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Today's Market View - Armed drone attacks send shockwaves through global energy dynamic

Today's Market View - Armed drone attacks send shockwaves through global energy dynamic

Today's Market View - Armed drone attacks send shockwaves through global energy dynamic

SP Angel – Oil & Gas View – Monday 16 09 19

Armed drone attacks send shockwaves through global energy dynamic

 

MiFID II exempt information – see disclaimer below

Eco Atlantic Oil & Gas (LON:ECO): Another significant discovery offshore Guyana

Savannah Petroleum (LON:SAVP): Signature of Niger-Benin Export Pipeline Transportation Convention

Oilex (LON:OEX): Further diversification of the company’s portfolio

Lansdowne Oil & Gas* (LON:LOGP) - Completion of Barryroe Site Survey

 

Energy prices:         

Brent Oil US$64.2/bbl vs US$60.2/bbl on Friday

WTI Oil US$59.1/bbl vs US$54.7/bbl on Friday

Natural Gas US$2.6/mmbtu vs US$2.6/mmbtu on Friday

 

Armed drone attacks hit global production

Reports over the weekend of an armed drone strike at two of Saudi Arabia’s major oil facilities has sent shock waves through global energy and stock markets. Saudi’s Energy Minister has now confirmed that the strikes have hit oil production by 5.7MMbopd – c.50% of the reported 12MMbopd currently produced by the Kingdom.

These coordinated attacks focused on two key Saudi Assets, including its largest oil processing facility, Abqaiq, located 60km south-west of Dhahran in Saudi Arabia's Eastern Province, and Khurais, 200km further south-west, which is the country's second largest oilfield.

What does this mean for the oil price?

These attacks will have a severe knock on effect on global energy prices, as traders’ price-in significant disruption to global oil supply, in addition to considerable future uncertainty. The Khurais oilfield produces c.1% of the world's oil, and Abqaiq is the country’s largest facility, with the capacity to process 7% of global supply.

US Secretary of State, Mike Pompeo, has publicly pointed the finger squarely at Iran as being squarely to blame for the attacks, and therefore further uncertainty will be placed on the 4MMbopd currently produced by Iran – the world’s fifth largest producer. In addition, the attacks raise further uncertainties over escalating tensions covering other critical geographical infrastructure, notably the Strait of Hormuz, where a fifth of the world's supply is transported.

Therefore, today’s surge in oil prices merely represents the first chapter of this multi-faceted story for the energy markets in our view. We also believe that sustained increases in energy prices in the short-to-medium term will serve to cannibalise recent fragile global economic growth, with subsequent inflationary increases across all geographies.

As such, we will not be surprised to see US$80 oil hitting the screens soon.

What next for Aramco?

Aramco, the world’s largest oil company, has been seeking a widely anticipated international listing for the past three years as the Kingdom looks to diversify its economic reliance away from global energy markets. Clearly, the recent attacks on its flagship assets will serve to considerably dampen investor appetite in the company given the heightened geopolitical risks in the region. The reported US$1.5 – US$2 trillion valuation now looks to be a dream rather than a reality in our view, and Saudi’s government will have an almost impossible task in reversing the considerable risk premium that will be imposed on any future valuation.

Aramco has been quick to play down the overall disruption to oil supply from Abqaiq, confirming that the plant will be up and running again in a matter of weeks. They also have the benefit of considerable oil stores from which they can draw from (three in Saudi, one in each of Japan, Netherlands, and offshore Egypt). However, we remain sceptical of this rose-tinted view of the global energy markets. Investors will be pricing in the significant uncertainty of the global energy supply/demand dynamic, and additional energy disruption through further sanctions on Iran and the high probability of retaliatory attacks in the Middle East.

As such, for now, we anticipate that Aramco will have to put a pin in any near-term international listing.

 

Company News

Eco Atlantic Oil & Gas (LON:ECO): Another significant discovery offshore Guyana

Share price: 202p, Market Cap: £323m

  • Following last month’s much anticipated discovery on the Orinduik Block, offshore Guyana, Eco has announced a further discovery at the Joe-1 exploration well on the same licence.
  • Wireline logging and sampling of the oil confirms that Joe-1 comprises a high-quality oil-bearing sandstone reservoir with a high porosity of Upper Tertiary age.
  • Joe-1 encountered 52ft of continuous thick sandstone which further proves the presence of recoverable oil resources. 
  • Eco, along with its partners Tullow (Operator) and Total, will now conduct a detailed evaluation of the Jethro, Joe and Hammerhead extension oil reservoirs on the Orinduik Block.
  • The company previously released a CPR on the block, prior to the discoveries on the Jethro and Joe wells, defining Gross Resources of 3.9Bnboe on the Orinduik Block (c.600MMboe net to Eco).

Conclusion: Today’s well result further consolidates Eco’s enviable position offshore Gayana in our view, confirming the continuance of the petroleum system onto the Orinduik Block, up dip from the prolific discoveries on the Exxon operated Stabroek Block. Now with two discoveries on the licence, in two separate horizons, and with multiple additional drilling targets defined, Eco’s exploration success is a very positive development for the AIM oil & gas sector.

 

SavannahPetroleum (LON:SAVP): Signature of Niger-Benin Export Pipeline Transportation Convention

Share price: 23p, Market Cap: £201m

  • The company has announced that CNPC has signed a Transportation Convention between with the Republic of Niger in relation to the planned crude oil export pipeline from the Agadem Rift Basin (ARB) to the Atlantic coast in Benin.
  • The Pipeline is expected to run for c.2,000km from the ARB in Niger to Port Seme on the Atlantic coast in Benin and is CNPC's largest ever cross-border crude oil pipeline investment.

Conclusion: This represents a positive development for Savanah, and acts as an additional potential route to market, alongside the existing Zinder refinery, for the company’s existing and future discoveries in Niger. The Niger-Benin Export Pipeline has the potential to transform Niger into a material regional oil producer and provides considerable additional optionality for producers in the country in our view.

 

Oilex (LON:OEX): Further diversification of the company’s portfolio

Share price: 2p, Market Cap: £6.4m

  • Oilex has announced that it has entered into an exclusivity agreement with Koru Energy for a potential acquisition of up to a 50% relevant interest in the Knox and Lowry, and Whitbeck gas discoveries in the East Irish Sea.
  • The KLW Gas Discoveries are a series of shallow water gas accumulations that were discovered between 1992 and 2009 by the then operators and successfully drill-stem tested confirming discovered volumes that the company and Koru would seek to bring into production, should the acquisition complete.
  • The KLW Gas Discoveries are well positioned very close to a subsea tie-back pipeline which delivers gas to the nearby and recently refurbished North Morecambe Gas Production Platform and Terminal.

Conclusion: A positive development for Oilex and its shareholders, further diversifying the company’s asset base into a potentially prolific gas basin. Having recently entered the Cooper Basin, and also come to an agreement with GSPC relating to the Cambay licence, the company is now making progress on three fronts.

 

Lansdowne Oil & Gas* (LON:LOGP) - Completion of Barryroe Site Survey

Share price: 1p, Market Cap: £8.8m

  • The Barryroe Partners confirm the completion of the Barryroe site survey, which comprised a seabed debris clearance, environmental baseline and habitat assessment survey over proposed well locations A & B in the Barryroe field within SEL 1/11. 
  • The site survey over proposed well locations C & D in the Barryroe field can now be carried out as part of a separate campaign. 

Conclusion: Positive update from the Barryroe Partners with the site survey completed on time, nevertheless the ongoing uncertainty surrounding the receipt of the US$9m APEC funds remains an issue. We remain of the view however, that Barryroe is an important strategic asset for Lansdowne (10% WI) and its partners.

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

 

121 Oil & Gas Investment Conference, London, 28-29th October 2019

SP Angel is sponsoring the annual 121 Oil & Gas Investment Conference in London again this year

The event hosts some 25 exploration and production companies along with >160 investment funds and analysts over two days of 1-2-1 meetings. Click here to register to attend

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