Market Update: 20 June 2023
PetroTal Corp (TSX-V:TAL, OTCQX:PTALF, AIM:PTAL) - River blockade lifted
Parkmead Group (AIM:PMG) - Perth project abandoned
Tullow Oil PLC (LSE:TLW) - Debt redemption adds value
Tag Oil (TSX-V:TAO, OTCQX:TAOIF) - Positive initial test results
Melbana Energy Ltd (ASX:MAY, OTC:MEOAF) - Cuba appraisal spuds
Energy News
Brent Oil US$76.7/bbl vs US$76.4/bbl yesterday
WTI Oil US$71.9/bbl vs US$71.7/bbl yesterday
Henry Hub Gas US$2.67/mmBtu vs US$2.58/mmBtu yesterday
UK NBP Futures 93p/therm vs 81p/therm yesterday
TTF Dutch Futures €37/MWh vs €32/MWh yesterday
- Crude oil prices were broadly unchanged following media reports that Iranian crude production averaged 2.9mb/d and exports 1.5mb/d in May, the highest levels in five years.
- European energy prices moved higher on hot weather, with French nuclear reactor operating levels reported as increasing from 53% to 57% of capacity w/w from 32 available reactors (from 29) out of 56 units.
- Woodside has taken FID on the 479mboe Trion development in deepwater Gulf of Mexico with Pemex, which has forecast capex of $7.2bn ($15/boe), 4-year payback @ $70/bbl and an all-in project breakeven of ~$43/bbl.
Company News
PetroTal Corp (TSX-V:TAL, OTCQX:PTALF, AIM:PTAL) 40.9p, Market Cap £362m: River blockade lifted
- PetroTal announced the Asociacion Indigena de Desarrollo y Conservacion de Bajo Puinahua (AIDECOBAP) has removed its river blockade and released two seized barges serving the Bretana field (100% WI) in Peru.
- The Company anticipates being able to maintain production near 22kb/d over the coming weeks, which would result in 2Q23 average production being 5% higher than the prior 17kb/d guidance.
- The 15H well, which was completed on schedule and at a cost of ~$14.9m following a sidetrack caused by drilling tool challenges, has commenced production at an initial average rate of 8.7kb/d
PetroTal’s operations remain at risk of domestic political actions, despite the support of the local residents of Bretana, which may cause further outages unless some concord can be reached with the protestors. However, production volumes remain robust and the Company’s 14-15kb/d FY23 average production guidance already includes some planned facility downtime and a 5% social downtime contingency to allow for social disruption. This year the Company has bolstered its barging capacity and the Northern Peruvian Pipeline has also resumed operations after over a year of being shut down for maintenance and social unrest related reasons, which may allow PetroTal to surpass the previous production record of 26kb/d if a positive outcome with the protestors can be reached. The Company remains in an enviable position, having repaid the outstanding debt from YE22 and recently commenced cash returns to shareholders through a share buyback and dividend programme, with investment in new wells and facilities continuing to add reserves and long-term value to the asset, from which it expects to generate free cash flow for the next 20 years.
Parkmead Group (AIM:PMG) 13.6p, Market Cap £15m: Perth project abandoned
- Parkmead announced yesterday afternoon that following a strategic update it would now focus on building a high-quality portfolio of gas producing assets and electricity generation from renewable energies.
- The Company has abandoned plans to develop the 100mb GPA project (100% WI) due to higher $1bn capex cost forecasts and fiscal uncertainty, which have reduced the project’s ability to attract a farm-in partner.
- Parkmead still plans to drill an exploration well on the 157mboe Skerryvore prospect (50% WI) in 4Q24, which is located close to existing infrastructure in the UK North Sea that would allow a low-cost tie-back on success.
The share price reaction since the announcement (-25%) reflects the significant resources that have been dedicated in recent years to unlock the complex Perth area, with the need to use the third-party Scott platform for the reinjection of associated sour gas into a nearby depleted reservoir. Parkmead will record a one-off £33m non-cash impairment to its accounts and now has a £150m UK tax loss pool that can be utilised for new acquisitions. The Company pointed to a whole raft of issues facing the domestic E&P sector that includes rising costs, skills shortages, the windfall levy, a hostile political climate and ageing infrastructure, and it can only be hoped that the recent political posturing will soon give way to the realisation of the UK oil and gas sector’s importance in resolving the energy trilemma.
Tullow Oil PLC (LSE:TLW) 27.5p, Market Cap £400m: Debt redemption adds value
- Tullow announced it would use c.$100m of cash on its balance sheet to fund the purchase of $166.5m of the Company’s $800m 7.0% senior notes due 2025, which are currently yielding above 40%.
- This transaction delivers value accretion of $86.3m from a combination of $66.5m net debt reduction and coupon savings to maturity of $19.8m.
This transaction is an important step in addressing Tullow’s debt maturities and a more appropriate way of creating shareholder value than the prior high impact exploration spending. While free cash flow generation at $80/bbl is estimated at just $100m this year, Tullow expects to reach an inflection point in 2H23 driven by the roll-off of hedges and step-change from Jubilee SE production coming online that will generate $700-800m free cash flow over 2024 and 2025. However, with material deleveraging largely a medium-term event for investors, we think that there is limited room for surprises this year compared to its peers given the outlined capital allocation policy.
Tag Oil (TSX-V:TAO, OTCQX:TAOIF) C$0.75, Market Cap C$117m: Positive initial test results
- TAG announced the BED 1-7 vertical well on the onshore Egypt Badr field was flowing at an average rate of 140b/d from the Abu-Roash F (ARF) reservoir and had achieved cumulative oil production of over 4kb to date.
- The Company commented that the BED 1-7 vertical well test has achieved its objectives for data collection and performance testing, as well as informing on the logistics of operating in the Western Desert of Egypt.
- TAG has also secured a suitable rig to commence drilling in late July on the first horizontal well, BED4-T100, designed with a multi-stage fracture stimulation completion of the ARF formation.
- Management recently commented that it was fully funded for the T-100 well with some additional headroom for M&A opportunities, with a focus on adding acreage to provide certainty on running room in the Western Desert.
This is a positive start to TAG’s evaluation of the unconventional potential in the ARF formation, where the Company plans to utilise North American drilling and completion technologies for the first time in Egypt. However, as with several other E&Ps looking to transfer North American unconventional drilling technology overseas, investors are likely to be highly judicious regarding initial flow tests and resource potential due to the reduced NAM-equivalent oilfield service capability available. Attention now moves to the drilling of the first horizontal well with multi-stage fracture stimulation completion during 3Q23, which produce IP rates above 1kb/d from a 1km horizontal section of the ARF reservoir.
Melbana Energy Ltd (ASX:MAY, OTC:MEOAF) A$0.095, Market Cap A$324m: Cuba appraisal spuds
- Melbana announced the commencement of drilling operations on the Alameda-2 appraisal well in the Block 9 PSC area (30% WI), onshore Cuba.
- The well targets the appraisal of the oil-bearing formations encountered in last year’s Alameda-1 discovery well, which had to end operations early due to an influx of high-pressure hydrocarbon fluids.
- Building on the lessons learned from drilling Alameda-1, Alameda-2 has been designed using a slimmer hole design, which should allow better control of the formation pressures and improved hole integrity for logging.
The share price rocketed last year on news of the discovery, but difficulties encountered in maintaining well control prevented Melbana from being able to complete a full suite of testing and logging. This year’s drilling programme has been redesigned to drill two appraisal wells, Alameda-2 and Alameda-3, with an objective to better understand the oil quality and reservoir performance characteristics of the three productive sections encountered by Alameda-1. Despite the issues with doing business in Cuba, the estimated prospective resources are significant, and there remains significant interest in the well results.
Research
David Mirzai – David.Mirzai@spangel.co.uk – 0203 470 0473
Sales
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Sources of commodity prices
Oil Brent - ICE
Natural Gas - NYMEX
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