Headlines
EnQuest (LON:ENQ – 29p/SEK3.24) – Timing is of The Essence: We believe that investors should be pleased with this update, especially as the Company appears to be going from strength to strength. However, there continues to be the need for management to address the debt pile, which at expiry of the current forward hedging programme, the resultant ~20% decline in net oil price to the Company, could be an issue.
In Brief:
Ascent Resources (LON:AST – 1.18p) – Pressure Relieved – Somewhat
Victoria Oil and Gas (LON:VOG – 36p) – Royalty and Reserve Solution Declutters Asset
News Items
EnQuest (LON:ENQ – 29p/SEK3.24) – Timing is of The Essence
The Company’s results announcement today should provide a significant lift to the shares. However, there is little doubt that these results have been positively impacted by the approximate $68/bbl hedge, of which there is still 5.5mm bbl.
While this should cover the next 12 months, what will be key is how much of the debt the Company has been able to pay down by that time, and what the key covenant metrics look like at that point. If the management team get the timing right and the oil price returns to somewhere near $60/bbl, then we believe that the Company will of have emerged from this period of low prices in a far stronger position than it entered it.
Of less emphasis, in our mind at least, is the immediate outlook for Kraken, which we now see as entering the final stages of development and largely set. Any changes to the investment programme at this stage are likely to be minimal on the current cash flow, and only affect the asset once in production, hence its long-term economics.
We believe that investors should be pleased with this update, especially as the Company appears to be going from strength to strength. However, there continues to be the need for management to address the debt pile, which at expiry of the current forward hedging programme, the resultant ~20% decline in net oil price to the Company, could be an issue.
In Brief
Ascent Resources (LON:AST – 1.18p) – Pressure Relieved – Somewhat: Today’s news that 500 convertible loan notes were converted into equity, while relieving some pressure, there is still ~$13mm of convertible loans are still outstanding. We continue to believe that once full approval to the development of the Company’s principal asset is provided, this will more than meet the associated costs with its existing debt, any further debt taken on board to develop the project and still generate a return to shareholders. What is key however, is the Company and its management being allowed to get to that point by its creditors.
Victoria Oil and Gas (LON:VOG – 36p) – Royalty and Reserve Solution Declutters Asset: News that some of the legacy issues relating to the Company’s Logbaba asset have been resolved should provide a fillip to the shares, especially as it’s been one of the issues that has dogged the long term profitability of the upstream business. That said, it is less of an issue for the midstream business which we continue to believe is where in Cameroon at least, the Company’s future lies. We continue to believe that the separation of the upstream in the downstream business will allow for a far higher valuation, and if both are run at arm’s length from each other, we believe that the full value for both will be achieved. That said, the Company continues to make headway and with this news, it should be able to accelerate the rollout of its midstream business.