SP Angel – Oil & Gas View – Tuesday 17 09 19
Saudi Arabian stockpiles are only sufficient to last 26 days
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Caspian Sunrise (LON:CASP): Interim results reflect a drop in production, however higher prices to come
Block Energy (LON:BLOE): Block strengthens its Board, all eyes now on the upcoming 38Z well
Energy prices:
Brent Oil US$68.8/bbl vs US$67.2/bbl yesterday
WTI Oil US$61.9/bbl vs US$60.2/bbl yesterday
Natural Gas US$2.6/mmbtu vs US$2.6/mmbtu yesterday
Oil price:
- The oil price continues its upward trend following the unprecedented drone strikes on key Saudi Arabian infrastructure over the weekend.
- According to Rystad Energy, Saudi Arabian stockpiles are only sufficient to last 26 days, therefore if the optimistic assertion by the Energy Minister that the Abqaiq processing plant can be up and running in the short term is not achieved, long term supply disruption will continue.
- The equity markets share a similar view with BP and Shell topping the FTSE 100 risers at the open, up around 1%.
Company News:
Caspian Sunrise (LON:CASP): Interim results reflect a drop in production, however higher prices to come
Share price: 10p, Market Cap: £198m
- Revenues in the period fell 14% to US$4.37m (1H 2018: US$5.04m) reflecting a steady price for the oil sold but declining production volumes.
- Admin expenses rose by c.6% to US$1.44m (1H 2018: US$1.36m) following a period of higher operational and corporate activity. This led to a 6.8% increase in the loss before tax to US$1.48m (1H 2018: US$1.39m loss)
- The company’s need to maximise cashflow while developing both the MJF structure and the 4 deep well prospects, together with the impact of the much-delayed upgrade to export status at the MJF structure, meant Caspian had to run the five producing MJF wells harder than would otherwise be the case. The result will likely be a sharp fall in production, particular in Q2 and subsequently in Q3 2019.
- Operationally, the company will now look to put its four deep wells on a 90-day flow test by the end of October 2019.
- Post period end, Caspian received regulatory consent so that from September 2019, the majority of the oil produced from the MJF structure may be sold by reference to world rather than domestic prices (c.US$15-US$16/bbl after costs).
- Therefore, 70% of the oil produced from the MJF structure may be sold by reference to world prices, meaning that Caspian can now recognise US$26/bbl after costs, some 63% higher than previously.
Conclusion: Placing four deep wells on a 90-day flow test in the next calendar month will be some feat by Caspian, however we are encouraged by their bullish plans. Whilst production has dipped slightly, the positive movement away from domestic to world pricing has considerable long-term upside in terms of cash flow recognition. The shares in Caspian remain tightly held and therefore subject to large variances on very little trading, which is likely to temper near term institutional support in our view.
Block Energy (LON:BLOE): Block strengthens its Board, all eyes now on the upcoming 38Z well
Share price: 7.2p, Market Cap: £29m
- Block have bolstered in board with the appointment of William McAvock as CFO following his previous role as Finance Manager with the company.
- We continue to be encouraged by Block’s corporate and operational progress to date, which has seen the company strengthen in key areas whilst maintaining an enviable acreage position in Georgia.
Conclusion: The company will now focus on the upcoming 38Z well, which is one of four wells scheduled to be sidetracked across the its flagship West Rustavi Field, in which the company holds a 100% working interest. Well 38Z is analogous, adjacent and up-dip to the 16aZ well, where Block resumed production earlier this year targeting the same Middle Eocene formation. The valuable dataset gathered from the drilling of the 16aZ well will be crucial in de-risking the upcoming 38Z well and mitigates a significant proportion of downside risk in our view.
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