SP Angel – Oil & Gas View – Wednesday 11 09 19
Oil and gas prices nudge further following positive economic data
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SOCO International (LON:SIA): Interim Results, revenues flat, production up significantly
Eland Oil & Gas (LON:ELA): Strong 1H/19 financials
Independent Oil &Gas (LON:IOG) – Analysis of Harvey continues
Tower Resources* (LON:TRP): Near term funding is key
Oil price:
Oil prices continue to edge further in anticipation of OPEC+ cuts after the recent shakeup in Saudi Arabia.
Biggest short-term driver for oil prices remains the US/China trade dispute and its implications for global economic growth and hence oil demand. According to API data, there is now a year-to-date draw of 8 million barrels, a significant correction to the 35-million-barrel build in mid-May and a positive sign for oil prices
Energy prices:
Brent Oil US$62.9/bbl vs US$62.7/bbl yesterday
WTI Oil US$58.0/bbl vs US$57.9/bbl yesterday
Natural Gas US$2.6/mmbtu vs US$2.5/mmbtu yesterday
Company News
SOCO International (LON:SIA): Interim Results, revenues flat, production up significantly
Share price: 64p, Market Cap: £254m
SOCO reported revenues of US$91.8m (1H 2018: $93.2m) in line with consensus estimates following an average production rate of 12,541boepd (1H 2018: 7,748boepd)
Encouragingly the company kept cash operating costs under US$10/bbl (1H 2018: US$14/bbl) and generated cash from operations US$54.6m (1H 2018: US$48.3m)
SOCO reported net debt of US$33.7m (1H 2018: Net Cash US$128.8m)
In terms of operational outlook, in Egypt, production guidance for the El Fayum concession continues to be a 2019 exit rate of 6,500bopd (current average production 5,262bopd)
In Vietnam, production guidance for 2019 remains unchanged at an average of 6,500-7,500boepd for the full year (current average production: 7,748boepd)
Cash capital expenditure in 2019 is expected to be c.$50m in line with guidance
Conclusion: SOCO continues to make steady operational progress in our view. The acquisition of Merlon served to grow and diversify the company’s asset base and consolidate SOCO’s Egyptian presence. Focus will now centre on the upcoming drilling programme in Egypt, in addition to meeting production guidance in Vietnam.
Eland Oil & Gas (LON:ELA): Strong 1H/19 financials
Share price: 128p, Market Cap: £270m
A strong set of financials from Eland announced today, with revenues of US$106.0m (H1 2018: US$67.4m) with an average realised price of US$66/bbl (H1 2018: US$69/bbl).
Operating cash flow before movements in working capital rose to US$59.1m (H1 2018: US$50.6m).
The company sustained its operating profit position at US$40.0m (H1 2018 US$39.1m).
Net debt at the half year was US$30.9m (H1 2018 US$4.3m net cash) with US$60m headroom available from its RBL facility.
Operationally, Eland continues to grow its OML 40 production base, producing an average of 9,948bopd (22,106bopd gross) in comparison to 7,716bopd in H1 2018 (17,146 bopd gross), an increase of 29%, with Opuama average uptime of 90% for the period.
The first two Gbetiokun development wells were successfully flow tested with cumulative rates up to 5,400bopd net (12,000 gross). The Gbetiokun Field Development Plan which was updated following the drilling of the Gbetiokun-3 appraisal/development well has been approved by the DPR and the company will now embark on a comprehensive activity programme at the field.
Conclusion: A strong financial performance from Eland, and we are particularly encouraged by the diversification of production with the commercialisation of Gbetiokun, generating material production and operational cash-flow. In terms of outlook, the market will likely focus on the high-impact, 78mmbbl, Amobe prospect.
Independent Oil &Gas (LON:IOG) – Analysis of Harvey continues
Share price: 18p, Market Cap: £65m
IOG has provided an update on the Harvey appraisal well drilled in the UK Southern North Sea Gas Basin
The well has reached a total depth of 7,537ft reaching the top of the Leman Sandstone. Two 90ft cores have been acquired in the reservoir along with a full suite of wireline logs, including pressure test and fluid samples.
Initial analysis of the wireline data demonstrates the presence of a 49ft gas column at the top of the reservoir
IOG will now analyse the options for a potential Harvey development, and given its proximity to the Thames Pipeline export route, whilst also in tie-back range to the Blythe platform, the company has plenty of optionality to commercialise the field in our view
Conclusion: Following the company’s successful gas discovery at Harvey, focus will now centre on establishing a definitive view on resource range, reservoir quality and deliverability, ahead of the proposed farm-out. The low-cost commercialisation threshold of Harvey is attractive, however without a resource volume and pressure characteristics, it is still too early to get excited at this particular asset in our view.
Tower Resources* (LON:TRP): Near term funding is key
Share price: 0.6p, Market Cap: £4.2m
Tower has released its interim results today, which are broadly in line with the market’s expectations. The company remains in a difficult liquidity position as it pursues the much-anticipated farm-out of its flagship Thali field in Cameroon.
The company believes that it will need to raise funds of c.£9.8m over the coming twelve months to meet its minimum commitments (mainly to fund drilling activities in respect of the Thali license).
Whilst not all funds need to be in place ahead of the well spud, the company will likely pursue funding through the capital markets or a farm-in partner – or a combination of both.
The company recorded a loss for the period of US$1.6m (1H/18: US$3.4m loss) and finished 1H/19 with US$330k of cash (1H/18: US$331k).
Operationally, Tower still benefits from an enviable asset base, with the February 2019 announcement by Total of a 1Bnboe gas-condensate discovery at its Brulpadda well in the Outeniqua basin, on its Blocks 11B/12B in South Africa, which is immediately adjacent to Tower’s 50%-owned Algoa-Gamtoos license.
Elsewhere, Tower continues to progress it well planning and preparatory work for the intended 2019 Thali drilling programme in Cameroon alongside a potential farm-in partner.
Conclusion: Whilst we remain bullish on the company’s asset position, especially the Thali field in Cameroon, further dilution (either on a share capital or asset level) will be required to remove the severe financial constraints currently facing Tower. We expect there to be no shortage of prospective partners to the Thali field, and Tower would be pushing to have a funding solution in the very near term to meet its commitments in our view.
*SP Angel acts as Nominated Advisor and Broker to Tower Resources
121 Oil & Gas Investment Conference, London, 28-29th October 2019
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