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Today's Oil & Gas Update - Tullow Oil, Energean Oil & Gas, Eco Oil & Gas and more..

Tullow Oil (LON:TLW) – Another cut to production guidance Energean Oil & Gas (LON:ENOG): Edison acquisition to complete before year end Eco (Atlantic) Oil & Gas (LON:ECO) – Update on initial analysis of Jethro and Joe wells

Tullow Oil plc - Today's Oil & Gas Update - Tullow Oil, Energean Oil & Gas, Eco Oil & Gas and more..

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

Market Update: Tuesday 12 November 2019
 

Tullow Oil (LON:TLW) – Another cut to production guidance

Energean Oil & Gas (LON:ENOG): Edison acquisition to complete before year end

Eco (Atlantic) Oil & Gas (LON:ECO) – Update on initial analysis of Jethro and Joe wells

Valeura Energy (LON:VLU) – Q3 update, 19% drop in production

Echo Energy (LON:ECHO) - Completion of acquisition adds material production

 

Energy Prices         

Brent Oil US$61.8/bbl vs US$62.5/bbl on Friday

WTI Oil US$56.7/bbl vs US$57.2bbl on Friday

Natural Gas US$2.7/mmbtu vs US$2.8/mmbtu on Friday

 

Oil Price News

  • Oil continues to seesaw on every rumour (positive or negative) regarding the US - China trade war
  • As a result, a lot of attention will be paid to President Trump’s speech today at the New York Economic Club, where he may provide more clues into what to expect next
  • US crude futures were down 0.3% at $60.6/bbl on the New York Mercantile Exchange

 

Gas Price News

  • Natural gas inventories have increased significantly this year, rising from a low point of 1,155Bcf in April to 3,724Bcf at the end of October
  • Natural gas stocks are now 37Bcf above the five-year average
  • The U.S. is entering the winter season with ample supplies, which has weighed on natural gas prices and puts somewhat of a cap on any rally. Gas drillers are struggling financially as a result
  • There is one tropical disturbance in the lower Atlantic that NOAA projects 10% chance of turning into a tropical cyclone over the next 48-hours

 

M&A activity builds momentum across the sector

  • 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

  • AIM Oil & Gas indices were 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) – Another cut to production guidance

Share price: 163p, Market Cap: £2,894m

  • Full year 2019 West Africa net oil production from Ghana and non-operated portfolio forecast to average c.87,000bopd.
  • Full year capex forecast of c.US$540m, free cash flow forecast of c.US$350 million, full year net debt of c.US$2.8bn.
  • The Uganda farm-down has now lapsed; Tullow and Joint Venture Partners have confirmed that they remain committed to the Lake Albert Development.
  • Good progress looks to have been made on the compamny’s Project Oil Kenya; targeting Final Investment Decision late next year
  • Tullow has completed its 3D seismic survey in the Comoros; and preparations are underway for an exploration well in Peru in the first quarter of 2020.

Conclusion: A very disappointing update from TLW today, free cash flow for the full year has been adversely affected by lower production and weaker oil prices, and was now expected to be around $350m. Current production is well below the guided 89,000-to-93,000bopd given at the company’s half-year results presentation in July, which had also been downgraded at the time. The TEN field in Ghana is also a concern, with production impacted by the suspension of a well.

 

Energean Oil & Gas (LON:ENOG): Edison acquisition to complete before year end

Share price: 882p, Market Cap: £1,557m

  • Energean has provided a comprehensive operational update with regards to the ongoing Edison transaction, in addition to the company’s operational progress offshore Israel, Greece and the Adriatic.
  • The company confirms that it is on track to complete the Edison E&P acquisition before the end of the year. The onward sale of Edison E&P’s UK and Norwegian subsidiaries to Neptune Energy is on track to complete shortly after.
  • The refinancing of the company’s US$600m committed bridge facility with a Reserve Based Lending facility is expected to be in place in 4Q 2019, before the Edison acquisition.
  • Operationally, company guidance on delivering first gas at its Karish Development (Israel) continues to be 1Q 2021, with Energean having completed the drilling of the three development wells required to deliver first gas from the project.
  • The Karish North appraisal confirmed best estimate recoverable resource volumes of 0.9Tcf and 34MMbbls of light oil / condensate (combined c.190MMboe).
  • The company is committed to drilling the Zeus exploration well in Block 12, Israel, targeting 0.6Tcf.
  • Energean recorded revenues of US$52.4m in the 9 months to 30 September 2019, (1Q-3Q 2018:  US$55.4m), with a unit cost of production of US$19.8/bbl slightly below full year guidance of US$20/bbl.
  • Full year production guidance maintained at 3,400 – 3,600bopd.
  • At 30 September 2019, Energean had cash and undrawn debt facilities of US$1.6bn

Conclusion: Investors will be hopeful that the company can meet its year end 2019 deadline to complete the much-anticipated Edison acquisition which will serve to substantially increase the Energean’s 2P reserve base to 609MMboe (c.80% gas) post onward sale. Despite a modest production profile, the company has five exploration licences offshore Israel, and a 25-year exploitation licence for the Katakolo offshore block in Western Greece and additional exploration potential in its other licences in Western Greece and Montenegro. Therefore, Energean will need to fire on multiple fronts to justify the significant capital it has raised, both debt and equity in our view.

 

Eco (Atlantic) Oil & Gas (LON:ECO) – Update on initial analysis of Jethro and Joe wells

Share price: 72p, Market Cap: £233m

  • Following the company’s much publicised discoveries offshore Guyana alongside Tullow and Total, Eco has provided an update on the fluid sample analysis.
  • The complete fluid analysis has not yet been received however, initial results suggest that the samples recovered to date from Jethro-1 and Joe-1 are mobile heavy crudes, not dissimilar to the commercial heavy crudes in the in many prolific hydrocarbon provinces.
  • The partners have sought third party consultant with heavy oil development expertise to provide an initial assessment of several potential development drilling and production scenarios.
  • The Jethro-1 discovery has the advantage of 8,500 PSI reservoir (2,600 PSI Overpressure), which increases drive efficiency; high reservoir temperature of 94 degrees Celsius; and an estimated flowing well head temperature of 90 degrees, which both increases oil mobility and provides an advantage at the floating production facility.
  • The Jethro-1 well discovered 55m of net pay in high-quality sandstone reservoir in the Lower Tertiary and Joe-1 encountered 16m of net pay, opening a new play type in the Upper Tertiary.

Conclusion: Whilst not the initial conclusion investors would have hoped for, there are several development scenarios for Eco and its partners in our view. Heavy and high sulphur oil has been developed and produced in the North Sea, Gulf of Mexico, the Campos Basin in Brazil, Venezuela and Angola and therefore today’s update should be taken in context. The shares look oversold at open and could therefore represent a compelling entry point in our view.

 

Valeura Energy (LON:VLU) – Q3 update, 19% drop in production

Share price: 64p, Market Cap: £49.8m

  • Testing operations at Inanli-1 resulted in stable gas flow rates at all four stimulated zones. Stimulation and testing operations have begun at the Devepinar-1 well.
  • Production from conventional operations averaged 531boepd in Q3 - down 19% from Q3 2018 due to natural declines and customer holiday shutdowns.
  • Price realisations were strong, averaging US$9.64/Mcf in Q3, 45% higher than Q3 2018.
  • Netbacks averaged US$33.04/boe in Q3, 40% higher than Q3 2018.
  • Net working capital increased to US$52.8m at end Q3 2019 as a result of a net increase in the company’s cash position to US$51m.

Conclusion: the sharp production decline will come as a set back, however tempered by the company’s strong netback position. Valeura’s primary focus is on flow testing the significant interpreted gas columns encountered in its new appraisal wells to demonstrate the extent and potential commerciality of the company’s Basin Centered Gas Accumulation estimated to hold 10Tcf of unrisked prospective natural gas, including 236MMbbls of condensate, net to Valeura.

Echo Energy (LON:ECHO) - Completion of Acquisition

Share price: 3p, Market Cap: £19m

  • Echo has announced that the acquisition of a 70% initially non-operated working interest in the Santa Cruz Sur package of five mature producing blocks from Phoenix Global Resources (PGR LN) has now completed.
  • Echo paid US$7m cash and US$1.5m in shares at 2.91p and there is provision for the payment of a further US$1.5m if a CPR shows an increase in reserves.

Conclusion: The package adds material production and diversifies the portfolio and will produce material cash flow in our view. Existing production is 3,761bopd in 1H 2019 (2,633boepd, including c.500bbl of oil net production to a 70% interest), underpinned by strong local Argentinian gas prices. 1P reserves of 4.3MMboe + 2P of 13.7MMboe (net to a 70% interest). There is also potential to increase production through workovers and the up-coming Campo Limite exploration well which is expected to be part funded by the vendor.
 

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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