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Today's Oil & Gas Update - SDX Energy & Coro Energy

Oil & Gas Daily Flow Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below Market Update: Friday 25 October 2019 SDX Energy (SDX): Commencement of 12 well drilling campaign targeting 15Bcf Coro Energy (CORO): DST efforts at Tambak-2 unsuccessful

SDX Energy Inc - Today's Oil & Gas Update - SDX Energy & Coro Energy

Oil & Gas Daily Flow

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

Market Update: Friday 25 October 2019

SDX Energy (LON:SDX): Commencement of 12 well drilling campaign targeting 15Bcf

Coro Energy (LON:CORO): DST efforts at Tambak-2 unsuccessful

 

Energy Prices         

Brent Oil US$61.1/bbl vs US$60.7/bbl yesterday

WTI Oil US$55.9/bbl vs US$55.6bbl on yesterday

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

 

Oil Price News

  • Oil prices received a welcome boost this week on rumours that OPEC+ might impose further cuts and because of a surprise drawdown in EIA inventory data.
  • Nevertheless, economic cracks continue to dominate the narrative
  • The latest string of downbeat economic data came from Germany, where its manufacturing sector seems to be stuck in negative territory.
  • U.S. crude futures were also up 0.7% at $54.1/bbl on the New York Mercantile Exchange, with the longer-term view suggesting a squeeze in the supply dynamic
  • US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

 

Gas Price News

  • Overall, natural gas prices rebounded rising 1.75% this week following a smaller than expected build in natural gas inventories
  • Expectations are for natural gas inventories to increase by 93Bcf this week when official data is released
  • This compares to a 104Bcf build in natural gas inventories reported by the Energy Information Administration last week
  • There is a disturbance in the Gulf of Mexico which now has approximately a 60% chance of beginning a tropical cyclone according to the National Oceanic Atmospheric Administration
     

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.
  • 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

SDX Energy (LON:SDX): Commencement of 12 well drilling campaign targeting 15Bcf

Share price: 22p, Market Cap: £45m  

  • SDX has announced the commencement of its 12 well drilling campaign, targeting a mean 15Bcf of gross unrisked prospective resources, in its operated Gharb Basin (SDX: 75% working interest) acreage in Morocco.
  • The first seven wells located in the Company's core producing concessions at Sebou and Gharb Centre are lower-risk appraisal wells targeting prospects which are close to existing infrastructure.
  • These wells can be tied in quickly, at low cost, and are similar in geological risk to the discoveries already made and producing in this area.
  • These will be followed by two step-out exploration wells further to the north in Gharb Centre and outside the reach of the company's existing infrastructure, targeting prospects which are similar to the discoveries made in Sebou and Gharb Centre albeit they are deemed higher risk as this part of the concession has not been previously tested.  
  • The last three wells of the campaign are expected to be higher-risk exploration wells in the Lalla Mimouna Nord concession, targeting larger prospects in deeper, as yet unproven, horizons. 
  • In order to optimise operations and reduce costs, SDX has secured an advanced North American rig to reduce drilling time. Furthermore, the company will perforate and test successful wells in separate campaigns, with multiple wells tested back to back in each campaign to reduce equipment mobilisation costs. The drilling campaign is expected to complete in Q1 2020.

Conclusion: A number of near-term catalysts on the horizon for SDX, and the company will hope to reverse the downward trajectory in its share price YTD. The active drilling campaign will target prospects with varying degrees of risk, and we believe the core focus for investors will be on the Lalla Mimouna Nord concession where the company will look to materially add further gas resources through step out wells.   

 

Coro Energy (LON:CORO): DST efforts at Tambak-2 unsuccessful

Share price: 2.39p, Market Cap: £18.9m 

  • Following the drilling of the Tambak-2, offshore Indonesia, the company has since focussed on conducting a Drill Stem Test (DST) across the intra-Muda reservoir.
  • The operator has reported that these DST efforts have not been successful, due to formation damage in the reservoir.
  • Two separate DST attempts have been conducted across the intra-Muda reservoir without success due to extreme formation damage.
  • Operational issues encountered while setting the bridge plug (needed to isolate the gas-bearing reservoir) resulted in a 'swabbing' of the well which led to a substantial gas kick, with gas flowing to surface.
  • Heavy mud was used to control the well, resulting in large volumes of barite mud being lost to the reservoir, and the reservoir formation itself became plugged and damaged by the barite mud.

Conclusion: A disappointing update from Coro today, with the expected sell down of the shares reflecting the expectations of the DST. The DST’s failure will be tempered somewhat given that the company was able to demonstrate a continuous gas-bearing reservoir over a large distance; confirming the same pressure system and gas-water contact as seen at Mako South-1 and in addition, the same quality of reservoir but with better sand development than expected.

 

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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