Market Update: Tuesday 24 September 2019
Hurricane Energy (LON:HUR) – Warwick West spuds today
RockRose Energy (LON:RRE) – Strong financial results, 60p interim dividend proposed
Serica Energy (LON:SQZ): Half Year Report, material cash flows in 2020
Aminex (LON:AEX): Ruvuma Farm-Out Update and Acceleration of Drilling Operations
Energy prices:
Brent Oil US$64.1/bbl vs US$65.1/bbl yesterday
WTI Oil US$57.6/bbl vs US$58.1/bbl yesterday
Natural Gas US$2.6/mmbtu vs US$2.7/mmbtu yesterday
Oil price
- Oil prices are now only slightly higher than they were prior to the Abqaiq attack, but the outage highlighted the clear upside risk to the oil market
- The Wall Street Journal reported this weekend that it could take “many months” to restore full-scale operations at Abqaiq, rather than the maximum 10 weeks that Saudi Aramco has guided
- Elsewhere, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view
Company News
Hurricane Energy (LON:HUR) – Warwick West spuds today
Share price: 47p, Market Cap: £925m
- Hurricane has announced that the 204/30b-A (“Warwick West”) well was spudded today using the Transocean Leader rig.
- Warwick West is the third and final well of the 2019 Greater Warwick Area drilling programme on Hurricane’s Lincoln and Warwick assets.
- A further update will be made following completion of drilling and testing operations.
- Hurricane has a 50% interest in the Greater Warwick Area following Spirit Energy’s farm-in to the P1368 South and P2294 licences in September 2018.
Conclusion: Hurricane continues to deliver the goods in terms of share price catalysts for sector investors. Success at Warwick West will likely link to the gauge left in the Lincoln Crystal well. However due to some operational delays the programme is slightly behind schedule, therefore drilling and testing will likely be carried out in the latter part of 2019, which may coincide with difficult weather conditions.
RockRose Energy (LON:RRE) – Strong financial results, 60p interim dividend proposed
Share price: 1,890p, Market Cap: £250m
- RockRose reported a 40% increase in revenues to US$93.7m (2018: US$66.7m) which includes the recently acquired Brae Complex and Foinaven assets (acquired as part of the Marathon Acquisition on 1 July 2019).
- The company reported an adjusted EBITDA for the first six months of US$51.6m (2018: US$27.6 million) following capex of US$25.6m (2018: nil).
- Total cash at the period end was US$82.9m, however at 31 August 2019 was US$367.9m which includes US$86.4 million of restricted cash.
- Shareholders will also be pleased to see an interim dividend of 60p/share and anticipated final dividend of 25p per share.
- From an operational standpoint, average production during the first six months was 11.1kboepd (2018: 5.1kboepd) whilst on a post-acquisition pro forma basis was 22.1kboepd.
- Production capacity remains at 22 to 24kboepd. However, as a result of planned extended maintenance shutdowns, which should increase uptime over the coming years, and managements full year production guidance remains at c.20kboepd.
- The Tain development and Blake life extension projects are on budget and schedule.
- The Arran development is on time and below budget thanks to reductions in well and pipeline costsPreparatory work continues ahead of the planned drilling of two West Brae subsea development wells. The first of these is planned to spud in the fourth quarter of 2019.
- Capital expenditure guidance for the full year is US$107–115m
Conclusion: An excellent set of results from RockRose today, clearly demonstrating that management’s successful strategy is paying dividends - literally. Following the integration of its legacy Marathon assets, RockRose continues to progress its pipeline of development projects, including the drilling of additional wells at West Brae and Blake. The development of Arran and progress on Tain are on budget and on schedule, and shareholders can look forward to further near-term upside in our view.
Serica Energy (LON:SQZ): Half Year Report, material cash flows in 2020
Share price: 125p, Market Cap: £360m
- Serica reported revenues of £146.4m (1H 2018 - £3.3m) with average realised prices of 36p/therm of gas, US$62.7/bbl of oil, and £277 per metric tonne of NGLs. This generated an average sales price of approximately US$34/boe for the period, compared to US$45/boe for full year 2018, including BKR revenues, reflecting lower gas prices in 2019.
- This led to a PBT of £51.9m (1H 2018: £7.9m loss) for the period, and a profit before taxation of £47.3m. Comparisons with 1H and full year 2018 are significantly influenced by the shut-in of the Erskine field from mid-January 2018 to late-October 2018 and by completion of the BKR acquisitions on 30 November 2018.
- Operating costs fell to US$12.30/boe compared to full year 2018 costs of over US$18/boe including BKR costs.
- Reported PAT was £30m (1H 2018: loss of £6.1m) after a non-cash deferred taxation accounting provision of £21.9m (1H 2018: credit of £1.8m).
- Cash rose to £88.2m at 30 June (31 December 2018: £43.1m) after repayments of £41.5 million for net cash flow sharing and £2.0m for the gas prepayment facility.
- In terms of outlook, Serica will continue to focus on steady cash growth, with full year net production guidance of 26,000-30,700boe/d.
- Serica's retained share of cash flows from its BKR interests acquired from BP, Total E&P and BHP increases from 50% for 2019 to 60% for 2020 and 2021 and 100% thereafter.
Conclusion: Another set of strong figures reported today, this time from Serica, which are the best we have seen in the company’s history. The first half of 2019 has demonstrated the financial benefits of the transactions the company completed at the end of last year, and which have transformed Serica into a leading North Sea operator. Shareholders will be encouraged by the Bruce, Keith and Rhum fields, which continue to perform strongly, providing 4.4% of UK's gas production. All Bruce wells are now producing for the first time for many years, and Erskine continues to outperform since installing a new section of the Lomond export line.
Aminex (AEX): Ruvuma Farm-Out Update and Acceleration of Drilling Operations
Share price: 1.2p, Market Cap: £38m
- Aminex has confirmed that all the conditions precedent within the control of Aminex and ARA Petroleum detailed in the Ruvuma farm-out agreement have been satisfied, and the partners will advance certain pre-drilling operations for the much anticipated Chikumbi-1 well.
- Aminex and ARA will advance works so that drilling of the well can commence as soon as practicable following the satisfaction of the remaining conditions, which are the granting of the Mtwara licence extension and government approval for the transfer of interest and operatorship.
- In addition, Aminex and ARA have signed a binding heads of terms, whereby ARA has agreed to provide a US$3m advance in instalments to the company, ahead of completion of the proposed farm-out, which provides Aminex with financial flexibility pending completion.
- The cash advance will be offset against the first tranche of the cash consideration payable to Aminex on completion
- The long stop date for completion of the farm-out has been extended once again to 30 June 2020.
- If completion has not occurred by 30 June 2020, the advance will convert to an interest-bearing secured loan, repayable by 30 June 2021.
Conclusion: Whilst shareholders will continue to be frustrated by the ongoing extensions applied to the Ruvuma farm-out, ARA’s ongoing commitment on a financial level, serves to temper any doubts in our view. The partners are proactively engaged with the Tanzanian authorities to obtain the outstanding approvals and licence extension, and therefore focus will turn to the upcoming Chikumbi-1 well.
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