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Today's Oil & Gas Update - Savannah Petroleum & Vaalco Energy.

Savannah Petroleum (SAVP): Signature of Loan Facility, ahead of Severn Energy transaction Vaalco Energy (EGY) – Confirms Oil Discovery offshore Gabon

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Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below

Market Update: Friday 18 October 2019

Savannah Petroleum (LON:SAVP): Signature of Loan Facility, ahead of Severn Energy transaction

Vaalco Energy (LON:EGY) – Confirms Oil Discovery offshore Gabon 

Energy Prices    

Brent Oil US$59.3/bbl vs US$59.4/bbl yesterday

WTI Oil US$54.1/bbl vs US$53.7bbl yesterday

Natural Gas US$2.5/mmbtu vs US$2.3/mmbtu yesterday

 

Oil Price News

  • Oil prices remained steady yesterday following a volatile week with gloomy economic data, and a reported 9.3MMbbo increase in crude oil inventories for the week to October 11.
  • Following Putin’s visit to Saudi Arabia, OPEC’s Secretary General confirmed that the OPEC+ coalition is open to discussing and possibly doing ‘whatever it takes’ to rebalance the market.
  • U.S. crude futures were off 0.3% at $54.1/bbl on the New York Mercantile Exchange, underlining uncertainties in the global economy
  • Longer term, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

Gas Price News

  • A strong week for natural gas prices, reversing much of the losses in October following a less than expected build in natural gas stockpiles.
  • There is one disturbance in the Gulf of Mexico with Tropical depression 16 now swirling in the Gulf and is expected to turn eastward making landfall in Louisiana and then Florida.
  • The more west the storm goes the more likely it is to disrupt some natural gas installations. 

UK Sector Backdrop

  • Despite a tough capital market environment, UK equities in the Oil & Gas sector remained flat YTD (2018: -16%) wiping out September’s 8% gains
  • AIM Oil & Gas indices were also flat YTD despite some volatility, yet stabilising 2018’s 13% decline
  • These indices have largely tracked the oil price, and with the futures market also remaining steady
  • The small/mid cap constituents of the sector are due to engage in an active year of operational activity in 2020, with a number of high impact drilling catalysts

Company News

Savannah Petroleum (LON:SAVP): Signature of Loan Facility

Share price: 23p, Market Cap: £195m 

  • Savannah has entered into an unsecured loan facility with an initial tranche of US$5m expected to be drawn immediately.
  • The facility will provide the company with access to additional capital ahead of the upcoming completion of the Seven Energy Transaction, where Savannah expects a cash inflow of US$74m on completion.
  • Facility carries a fixed interest premium of 7% payable on the principal amount (and any future amounts drawn), to be paid at maturity.
  • The principal amount and associated interest can be repaid at any point up until the initial loan maturity date of 17 January 2020.

Conclusion: Whilst we are generally nervous of E&Ps taking such facilities, we see less risk to the company’s share capital position given how advanced the Severn Energy Transaction is at present, and therefore Savannah’s ability to repay the loan without need for dilution. Whilst the transaction has taken a lot longer than anticipated, there are a number of significant share price catalysts on the horizon for investors. In Niger the Amdigh-1 well test is likely to be approved following the Seven Energy completion which should bring the country back into play as an important part of the significant upside in the Savannah investment case in our view.

Vaalco Energy (LON:EGY) – Confirms Oil Discovery offshore Gabon 

Share price: 163p, Market Cap: £96m

Following the company’s successful London listing last month, Vaalco has announced that the Etame 9P appraisal well, targeting the subcropping Dentale reservoir beneath the Vaalco-operated Etame field offshore Gabon, was successfully drilled to a total depth of 10,260ft and encountered both Gamba and Dentale oil sands. 

The well identified an oil column which was thicker than expected in the Gamba reservoir which may result in higher ultimate oil recovery from the planned Etame 9H and Etame 11H wells than previously expected

The company estimates gross recoverable oil resources of 2.5 to 10.5MMbo present in subcropping Dentale reservoirs

Operations are underway to plug back to a shallower depth and drill the Etame 9H horizontal development well section in the Gamba reservoir. 

Conclusion: A very positive update from Vaalco today, the first well in the company’s 2019/20 drilling campaign. The successful Etame 9P is the first of many appraisal opportunities that the company has identified that have the potential to add material reserves and resources to Vaalco’s asset base. In addition, the result reaffirms the upside potential yet to be exploited from the Etame field 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

  

Research – Oil & Gas

Sam Wahab - 0203 470 0473

[email protected]

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535  

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices

Oil Brent, WTI

ICE

Natural Gas

NYMEX

 

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