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Today's Oil and Gas Update – - Cairn Energy, Gulf Keystone Petroleum, Trinity Exploration & Production & Lansdowne Oil & Gas

Cairn Energy (LON:CNE): Half-year Report Gulf Keystone Petroleum (LON:GKP): Half Year Results Trinity Exploration & Production (LON:TRIN): Half Year Results Lansdowne Oil & Gas* (LON:LOGP): Barryroe Farm-Out Transaction Update

Cairn Energy PLC - Today's Market View -  Cairn Energy, Gulf Keystone Petroleum, Trinity Exploration & Production & Lansdowne Oil & Gas

SP Angel 

Cairn Energy (LON:CNE): Half-year Report

Gulf Keystone Petroleum (LON:GKP): Half Year Results

Trinity Exploration & Production (LON:TRIN): Half Year Results

Lansdowne Oil & Gas* (LON:LOGP): Barryroe Farm-Out Transaction Update

 

Oil and Gas Prices:

·       Oil and gas prices continued their strong rally overnight following a reshuffle in the Saudi Energy ministry. Reports suggest that there will be no material change in policy, however traders are clearly pricing in the countries ongoing effort in keeping oil supply tight

·       Elsewhere we remain of the view that the biggest short-term driver for oil prices remains the US/China trade dispute and its implications for global economic growth and hence oil demand

Energy prices:         

Brent Oil US$62.7/bbl vs US$61.9/bbl yesterday

WTI Oil US$57.9/bbl vs US$56.9/bbl yesterday

Natural Gas US$2.5/mmbtu vs US$2.4/mmbtu yesterday

        

Company News

Cairn Energy (LON:CNE): Half-year Report

Share price: 185p, Market Cap: £1,045m

Combined net oil and gas production ahead of 2019 guidance at 23,700boepd (+15% v previous six months)

Oil and gas sales revenue US$257m, average realised price US$68/boe; average production cost US$17/boe

Net cash inflow from oil and gas production US$177m

Capital expenditure: cash outflow US$135m (US$14m of tax refund receivable)

Cairn’s cash position at 30 June 2019 was US$58m; with US$60m drawn under its US$575m RBL facility

In terms of outlook, Cairn have upgraded full year oil production to 21,000-23,000bopd from 19,000-22,000bopd; with an average production cost reduced from US$20/boe to US$18/boe

Full year forecast capital expenditure US$295m; Exploration & Appraisal US$165m (net of tax refund), Development & Production US$130m

Cairn have also agreed to farm down 15% WI in Chimera to DNO, agreement with ENI to swap 15% WI in Block 10 Mexico and agreed sale of 10% WI in Nova development to ONE-Dyas

Senegal: SNE field development (Cairn 40% WI) major contracts awarded. JV progressing towards FID in H2 2019, targeting first oil in 2022

Mexico: two operated wells Block 9 (Cairn 50% WI) to be drilled in Q3 and Q4: two non-operated wells on Block 7 (Cairn 35% WI) and Block 10 (Cairn 15% WI) to commence in H2 2019

UK and Norway: Drilling about to commence on Chimera (Cairn 45% WI) exploration well

Conclusion: A strong performance from Cairn in the first six months of 2019 with production performance from its North Sea assets is ahead of expectations. In line with expectations, the company recorded a profit of US$66.5m, compared with a net loss of US$500.5m in the first six months of 2018, following write downs in several assets. Encouragingly, the SNE development in Senegal, where FID is expected in H2, remains on schedule for first oil in 2022. In our view, the key near term focus will centre on the company’s drilling programme which is about to commence offshore Mexico, where Cairn has built a material footprint in one of the world's most prolific basins.

 

Gulf Keystone Petroleum (LON:GKP): Half Year Results

Share price: 236p, Market Cap: £545m

GKP reported revenues of US$95.6 million (H1 2018: US$116.2m), and an EBITDA of US$59.0m (H1 2018: US$61.6m), leading to a profit after tax of US$24.2m (H1 2018: $26.7m).

The company’s growth in activity required to bring production to 55,000bopd led to an increase in cash operating costs and cash operating costs/bbl to US$18.4m (H1 2018: US$14.1m) and US$3.9/bbl (H1 2018: US$3.0/bbl) respectively.

Net capital investment in Shaikan was US$32.4m (H1 2018: US$6.9m). Full year capital investment guidance stands remains at US$88-104m net (US$110-130m gross).

Cash remains strong at US$302.7m at the half year, and US$263.6m at 9 September 2019

With regards to the US$50m dividend that was approved at the June AGM, the first tranche of c.US$17m was paid in July 2019, with the second tranche of c.US$33m to be paid on 4 October 2019.

A $25 million share buyback programme was announced in July, with the first US$15m completed last month.

Conclusion: Today’s results will come as a slight disappointment for investors in our view, with revenues below expectations and cash operating costs a touch ahead of guidance. Nevertheless, the company remains in a strong cash position, and the recently completed share buy back programme indicates that GKP believes its valuation trades at a deep discount to NPV. Gross production guidance for 2019 is now expected to be between 30,000-33,000bopd, compared to previous guidance of 32,000-38,000bopd. This new guidance considers the delayed start to the drilling campaign, the postponement of the ESP workover campaign and the planned shutdown of PF-2 in October.

 

Trinity Exploration & Production (LON:TRIN): Half Year Results

Share price: 11.6p, Market Cap: £43m

 

Trinity delivered another strong operational and financial performance during the period with production volumes successfully maintained and effective cost control and strong cash generation continuing.

Production averaged 3,008bopd, a like-for-like increase of 9% versus H1 2018 and is expected to rise in the second half of the year following the resumption of onshore drilling.

H1 2019 Adjusted EBITDA increased by 20% to US$11.2m (H1 2018: US$9.3m) and the Adjusted EBITDA margin increased to 34.8% (H1 2018: 30.9%) despite a modest decline in the realised oil price.

Cash at the half year increased to US$17.8m - up from US$10.2m at the end of 2018 - and cash plus working capital surplus increased to US$22.0m as at 30 June 2019 - up from US$18.1m at the end of 2018.

Operationally, production has already commenced from the first new infill well of the H2 2019 drilling campaign with production from the second well expected imminently.

This second well is Trinity's first High Angle Well, which has been successfully drilled and has intersected net oil reservoir sandstone considerably higher than the thickness of those expected had it been drilled as a conventional well.

In addition, the third well of the H2 2019 drilling campaign has spudded.

Conclusion: A strong financial performance from Trinity, which will be a welcome boost to shareholder sentiment, and highlights a successful turnaround story under the current management team. The outlook also looks encouraging, as Trinity pursues its production led growth strategy in Trinidad. With an active onshore drilling campaign underway, in addition to longer term objectives in the company’s offshore assets, Trinity is well positioned to deliver further material upside in our view.

 

Lansdowne Oil & Gas* (LON:LOGP): Barryroe Farm-Out Transaction Update

Share price: 1.2p, Market Cap: £8.3m

 

On 3 September it was announced that written notice had been issued to APEC that, should the APEC Loan Amount not be received by the close of business on 9 September 2019, Providence/EXOLA and Lansdowne reserved the right to end exclusivity, while also considering all legal remedies available to them against APEC for contract non-performance, including the re-assignment of equity in SEL 1/11.

As at close of business on 9 September 2019, no funds had been received in EXOLA's account.

The Barryroe partners have agreed to a further extension of the backstop date for receipt of the APEC Loan Proceeds to close of business on 30 September 2019.

This extension is without prejudice to Lansdowne's legal rights under the Updated FOA.

Conclusion: The uncertainty surrounding the financial viability of APEC and its commitment to the licence continues to weigh on the Barryroe partners’ share prices. Whilst the difficulty in moving money out of Beijing is well documented, the partners would hope for a swift resolution of this matter especially given the length of time it took to conclude the farm-out transaction in the first place. Nevertheless, Barryroe remains an important strategic asset for the companies and the Irish economy in our view.

*SP Angel acts as Nominated Advisor and Broker to Landsdowne Oil & Gas 

 

 

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