Eco (Atlantc) Oil & Gas (LON:ECO) #
Eco (Atlantic) Oil & Gas# (ECO) has announced its results for the 12 months ended 31 March 2017. ECO reported a net operating loss of C$4.05m. Sale of its interest in Ghana reduced the net loss to C$3.56m. The listing on AIM and oversubscribed placing of £5.09m in February 2017 has left ECO’s balance sheet in a healthy position with C$6.09m of cash. On top of this ECO has brought down its costs in a number of areas.
• General and administrative expenses down 22% YoY to C$386k (2016: C$497k)
• Compensation down 25% YoY to C$483k (2016: C$642k)
• Professional fees down 12% YoY to C$287k (2016: C$325k)
• Occupancy and office expenses down 72% to C$82k (2016: 295k)
Operationally ECO had a very good year and in a joint venture with its partner, Tullow Oil (TLW), it has commenced its 3D seismic survey on the Orinduik Block, offshore Guyana, almost two years ahead of schedule, thereby seeking to de-risk the existing defined targets. ECO and TLW is gathering 2,550km2 of seismic data over the 1,800km2 block amid the ongoing success in the region, indeed the Orinduik block is up-dip and in close proximity to ExxonMobil’s (XOM) recent Liza, Snoek, and Payara discoveries on the Stabroek block estimated to contain oil recoverable resources of between 2.25 and 2.75Bboe. The seismic programme is now over double the size of what ECO and TLW originally planned with TLW covering the costs for c1,000km2 up to a maximum of US$1.25m with the remaining costs being covered by ECO’s cash reserves. TLW also has further interests in Guyana in the Kanuku licence which it is also collecting seismic over and plans to drill prospects in 2018/19 which should drive further news flow from the basin in the meantime.
Further to this ECO has also made progress in Namibia by extending the Cooper, Sharon and Guy licences into the first renewal period until March 2018. Whilst it has also advanced the 3D interpretation on Cooper and Guy blocks, applied for drilling permits and pre and post drilling EIA surveys are underway.
We maintain our BUY recommendation and 25p TP
redT energy (LON:RED) : Positive Market Changes
There has been a flurry of announcements in the last few days from a number of parties regarding the future shape of the UK’s energy sector. Although many of these provide a generally supportive backdrop for the future of the UK renewable energy sector, we believe the most important of these specifically with regards to flow machine energy storage developer, redT energy (RED LN)# are:
• A joint publication from Ofgem and the Department for Business, Energy & Industrial Strategy (BEIS), the Smart Systems and Flexibility Plan, which outlined a raft of new measures to support the development of the UK energy storage sector, including the removal of double-charging (network payments made when both charging and discharging a battery) and the addition of an explicit definition of storage as a sub-set of generation within UK policy terms
• The launch of a consultation from BEIS into the Capacity Market, which included a proposal to reduce the de-rated capacity for those energy storage projects that cannot provide their stated energy output for the maximum four hours specified under the scheme
VSA Comment
Although the removal of double-charging and regulatory recognition of energy storage is positive, this was largely expected. However, to us the second point came as more of a surprise.
If agreed after the consultation period, which ends on 8 September, this proposed de-rating of high power/low energy assets into various technology classes, depending on their minimum discharge time, could significantly reduce the IRR for large-scale lithium-ion battery parks, increasing their dependence on the two frequency response schemes by reducing the payments they can generate from the Capacity Mechanism. For high energy storage solutions, such as RED’s flow machines, they will likely still be able to access the current level of Capacity Mechanism payments, as these can provide power for the full four hour period (and will likely stay at 96% de-rated capacity).
It appears that there is now a clear understanding in government regarding the difference between power and energy and, although subject to a consultation period, there is now a clear direction of travel regarding the deployment of large-scale grid storage.
It appears to us to be similar to Ofgem’s decision to slash embedded benefits for small generators from April 2018, which, although impacting other technologies, looks set to hit the economics of existing, and limit the expansion of, small diesel farm generation facilities.
We see these changes as sensible to correct certain market distortions and would highlight the ability of RED’s flow machines to cover all of the grid-related revenue streams available to it. Other storage projects that cover just a segment of these (such as the two frequency response revenue streams) will likely gain significant competition in the market from flow machines as they are deployed, which can address these extra revenue streams at little extra cost.
RED has been surprised by the pace at which the UK market has developed this year and we expect the measures announced this week will only contribute to this increasingly economic market for its machines.