Independent Oil & Gas (LON:IOG)
Independent Oil & Gas (LON:IOG) has given greater clarity on the Skipper appraisal well by confirming it will be drilled in the second half of July 2016. As a reminder the vertical well is to be drilled to 5,600ft to retrieve oil samples in order to develop a reservoir model and optimise the FDP. Once the FDP is approved IOG believe the Skipper’s independently verified 2C contingent resources of 26.2mmboe should be converted into 2P reserves, however IOG’s management believe this to be conservative and considers 34.1mmboe as its own mid case estimate. The well will also target two exploration prospects directly beneath which may contain 46mmboe providing potential for further upside on the well.
We maintain our BUY recommendation and our TP is under review as we await further information on the Vulcan satellites.
Tullow Oil (LON:TLW)
Tullow Oil (LON:TLW) has released its trading statement ahead of its H1 2016 results expected on 27 July. Operationally TLW’s working interest oil production was below guidance in West Africa averaging 51.9kboepd following issues with the FPSO turret on the Jubilee field in Ghana in February and resulted in an extended shut down period until early May. Production at Jubilee has now restarted and TLW expects net-production to the company to average 26.3kboepd. As a consequence it has revised down its West Africa guidance for the year to 62-68kboepd from 73-80kboepd, although this is significant it was expected and its business interruption insurance covers the loss of production and revenue from Jubilee.
The major TEN project remains on schedule and within budget and is now expected to deliver first oil in three to six weeks, which will be a significant milestone for TLW which estimates the average annualised production in 2016 will be 11kboepd net to the company. A gradual ramp-up in production towards the FPSO capacity of 80kboepd is expected at the end of 2016. Whilst drilling is not expected to recommence until the Ghana/Ivory Coast border dispute is resolved in late 2017.
TLW’s capex guidance remains at US$1bn as planned savings were offset by the additional capex associated with the Jubilee turret ahead of any insurance payments. TLW remains well funded after completing its reserve based lending redetermination process with debt capacity of US$3.5bn. Net debt is now estimated to be US$4.7bn and unused debt capacity and free cash is cUS$1bn. Overall we did not find anything particularly surprising about this update, it will be pleasing to see TEN come online and whilst the lower guidance is disappointing it was expected.