Market Update: 7 June 2023
Borders & Southern Petroleum (AIM:BOR)*: NAV Update - Farm-out process moving ahead
Union Jack Oil PLC (AIM:UJO)* & Egdon Resources PLC (AIM:EDR): North Kelsey appeal withdrawn
IOG PLC (AIM:IOG) - Troubling times ahead
i3 Energy PLC (AIM:I3E, TSX:ITE, OTC:ITEEF) - Robust FY22 results
Jadestone Energy PLC (AIM:JSE) - Financing to head off 2024 liquidity crunch
Energy News
Brent Oil US$76.4/bbl vs US$75.1/bbl yesterday
WTI Oil US$71.8/bbl vs US$70.5/bbl yesterday
Henry Hub Gas US$2.27/mmBtu vs US$2.24/mmBtu yesterday
UK NBP Futures 59p/therm vs 64p/therm yesterday
TTF Dutch Futures €25/MWh vs €27/MWh yesterday
- Crude oil prices edged higher as the API reported a 1.7mb w/w draw in US crude oil and fuel stocks (vs 1.5mb build expected).
- European energy prices shifted downwards again reflecting market volatility this week caused by the planned closure of Gazprom’s 31.5bcm Turkstream gas pipeline for annual maintenance this week, exacerbated by the unplanned closure of Norway’s Hammerfest LNG plant until June 14.
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Company News
Borders & Southern Petroleum (AIM:BOR)* 2.87p, Market Cap £21m: NAV Update - Farm-out process moving ahead
Valuation: 8p/sh, BUY
- Borders published its 2022 annual report last week, commenting that it has sufficient funds to meet its overheads until YE24.
- The Company 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.
- We update our FY22 financials and NAV and reiterate our BUY rating and 8p/share target price.
*SP Angel acts as Corporate Broker to Borders & Southern Petroleum (AIM:BOR)
Union Jack Oil PLC (AIM:UJO)* 27.5p, Market Cap £30m: North Kelsey appeal withdrawn
- Union Jack and Egdon Resources PLC (AIM:EDR) announced the decision to withdraw the planning appeals against the refusal of planning consent for drilling at North Kelsey, which were due to be heard next week.
- This decision follows correspondence with the Planning Inspector where it became clear that he viewed the lateral borehole as a new development outside of the original red line boundary of the 2014 planning consent.
- Egdon, the operator, plans to submit a new planning application for consideration by Lincolnshire County Council supported by recently completed updated technical assessments and community consultation.
- North Kelsey is a conventional oil exploration prospect with an estimated 6.7mb mean prospective resource on trend with, and analogous to, the Wressle development that lies approximately 15km to the northwest.
A disappointing result given the time and effort required to reach the Planning Inspectorate’s decision, and the partners must resubmit a planning consent to test this highly prospective subsurface feature. Union Jack is currently awaiting a decision from the Planning Inspectorate on a potential Biscathorpe appraisal well, where an appeal was heard in October 2022, and has plans to drill on both Keddington and West Newton in 2H23, subject to approvals. 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
IOG PLC (AIM:IOG) 4.0p, Market Cap £21m: Troubling times ahead
- IOG announced that the recent fall in gas prices means it is now likely to breach one or more of the covenants under the terms of its €100m senior secured bond at the next covenant test date of 30 June 2023.
- The Company has engaged in preliminary discussions with a group holding c.40% of the bonds to secure pre-emptive waivers of potential covenant breaches and to address the maturity of the bond in September 2024.
- The Blythe H2 development well tested at 22.8mmcf/d, below the expected 30-40mmcf/d rate, with equipment being mobilised in the coming weeks to assess and rectify a potential wellbore blockage.
- IOG reported average 5M23 gross production of 13.9mmcf/d from the Saturn Banks development (50% WI) in the UK Southern North Sea, with cash in bank of £21.5m as at end-May.
The stock is down 40% in early trading as underperformance from the new Blythe well, taken together with the fall in gas prices, will likely impact liquidity. It must feel like déjà vu for IOG investors as disappointing production rates continues to reduce the revenues that were expected to underpin further investment in the portfolio. Management has now entered talks with the Company’s largest bondholders around potential short and longer-term solutions, whilst focusing on maximising near-term production and reducing operating costs, as well as minimising capital expenditure, as reflected in the Goddard farm-out process. After a roller-coaster of ups and downs in the last 12M, IOG still has some way to go to rebuild shareholder confidence in both its operational capabilities and the asset base.
i3 Energy PLC (AIM:I3E, TSX:ITE, OTC:ITEEF) 18.6p, Market Cap £223m: Robust FY22 results
- i3 reported average FY22 net production up 63% y/y to 20.3kboe/d generating £208m revenues and £101m operating cash flow to end the year with £42m net profit.
- The Company reported 49.1mboe PDP reserves and an 18% increase in 2P reserves to 181.5mboe, with 376 gross booked drilling locations in its audited reserves.
- i3 plans to grow the business through the deployment of capital into its large proven undeveloped reserves base, improving uptime and field performance, and through strategic upsizing in core areas.
- The Company commented that the Canadian 1Q23 drilling programme was completed and that drilling operations would recommence in 3Q23 following the Spring seasonal wet period.
While the share price has tracked the downward trajectory of Canadian natural gas prices since the Summer, the Company’s operational success from last year’s investment programme has been demonstrated in tangible reserves and production growth. I3’s low-decline assets continue to outperform expectations and the capital efficiency programme this year should support production growth peaking at 26kboe/d in 2H23, ahead of historically stronger winter pricing. Longer term, i3 recently refinanced its debt capacity and remains committed to grow the return of capital to shareholders (currently an ~11% cash yield) in line with the underlying profitability of the business.
Jadestone Energy PLC (AIM:JSE) 42.2p, Market Cap £188m: Financing to head off 2024 liquidity crunch
- Jadestone announced a $50m equity placing at 45p/sh (8.2% discount to closing) and a $35m standby working capital facility to provide bridge financing to reach first production from the Akatara project in 2H24.
- The Company’s liquidity and borrowing base over the next 12M is expected to be squeezed by lower commodity prices and temporary roll-off of part of its RBL capacity, prior to Akatara coming onstream.
- Management said that today’s financing provides full funding for all of its planned expenditures with the buffer of standby debt in the event of downside scenarios, as it bridges across to Akatara cash flows.
In a culpe mea to investors, management acknowledged that its communications have fallen well short of expectations as it sprung this capital raise on investors to bridge a temporary dip to the forecast borrowing base in mid-2024. We don’t normally comment on equity raises, especially when we are not involved, but today’s $50m equity raise is significant given the dearth of liquidity in UK oil & gas capital markets in the last 12M. Similar to the prior outlier (Diversified’s acquisition-led $160m bookbuild in 1Q23), the market’s relative support for the issue reflects the positive market sentiment towards business models that are built on cash flow generative assets, M&A growth and potential shareholder returns. Today’s financing package and the Company’s new RBL facility should provide the flexibility required ahead of the start-up of Akatara returning the balance sheet to net cash by the end of 2024, albeit subject to an M&A opportunity set in Southeast Asia that holds the most potential for Jadestone to make a significant step-change to the investment case. However, the share price fall in early trading (-14%) ahead of the retail offering reflects the market’s disapproval of being asked to put its hand in its pocket to dig management out of a hole that is somewhat of their own making (lack of hedging, $17m share buyback and new acquisitions).
Research
David Mirzai – David.Mirzai@spangel.co.uk – 0203 470 0473
Sales
Richard Parlons – Richard.Parlons@spangel.co.uk - 0203 470 0472
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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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