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Wentworth Resources comfortably beats production guidance amid rising gas demand in Tanzania

Production came in ahead of guidance but it still wasn't enough to satisfy growing demand

oil and gas operations
Production measured 92.5mln cubic feet per day in December

Wentworth Resources Plc (LON:WRL) has highlighted the boost seen at its Mnazi Bay during the fourth quarter of 2018 thanks to rising demand in Tanzania.

The gas producer, in a trading update, noted the growing demand for its gas coming from power stations and burgeoning demand from industrial customers such as Dangote Cement and Goodwill Ceramics.

It saw Wentworth achieving an average production rate of 87.3mln cubic feet of gas per day over the quarter, with the figure for December alone measuring 92.5mln cubic feet per day.

For the whole of 2018, the production rate averaged 83.2mln cubic feet per day which was comfortably above the guidance range of 65-75mln cubic feet per day and was also above the company’s committed quotient (set at 80mln) under its gas sales agreement with state firms TPDC and TANESCO.

READ: Wentworth Resources in prime spot in Tanzania

"We are pleased that the Mnazi Bay asset has successfully ramped up to deliver sustainable and material production rates, with minimal downtime in 2018,” said Eskil Jersing, Wentworth chief executive.

“The Mnazi Bay Joint Venture continues to work with all stakeholders on the four key value catalysts, referred to in the 3 October 2018 RNS, to ensure that we derive the maximum possible production value from the Mnazi Bay field.

Jersing added: “We look forward to updating the market on our progress in 2019, in a rapidly developing demand-led landscape.

“With the intended relinquishment of the Tembo appraisal licence in Q2 2019, our efforts this year will be primarily focused on maintaining efficient operations at our Mnazi Bay asset, strengthening our financial position and executing on our M&A led growth mandate."

Financial update

Wentworth told investors that it has received its monthly payments for November and December which, after adjustments for previously announced costs, amounted to US$3mln net.

It added that due arrears from TPDC and TANESCO have steadily reduced over the course of 2018, and, now stand at three months for both off-takers.

The company noted also that it has continued to meet and pay-down its debt commitments from free cash-flow in 2018.

It expects to be substantially debt free within the next twelve months – the final payment under its loan facility falls due in January 2020.

At the end of December, the company owed US$8.3mln and it had US$11.8mln of cash.

Looking at demand and production for 2019

Wentworth highlighted that talks continue with TPDC over the possibility of reducing the pressure in the gas pipeline and, if agreed, that would allow for a sustained overall production rate or plateau from current well stock – before compression facilities are installed.

At 7 January, the operation was yielding a production rate of 89.6mln cubic feet per day while demand is currently estimated to be above 95mln cubic feet.

Wentworth said it expects further demand growth over the course of the year, given planned extensions to the Kinyerezi-1 power plant which is initially due to require 5mln cubic feet per day from the fourth quarter ramping up to 30mln when fully commissioned in the subsequent six month period.

It also anticipates demand growth from industrial customers.

The company currently has five gas production wells and it expects full-year production between 75mln and 85mln cubic feet per day.

Broker upbeat, repeats ‘buy’ recommendation

Broker Peel Hunt repeated a ‘buy’ recommendation for Wentworth’s AIM-quoted shares with a 44p price target suggesting more than 100% from the current price of 20p per share.

“Wentworth will be largely debt-free by YE19, in-line with our expectations, as regular cash receipts continue and the business successfully de-levers,” the broker said in a note.

“With each passing month, therefore, Wentworth’s balance sheet continues to strengthen, which in turn provides management with increased capacity to pursue new inorganic growth opportunities.

“The company’s current market valuation, in our view, is anomalous and will not persist indefinitely.”

Quick facts: Wentworth Resources

Price: 19 GBX

AIM:WEN
Market: AIM
Market Cap: £35.43 m
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