Market Update: 14 June 2023
Union Jack Oil PLC (AIM:UJO)* - Wressle reaches $16m net revenues
Tlou Energy Ltd (AIM:TLOU, ASX:TOU, BSE:TLOU) - Lesedi operational update
Petro Matad Limited (AIM:MATD, OTC:PRTDF) - Velociraptor wildcat spuds
Maurel et Prom (EPA: MAU) - Potential acquisition
Energy News
Brent Oil US$75.0/bbl vs US$72.8/bbl yesterday
WTI Oil US$70.0/bbl vs US$67.8/bbl yesterday
Henry Hub Gas US$2.33/mmBtu vs US$2.31/mmBtu yesterday
UK NBP Futures 75p/therm vs 71p/therm yesterday
TTF Dutch Futures €34/MWh vs €29/MWh yesterday
- Oil prices bounced back from Monday’s lows as the recent market volatility persists without any definitive visibility on the outlook for global crude demand growth.
- European gas prices surged higher as operations at the Nyhamna gas processing plant in Norway were suspended, adding to the existing unplanned outage from the Hammerfest LNG plant.
- Shell announced plans to increase its dividend by 15% and buy back $5bn of shares commencing in 3Q23, funded by removing a commitment to cut oil production by 1% to 2% annually, reducing capex by $1-2bn per annum (implicitly in low carbon) and targeted savings as part of new CEO Wael Sawan’s CMD update in New York.
Company News
Union Jack Oil PLC (AIM:UJO)* 28.5p, Market Cap £31m: Wressle reaches $16m net revenues
- Union Jack reported $16m of net revenues have been achieved from the onshore UK Wressle development (40% WI), which is currently producing at a stable rate of c.780b/d under natural flow with zero water cut.
- The Company commented that it looks forward to the revised Wressle Competent Person`s Report, implementation of multiple work programmes and the drilling of wells across its project interests.
- Union Jack is debt free with over £11.5m in cash and cash equivalents on its balance sheet that covers all planned G&A, operational and capex costs for at least the next 12 months.
- The Company holds 5.2m ordinary shares in Treasury (4.6%) and will pay a 0.3p/sh interim dividend in July.
Wressle production continues to drive Union Jack’s revenues, shareholder returns and the wider investment proposition. Drilling of a development well into the Penistone Flags reservoir on Wressle is planned for 2H23, subject to the necessary consents, with the gas monetisation plan also underway for the Ashover Grit reservoir and additional wells being planned. 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 (West Newton, Keddington North) 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
Tlou Energy Ltd (AIM:TLOU, ASX:TOU, BSE:TLOU) 2.0p, Market Cap £10m: Lesedi operational update
- Tlou announced the completion of drilling on the Lesedi 6P vertical production well and the top holes for two wells, Lesedi 6A & 6B, in preparation for running the directional tools needed to complete the lateral sections.
- Work on the 100km transmission line to connect the Lesedi power project to the existing power grid is 73% complete and anticipated to be finished in 3Q23. The substations are expected to be commissioned in 2Q24.
- The gas will be converted to electricity for the existing 10MW Power Purchase Agreement with Botswana Power Corporation (BPC) once the transmission line, substations and associated electrical infrastructure are in place.
Progress continues at the Lesedi development, where following a 3M dewatering process, gas flow rates should build towards 0.5mmcf/d that will be sufficient to power 2MW of generation capacity. The Company is working hard to bring on the Lesedi 10MW CBM gas-to-power project into production as quickly as possible and, subject to available funding, the Company plans to rapidly expand to 25MW and beyond. We expect interest on the project timeline to remain high, as well as updates on the gas production rates from dewatering wells and a funding solution to complete the project.
Petro Matad Limited (AIM:MATD, OTC:PRTDF) 4.35p, Market Cap £48m: Velociraptor wildcat spuds
- Petro Matad announced the spudding of the Velociraptor-1 high risk/impact exploration well on Block V (100% WI) in Mongolia that is expected to take c.30 days to reach the prognosed 1,500m TD at a cost of under $2m.
- The Velociraptor wildcat is targeting an inversion anticline with 200mb of prospective resource potential, which on success would de-risk the adjacent Oviraptor and Tsagaanraptor prospects along the Raptor trend.
- This is the first well on the Raptor trend, which is estimated to hold >0.5bnb of prospective resources, located 7km form the Snow Leopard-1 well drilled in 2018 that proved a working petroleum system in the Taats Basin.
- Submission to secure Cabinet approval to certify Block XX (100% WI) as a Special Purpose Area in order to complete the 2019 Heron-1 oil discovery well as a producing well remains ongoing.
The stock is off by over 8% in early trading, likely reflecting investor frustration on Block XX, but this is the first oil project to be put through this bureaucratic process based on regulations introduced in 2017 and the authorities involved have no obvious precedent to follow, such that this process will hopefully smooth the path for future certifications. However, despite the struggle with local and central government authorities to obtain the required land access (2022) and permitting (2023) on Block XX to allow the company to start developing the Heron discovery, investors can at least look forward to the testing the exploration potential of the Raptor trend.
Maurel et Prom (MAU FP) €4.10, Market Cap €824m: Potential acquisition
- M&P announced that it is in advanced discussions with the Carlyle Group to acquire Assala Energy (private), an onshore Gabon upstream and midstream E&P with working interest production of c.45kb/d in 2022.
- Assala acquired Shell’s onshore assets in Gabon in 2017 and Total’s equity in the Rabi-Kounga Block in 2018, with a strategy to invest in mid-life and mature assets to increase production and extend field life cycles.
- Assala has six operated and one non-operated production licences, as well as the associated infrastructure of the onshore pipeline system from Rabi to Gamba and the Gamba Southern export terminal.
- Wentworth Resources (WEN LN) announced over the weekend that a number of concerns have been raised by the Tanzanian authorities, which may impact the likelihood of their approval of its acquisition by M&P.
While talks are still at an early stage, the proposed acquisition of Assala’s much larger operations in Gabon would represent a step change in reserves and production for M&P. The rationale for the deal is simple; the acquisition creates a material Africa-based E&P with a more diversified asset portfolio with greater scale and liquidity to attract a higher valuation multiple from investors and cheaper financing options. Both companies also have similar strategies centred on adding value by investing and extending the life of mid-life production assets, such that the deal should create synergies and provide scope for further consolidation. With existing production in three countries, plus an interest in a fourth via its holding in Seplat, M&P has robust cash flows from its operations and the completion of its refinancing last year has enabled the Company to return cash to shareholders. Nonetheless, with Pertamina a supportive 71% majority shareholder, the Company’s capital allocation policy has favoured debt reduction and deploying excess liquidity into new opportunities (Wentworth deal) that provide production and reserves growth potential. Whether the deal evolves as a merger-of-equals rather than a debt-based acquisition, we await further details in due course.
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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