Market Update: Thursday 31 October 2019
Genel Energy (LON:GENL): Tawke to maintain 120kbopd in 2020
Echo Energy (LON:ECHO) - Tapi Aike Update
Energy Prices
Brent Oil US$60.5/bbl vs US$60.7/bbl yesterday
WTI Oil US$55.4/bbl vs US$55.6bbl on yesterday
Natural Gas US$2.6/mmbtu vs US$2.5/mmbtu yesterday
Oil Price News
- Oil prices were off slightly as the EIA reported a crude oil inventory build of 5.7MMbbls for the week to October 25, pressuring prices a day after the API reported an estimated fourth consecutive inventory build, of 592,000bbls
- Consensus estimated an expected a build of 729,000bbls for last week after a 1.7MMbbl draw interrupted a string of five weekly inventory builds, which added more than 19MMbbls to crude oil inventories
- Following the reports, U.S. crude futures were also down 0.2% at $54.3/bbl on the New York Mercantile Exchange
- 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 moved higher on yesteday rising another 3.6%, ahead of today’s inventory report Expectations are for an 84Bcf build in stockpiles according to Estimize following last week’s 87Bcf increase in inventories
- The weather is expected to be colder than normal for the next 6-10 and 8-14 day forecast according to a report from 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
Genel Energy (LON:GENL): Tawke to maintain 120kbopd in 2020
Share price: 189p, Market Cap: £527m
- In the Kurdistan Region of Iraq, third quarter production at the Tawke licence averaged 119,800 bopd. Production in the quarter was impacted by a workover of the P-2 well and side-track of the P-3 well at the Peshkabir field.
- The operator of the field (DNO) expects to exit the year with Tawke licence production averaging 120,000bopd and to maintain this rate into 2020.
- The Tawke licence cumulative production recently reached the milestone of 300MMbbls, underlining the productive nature of the reservoirs.
- DNO also confirmed that the Peshkabir-to-Tawke gas project is on track to be delivered in Q1 2020, effectively eliminating gas flaring while enhancing recoverability at the Tawke field.
Conclusion: Another strong update from Genel and DNO. Genel is sufficiently funded for an aggressive capex budget, a material and progressive dividend as well as M&A when appropriate. It gives Genel a yield of around 7%, which will appeal to high income funds as well as sector investors in our view.
Echo Energy (LON:ECHO) - Tapi Aike Update
Share price: 3p, Market Cap: £17.5m
- Following the successful completion of seismic analysis which has resulted in a positive decision to drill and, the subsequent refinement and finalisation of detailed engineering work, Echo has announced that the final location for the first well of a four well Tapi Aike exploration programme has now been selected by the comapny and the operator (CGC).
- The well will be located in the Chiripia Oeste, the eastern portion of the Tapi Aike 3D survey area, and will be re-named Campo La Mata x-1 ("CLM x-1") on account of the now confirmed location.
- All permits to enable operations to commence have been received, contracts have been awarded and, construction works are now being finalised on the well pad and access roads to the drill site.
- The primary target of CLM x-1 is a stratigraphic trap which lies in the Magallanes Formation at an approximate depth of 2,000m.
- A secondary horizon in the Anita Formation (D3) and a shallower secondary interval (Magallanes 60) will also be targeted by the well.
- Technical work with the Operator has identified a high negative amplitude signature at the target area and Class III amplitude vs offset characteristics.
Conclusion: The company is now in the final stages of preparation ahead of mobilisation of the contracted drilling rig for the upcoming CLM x-1 well, the first of four wells in the Tapi Aike drilling programme. The initial CPR showed grounds for significant optimism and could reveal ‘material value’ for the company and its shareholders in a success case.
nd could reveal ‘material value’ for the company and its shareholders in a success case.