Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Tuesday 22 October 2019
Tullow Oil (LON:TLW): Tullow strengthens its Board, concerns remain over debt position
Attis Oil & Gas (LON:AOGL): New Acreage, Drill Programme & Issue of Equity
Energy Prices
Brent Oil US$58.6/bbl vs US$59.1/bbl yesterday
WTI Oil US$53.4/bbl vs US$54.1bbl on yesterday
Natural Gas US$2.4/mmbtu vs US$2.5/mmbtu yesterday
Oil Price News
- Signs of ample global oil supply combined with concerns about economic growth in China, the world’s largest oil importer, pressured prices lower again this morning
- 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
- Natural gas prices tumbled during yesterday’s session which was likely due to a couple of factors. There are currently no storms in the Gulf of Mexico, and nothing is shown as a tropical disturbance in the Atlantic.
- In addition, the EIA reported a 104Bcf injection into natural gas storage inventories for the week-ending October 11, marking the third time in four weeks that stocks have risen by at least 100Bcf.
M&A activity builds momentum across the sector
- Given the depressed economic environment, we are seeing a number of listed companies coming to the conclusion that it is cheaper to purchase reserves through the stock market rather than adding through the drill-bit.
- The past 12 months has seen the acquisition of Faroe Petroleum (FPM.L) by DNO (DNO ASA); a £380m bid for Eland Oil & Gas (ELA.L) by Seplat Petroleum (SEPL.L); and Amerisur Resources (AMER.L) currently engaged in a competitive bid.
- Elsewhere, we note today’s announcement that Singapore’s Temasek Holdings plans to take control of Keppel Corp. for c.US$3bn and undertake a review of the oil-rig builder’s business
- The state-backed investor, which currently owns 20% of Keppel, offered to buy an additional 30.6% stake at S$7.35 a share, a 26% premium to the market’s valuation of the company.
- Aramco’s proposed IPO is another good barometer for sector sentiment in our view. Days before a widely expected official approval for what would be the world’s largest IPO ever, Saudi Arabia has yet again delayed the much-hyped listing by at least several weeks, with international investors seemingly not buying the Saudi insistence that the biggest oil company in the world is worth US$2tn.
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
Tullow Oil (LON:TLW): Tullow strengthens its Board, concerns remain over debt position
Share price: 205p, Market Cap: £2,882m
- Tullow has further strengthened its Board through the appointment of Martin Greenslade as a non-executive Director.
- Martin has also been appointed as a member of the Audit Committee and will stand for election to the Board at the 2020 Annual General Meeting.
- Martin brings extensive financial experience to Tullow from his current position as Chief Financial Officer and member of the Board of Land Securities Group plc which he has held since 2005
- Steve Lucas, non-executive Director, will step down from the Board following the conclusion of the Group’s 2020 AGM, after eight years with Tullow. At the same time, Martin Greenslade will be appointed Chair of the Audit Committee.
Conclusion: A positive addition to Tullow’s Board, bring considerable financial expertise to the table. Operationally, Tullow has enjoyed recent success with the drill-bit alongside Total and Eco-Atlantic, leading to impressive 8% gains in the company’s share price over the past two months. Nevertheless, an ongoing tax dispute with the Ugandan government has held the company back in recent years and compounded its growing debt burden which we still highlight as a concern.
Attis Oil & Gas (LON:AOGL): New Acreage, Drill Programme & Issue of Equity
Share price: 0.08p, Market Cap: £3m
- Attis has provided a comprehensive operational update today underlining management’s commitment to this turnaround story.
- The company confirms the acquisition of the Bivins 115 lease, Attis’ first acreage in the proven Red Cave formation in the Texas Panhandle close to Attis' headquarters in Borger, Texas.
- The Bivins 115 lease includes 17 identified proved undeveloped drilling locations with a third party validated present value (PV10) of US$8.15m at a US$55/bbl oil price (net to Attis).
- In addition, the company has completed a Bridging Loan Facility of £420k supported by existing shareholders, the COO and the Chairman of to fund working capital and development work to prepare the Bivins property to be drill-ready for an eight well programme once the operational weather window reopens in Q2 2020. A 12 well drilling campaign is also scheduled, subject to securing further funding, to commence early Q2 2020
- Attis has also issued 102m shares at 0.1p £102k to three advisors for accrued fees and certain Directors for accrued salaries.
- In line with re-positioning and the divestment of non-core assets, a sales package has been prepared for the company’s Austin Field to monetise part of the NPV10 of US$7.6m assigned to proved and probable reserves by recent independent Reserve Report, covering all existing assets, being Austin, Zink Ranch and Fort Worth.
- Significantly, Attis has signed an MOU with a large acreage holder to allow the company to conduct due diligence over additional Red Cave leases.
Conclusion: The turnaround of Attis builds momentum, underpinned by its supportive and committed Directors. The loan facility serves to provide the company with more breathing space as it pursues several value accretive asset opportunities to augment Attis’ streamlined portfolio. The Bivins 115 lease acquisition boosts the company’s NAV position by over double Attis’ market capitalisation, and we believe the market will start to recognise the upside potential at this play once funding uncertainties are alleviated.
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
sam.wahab@spangel.co.uk
Sales
Richard Parlons – 020 3470 0472
Abigail Wayne – 020 3470 0534
Rob Rees – 020 3470 0535
SP Angel
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35-39 Maddox Street London
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+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