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Today's Oil & Gas Update - Gulf Keystone Petroleum, Reabold Resources, SDX Energy and more...

Gulf Keystone Petroleum (LON:GKP): Strong trading update, additional buyback initiated Reabold Resources (LON:RBD): Drilling the VG-6 well commences, onshore California Eco (Atlantic) Oil & Gas (LON:ECO): JV Partners secure the Orinduik licence for a further three years

Amerisur Resources - Today's Oil & Gas Update - Gulf Keystone Petroleum, Reabold Resources, SDX Energy and more...

Oil & Gas Daily Flow

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

Market Update: Tuesday 10 December 2019

Gulf Keystone Petroleum (LON:GKP): Strong trading update, additional buyback initiated

Reabold Resources (LON:RBD): Drilling the VG-6 well commences, onshore California

Eco (Atlantic) Oil & Gas (LON:ECO): JV Partners secure the Orinduik licence for a further three years

SDX Energy (LON:SDX): South Disouq stabilises at 50MMscf/d, three months ahead of schedule

Falcon Oil & Gas (LON:FOG): Horizontal drilling of the Kyalla 117 N2-1H appraisal well commences

         

Brent Oil US$64.1/bbl vs US$63.9/bbl yesterday

WTI Oil US$58.9/bbl vs US$58.8bbl on yesterday

Natural Gas US$2.32/mmbtu vs US$2.33/mmbtu yesterday  

 

Oil Price News

  • Oil continues to nudge up as the market digests last weeks announced production cuts
  • The combination of raising the production cuts to 1.7MMbopd, plus the unilateral over-compliance by Saudi Arabia, adding another 400,000bopd of additional cuts, suprised the market last week
  • In addition, Saudi Arabia hopes to apply pressure to all member countries to comply with their allotted reductions
  • With the Saudi cuts, the total contributions rise to 2.1MMbbl/d of reductions. The deal takes effect in January 2020, and the group will meet again in March.
  • Of the 500kbbl/d in extra cuts, OPEC will shoulder c.372kbb/d and the non-OPEC group led by Russia will take on 131kbbl/d
  • U.S. crude futures were up 0.2% at $64.9/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 dipped lower again yesterday completing the bear flag continuation pattern
  • The weather is expected to remain near normal or warmer than normal for the next 6-10 and 8-14 days according to the National Oceanic Atmospheric Administration
  • Supply is rose more than expected, which continues to weigh on prices

 

M&A activity builds momentum across the sector

  • UK oil and gas continues to thrive this quarter, demonstrated by the recent £5m Union Jack* (UJO LN) placing which follows Reabold Resources’ (RBD LN) £24m fundraise announced in October, primarily for the same West Newton conventional field onshore UK
  • Further institutional support has been demonstrated by the £10m raise and IPO of Longboat Energy, or Faroe Petroleum mark II, to build a new full-cycle North Sea E&P
  • The past 12 months has seen the acquisition of Faroe Petroleum (FPM LN) by DNO (DNO ASA); a £380m bid for Eland Oil & Gas (ELA LN) by Seplat Petroleum (SEPL LN); and a £242m bid for Amerisur Resources (AMER LN) by Geopark

 *SP Angel acts as Nominated Advisor and Broker to Union Jack Oil

 

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

Gulf Keystone Petroleum (LON:GKP): Strong trading update, additional buyback initiated

Share price: 209p, Market Cap: £437m

  • GKP has reported an average gross production rate YTD of 32,127bopd, in line with guidance at the beginning of 2019.
  • Encouragingly, November’s gross production averaged 40,582bopd, with current production rates from the field at c.42,000bopd.
  • GKP is therefore on track to meet its original gross production guidance for 2019 of 32,000-38,000bopd.
  • The first well of the drilling campaign, SH-12 came onstream on 13 November. During commissioning, the well produced at rates up to 4,600bopd, in line with expectations and is currently producing at c.4,000bopd. 
  • The second well in the drilling campaign, SH-9 is a crucial part of the long-term field gas management plan and is designed to assess the gas reinjection potential of the Jurassic formation. The well, which was spudded on 19 October, encountered a faulted section requiring the well to be side-tracked to the Jurassic reservoir target.
  • The SH-9 side-track necessitates a revision to the drilling schedule. Assuming a duration of one month for the side-track, the GKP now expects to reach the 55,000bopd gross production target at Shaikan in Q3 2020.
  • The PF-1 export pipeline is complete. Full oil export operations are expected to commence in the next 24 hours marking the end of export by trucking from the Shaikan Field.
  • The company reported a strong cash balance of US$206m as at 9 December 2019 and will therefore initiate a second share buyback programme for a further US$25m with an initial tranche of US$15m to commence today.

Conclusion: Following a difficult day for the sector yesterday, GKP has lifted investor spirits with a solid operational and corporate update. The imminent start of export through the PF-1 pipeline means all production from Shaikan will now be on track to achieve its initial average production guidance for 2019, and whilst the need to side-track SH-9 has slightly impacted timing guidance for delivering 55,000bopd, the company is well positioned to achieve further significant production growth in 2020. 

Reabold Resources (LON:RBD): Drilling the VG-6 well commences, onshore California

Share price: 0.8p, Market Cap: £50.5m

  • Reabold has announced that Integrity Management Solutions (IMS) has commenced drilling the VG-6 well at the West Brentwood licence onshore California.
  • VG-6 will be the third well drilled on the licence, following on from the successful VG-3 and VG-4 wells, which are currently in production at West Brentwood.    
  • Reabold has a 50% equity interest in the licence and is paying 50% of the cost of drilling the VG-6 well, having earned its equity interest by previously funding 100% of the VG-3 and VG-4 wells. 
  • The cost of the VG-6 well is expected to be fully funded from the revenue generated by Reabold’s California business. 

Conclusion: Reabold will hope to continue the positive trend at West Brentwood following on from its two previous wells that are now on production on the licence.  The cash generated out of the existing California operations is now funding drilling activities, resulting in a self-funding growth business in California.  Success at VG-6 would result in another quick uplift in cash generation from these assets given the proximity to existing infrastructure.    

 

Eco (Atlantic) Oil & Gas (LON:ECO): JV Partners secure the Orinduik licence for a further three years

Share price: 45.6p, Market Cap: £81.1m

  • Eco Atlantic has announced that the JV Partners have elected to enter the next exploration phase of the Orinduik Petroleum Agreement signed on 14 January 2016 and have submitted their official notice to the Department of Energy of the Government of Guyana.
  • The First Renewal Period, which will commence from 14 January 2020, will see the JV Partners maintain control of the licence for a further three years, through to 13 January 2023, and until the second renewal period.
  • The work completed by the JV Partners on the Orinduik Block to date, including the completion of a 2,550km2 3D seismic programme in 2017 and the drilling of two exploration wells, both leading to discoveries, on Jethro-1 and Joe-1, has exceeded the original license commitments required within the initial phase of the Orinduik Petroleum Agreement.

Conclusion: Following a level of market uncertainty with regards to the fluid samples so far recovered from the Orinduik Block, 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 the important factor to note is that the crude is mobile. Extension of the licence will allow the partners to further appraise and explore the significant hydrocarbon potential of the Orinduik, both in the proven discoveries of the Tertiary layer and in the deeper Cretaceous layer, estimated to hold an additional 3.2Bnbbo (gross unrisked prospective (P50) resource) according to the CPR resource report published in March 2019. 

 

SDX Energy (LON:SDX): South Disouq stabilises at 50MMscf/d, three months ahead of schedule

Share price: 0.8p, Market Cap: £50.5m

SDX has announced that it has achieved its targeted stabilised plateau production rate of 50MMscf/d from its operated South Disouq concession (SDX: 55% working interest) in Egypt approximately three months earlier than initially expected.

Gas has been flowing through the South Disouq Central Processing Facility since 7 November 2019 with all four discovery wells and the CPF performing in line with management’s expectations.

All gas production is sold to the Egyptian national gas company, EGAS, at a fixed price of US$2.85/Mcf, with the Government of Egypt’s entitlement share of gross production equating to approximately 51%.

Conclusion: A very positive announcement for SDX today, with the current stabilised production rate having the potential to achieve between US$13m - US$14m of net revenues per annum for the company. The performance to date of the CPF and the four wells has exceeded expectations and, with the commencement of the South Disouq drilling campaign in Q1 2020, SDX is well positioned to become a key gas producer into the high demand Egyptian gas market in our view.

 

Falcon Oil & Gas (LON:FOG): Horizontal drilling of the Kyalla 117 N2-1H appraisal well commences

Share price: 11.8p, Market Cap: £111.9m

  • Falcon Oil & Gas confirms that drilling of the horizontal section of the Kyalla 117 N2-1H appraisal well in the Beetaloo Sub-Basin, Australia has commenced, along with the advancement of the vertical well evaluation.
  • The JV has elected to target the Lower Kyalla shale, at a depth of ~1800mTVD, and drill the horizontal section for approximately 1,000-2,000m,
  • On completion of drilling, the horizontal section will be fracture stimulated and production tested.
  • Three source rock reservoir sections are identified within the Kyalla Shale Formation, characterised as the Lower, Middle and Upper Kyalla, with the thickness of the entire Kyalla Shale Formation measured at c.900m.
  • Ongoing analysis of conventional cores acquired in each of the Upper and Lower Kyalla reservoir sections, along with sidewall cores and extensive wireline logging, will enable a full-scale evaluation of prospectivity of the Kyalla Formation in the central part of the Beetaloo Sub-Basin.

Conclusion: Falcon continues to appraise its considerable unconventional acreage in the Beetaloo Sub-Basin, which has thus far yielded success for the company and its partners. Early data shows continuation of the Kyalla Fm between Beetaloo W-1 and the Amungee NW-1H wells. Elevated gas show with relatively high C¹,C² and C³ components were observed across the carbonaceous shales. Further testing will take place then horizontal drilling followed by fraccing and production testing.

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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