Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Monday 16 March 2020
Gulf Keystone Petroleum (LON:GKP): Share buyback complete
Jersey Oil & Gas (LON:JOG): Greater Buchan Area Joint Integrated Studies Agreement
Energy Prices
Brent Oil US$33.7/bbl vs US$36.3/bbl on Friday
WTI Oil US$31.0bbl vs US$33.2bbl on Friday
Natural Gas US$1.90/mmbtu vs US$1.89/mmbtu on Friday
Oil Price News – looking for the opportunities
As a result of this Saudi-Russian oil price war, both Brent and WTI are having one of their worst months in history
And the prevailing market sentiment seems to be that an oil price recovery isn’t imminent
Prices are off again this morning with Brent reaching a low of US$33/bbl and WTI dipping below US$30
The London-listed E&P sector is also having another ‘red day’ with Premier Oil and Tullow Oil both down 15% at the time of writing
As with all shocks, there remains a number of opportunities to invest in profitable and well capitalised companies and take advantage of any upturn in the macro-environment
Companies such as Gulf Keystone Petroleum (GKP LN) RockRose Energy (RRE LN) certainly fit into this category in our view
US shale sector at risk
The current oil price shock threatens serious damage to the overleveraged US oil and gas sector, which is already weakened by depressed demand and prices, and threatens to trigger widespread bankruptcies and debt default in US markets
According to a report by Evercore ISI, shale operators have had cumulative negative cash flow of over US$280bn since 2007
US lenders and PE firms are rapidly reducing exposure to shale firms as their balance sheets deteriorate
Recent reports indicate that over US$140bn debt for the US E&P sector is in danger of falling into the junk range, and the total is over US$300bn for associated gathering, processing, and transportation companies
The sector accounts for between 10 and 16% of all high yield debt on the market and therefore has a significant impact on the US economy
Since 2015 there have been over 400 company bankruptcies in the US E&P sector with direct losses of c.US$200bn
Gas Price News
Natural gas futures finished higher on Friday as investors reacted to rising demand for risky assets and heightened volatility in commodity markets, especially the energy sector
Prices were also supported by colder trends in the latest weather forecasts.
NatGasWeather issued colder guidance - reversing milder trends from Thursday’s data
Natural Gas Intelligence have forecast colder trends around weather systems moving into the US around the middle of next week and also March 21-24
Company News
Gulf Keystone Petroleum (LON:GKP): Share buyback complete
Share price: 79.6p, Market Cap: £177.4m
Following the purchase of ordinary shares on 13 March 2020, the Company's US$25m share buyback programme as announced on 10 December 2019 and 21 January 2020 has been completed.
In aggregate, between 10 December 2019 and 13 March 2020, the Company repurchased 10.9m ordinary shares at a VWAP of 176.1p/share
The Company has now bought back shares for a total value of US$50m in the last twelve months.
Our take: In light of recent macro events leading to a significant correction to oil prices and subsequent impact on sector valuations, GKP will have wished they had waited until now to commence a share buyback. Operationally, production rates from Shaikan are at c.38,000bopd, currently unaffected by the impact of COVID-19. However, the planned production increase to 55,000bopd scheduled for Q3 2020, and average production guidance for 43,000 – 48,000bopd for FY20 look to be optimistic if facilities are suspended due to staff quarantine. Current cash of US$159m ensures the Company is in a comfortable liquidity position.
Jersey Oil & Gas (LON:JOG): Greater Buchan Area Joint Integrated Studies Agreement
Share price: 57.5p, Market Cap: £77.8m
Jersey has confirmed that it has established and will lead the Greater Buchan Area Joint Integrated Studies agreement between neighbouring field operators, to undertake and complete technical and commercial evaluation studies for a collaborative development of the wider Greater Buchan Area, which contains discovered oil and gas resources in excess of 200MMboe.
A key objective of the studies under the agreement is to establish whether a collaborative development would lead to a reduction in development costs and an increase in value for all participants in a new production hub in the area, potentially including electrification in line with the Oil & Gas Authority’s Maximising Economic Recovery strategy for the UKCS and reducing CO2 emissions.
Our take: This agreement makes a lot of sense in our view, potentially reducing long term development costs and increasing efficiencies through data and knowledge sharing between operators. It also falls within the OGA’s framework to transition the North Sea transitions to net zero.
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
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