/d at plateau.
Company News
Borders & Southern Petroleum (AIM:BOR)* 3.0p, Market Cap £22m: Farm-out process progressing
- Borders reported a cash balance of $2.7m at YE22 and received a further $0.78m in share proceeds during January, which it believes provides sufficient funds to meet the Company’s overheads until YE24.
- The Company’s recent technical and commercial work has focused on defining and validating new development concepts for its large Darwin gas condensate discovery in the Southern Falkland Basin.
- Borders is currently running a data room to attract a farm-in partner to fund the new phased Darwin development concept that minimises upfront costs and accelerates time to first production.
- The Company commented that this includes some of the companies that have been previously engaged, along with those considering the project for the first time, and is expected to continue over the coming months.
Whilst competition for capital for greenfield oil developments is strong, we believe that Darwin's appraisal and phased development represents an attractive proposition for potential industry collaborators to consider as an avenue for future production and revenue growth. In our view, Borders’ offers investors a two-year option on increasing industry M&A activity and positive Falklands news flow that improves the chance it will attract a farm-in partner to fund the next stage of development. We also think that the Darwin project and Borders’ share price will benefit from any material progress made towards developing the Navitas/Rockhopper Sea Lion discovery that is also located in the Falkland Islands.
*SP Angel acts as Corporate Broker to Borders & Southern Petroleum (AIM:BOR)
Mosman Oil and Gas Ltd (AIM:MSMN)* 0.06p, Market Cap £4.2m: Amadeus Basin update
- Mosman announced that it is in the process of modifying the corporate structure of its subsidiaries to facilitate an IPO of the exploration assets in the Amadeus Basin, onshore Australia.
- The Company advised that various applications have been made to the statutory bodies in Australia to grant a further 12M extension of the work programme, as a result of prior delays in obtaining approvals.
- Mosman is also monitoring the activities of the Central Petroleum / Santos / Peake Helium JV, which plans to drill three wells commencing in 2H23 targeting helium, hydrogen, and natural gas in the Amadeus Basin.
The Amadeus Basin is considered one of the most prospective onshore areas in the Northern Territory of Australia for oil and gas, as well as helium and hydrogen. The Board does not feel that the value of these assets is fully reflected in the market capitalisation, which likely reflects the focus of the Company’s resources on the US following the recent Cinnabar-1 success. However, the recent award of a permit from the Aboriginal CLC is a major step forward and work to secure several other approvals can now be progressed to carry out a seismic programme on the licence; so it makes sense to look at different funding options at this point via a corporate review. Nonetheless, we expect near-term investor focus to remain on updates from the Cinnabar development (75% WI) in Texas, which could be potentially transformational for Mosman.
*SP Angel acts as Nominated Advisor and Broker to Mosman Oil & Gas
United Oil & Gas PLC (AIM:UOG) 1.46p, Market Cap £9.6m: ASD-3 tests positively
- United announced results in line with pre-drill expectations from the ASD-3 development well on the onshore Egypt Abu Sennan licence (22% WI)
- The ASD-3 testing results have confirmed the connectivity of the AR-E reservoir across the ASD field and is expected to be brought into production with an initial gross rate of between 0.5-0.6kb/d.
- The Company will now focus on evaluating follow-on development drilling targets with the JV partners to ensure that recovery is maximised from the ASD field. Drilling plans for the remainder of 2023 will be announced following the completion of the evaluation of the 1H23 drilling programme.
The ASD-3 well is the second successful well in the 2023 drilling programme and can deliver additional production and revenue by being quickly tied-back to the existing facilities. Investors will look for ongoing success from the 2023 drilling campaign, which focuses on lower risk development drilling and optimising production from existing wells through low-cost workovers. Conclusion of the UK Maria sale is the next material stock catalyst as it will enable the pay down of debt and fund a limited buyback programme, though we expect shareholder focus to also be on both value creation from its existing portfolio as well as on the Company’s ability to deliver M&A opportunities to support its growth strategy.
Trinity Exploration & Production PLC (AIM:TRIN) 81.5p, Market Cap £31m: New capital allocation policy
- Trinity reported average FY22 net production of 2,.98kb/d generating $92.2m revenues and $12.0m of operating cash flows to finish the year with $12.1m of net cash.
- The Company announced a new capital allocation policy that will include a modest but sustainable dividend commencing in 3Q23, with scope for additional distributions in the form of share buybacks or special dividends.
- Trinity is currently drilling the deep “Jacobin” prospect located in the onshore Trinidad Palo Seco area (100% WI), which is targeting virgin-pressured reservoirs with higher production rates than conventional wells.
- The Company commented that it expects to finalise a revised development plan on the offshore Galeota field in 4Q23 that will include the existing Trintes producing field as well as appraisal and exploration opportunities.
Trinity’s intention to implement shareholder cash returns once the drilling programme has completed may have been delayed by 6M, but investors can now look forward to joining the dividend-paying club in 2H23. These FY22 results are historical now, reflecting a period of hedging that obscured the Company’s leverage to commodity prices. However, we think the market should be excited to see the resumption of the onshore drilling campaign with the Jacobin exploration well that is testing the deep Miocene play fairway in Licence PS-4, which should deliver a meaningful step-change in production and reserves on success. A successful well would unlock both a development of the Jacobin prospect itself and eight further follow-on drill-ready prospects and mapped leads across its core onshore acreage. We expect greater clarity from management on the new capital allocation policy at the upcoming FY22 results presentation.
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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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Oil Brent - ICE
Natural Gas - NYMEX
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