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Market Update: Monday 1 June 2020  Trinity Exploration & Production (AIM:TRIN): Trinity receives US$2.8m in VAT Bonds Bahamas Petroleum (LON:BPC): FY19 results, all eyes on Perseverance #1 spud Independent Oil & Gas (AIM:IOG): Award of Phase 1 Well Management Contract to Petrofac

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Oil & Gas Daily Flow

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

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Market Update: Monday 1 June 2020 

Trinity Exploration & Production (AIM:TRIN): Trinity receives US$2.8m in VAT Bonds

Bahamas Petroleum (LON:BPC): FY19 results, all eyes on Perseverance #1 spud

Independent Oil & Gas (AIM:IOG): Award of Phase 1 Well Management Contract to Petrofac

Energy Prices         

Brent Oil US$35.3/bbl vs US$34.5/bbl on Friday

WTI Oil US$35.2/bbl vs US$32.5bbl on Friday

Natural Gas US$1.78/mmbtu vs US$1.85/mmbtu on Friday

 

Oil Price News

Oil prices appear to have hit a ceiling following the recent move by China to pass a national security law in Hong Kong

This has served to reignite tensions between Washington and Beijing

Those tensions are now threatening over US$52bn in energy sales and have brought an end to the oil price rally

Donald Trump is set to make an announcement this Friday regarding China, and amid escalating tension and China’s moves in Hong Kong, the actions will likely be punitive

China had previously pledged to make US$52bn in oil purchases over two years, a total that was always going to be hard to meet

 

Gas Price News

Natural gas futures closed sharply lower last week

The catalysts behind the selling pressure are rising US storage inventories and US export concerns

Both are the result of a plunge in demand due to the COVID-19 pandemic.

A steep drop in the number of operating natural gas and crude oil rigs seems to have had little impact on supply

Natural gas prices dropped nearly 3% yesterday as inventories built more than expected

Natural gas in storage was 2,612Bcf as of last Friday according to the EIA. This represents a net increase of 109Bcf from the previous week

Expectations were for a 107Bcf build according to survey provider Estimize

Stocks were 778Bcf higher than last year and 423Bcf above the five-year average of 2,189Bcf.

At 2,612 Bcf, total working gas is within the five-year historical range.

Strong production despite continued declines in rig count has also held back gas prices

The weather is expected to remain warmer than normal for most of the US which should increase cooling demand

 

Company News

Trinity Exploration & Production (AIM:TRIN): Trinity receives US$2.8m in VAT Bonds

Share price: 9.2p, Market Cap: £36m

As part of Trinidad & Tobago’s efforts to support businesses during the COVID-19 pandemic, Trinity has received VAT Bonds for US$ 2.8m in relation to outstanding VAT receipts.

The VAT Bonds have a maturity of 3 years from the date of issue, carry a coupon rate of 3.30% per annum (paid semi-annually) and are freely transferable.  

Management has confirmed that the intention is to sell the VAT Bonds to a local financial institution, in the near term.

Following drawdown of Trinity's US$2.7m overdraft facility with CIBC, unaudited cash balances at the end of April 2020 were approximately US$16.3m.

On sale of the VAT Bonds, proforma cash balances are expected to be approximately US$ 19.1 million (equivalent to c.4p/share).

Our take: Given the challenging market backdrop, positive news has been hard to come by for E&Ps, but today’s announcement serves to buck that trend for Trinity. Assuming there is an active market for the bonds, the payment will be a welcome boost to the Company’s liquidity position. The Company has successfully implemented a low-cost operation, which will clearly be crucial in the current and likely medium-term backdrop, preserving its bottom line and liquidity position. With the shares currently trading at 1x FY19 adjusted EBITDA, we do continue to see considerable value at current levels.

Bahamas Petroleum (LON:BPC): FY19 results, all eyes on Perseverance #1 spud

Share price: 3.3p, Market Cap: £75m

BPC’s FY19 results show that the Company recorded a US$4.6m loss for the year (FY18: US$1.3m loss).

This was as the Company gears up for the much-anticipated Perseverance #1 exploration well later this year.

Last week, BPC announced that having postponed its Perseverance #1 drilling operation from H1 2020 due to the COVID-19 pandemic, the Company has entered into a definitive contract with Stena Drilling for provision of a drilling rig as soon as Q4 2020.

Given the terms of this contract, the Company has outlined a significantly reduced cost estimate for its first exploration well, along with a general update on expected timing and progress toward drilling.

The contract outlines a firm window for commencement of drilling between 15 December 2020 and 1 February 2021, consistent with licence obligations as extended by the current force majeure.

The Company has also confirmed a 15% reduction in the well cost based on the contracted rig rate and rates for other contracted services and equipment, reflecting changes to the global operating environment.

Perseverance #1 will target recoverable P50 oil resources 0.77bnbbls, with an upside of 1.44bnbbls.

Today’s announced reduced cost estimate creates scope for expanded formation evaluation work in the success case, without increasing previous estimated total capital requirement.

Our take: As with all pre-production plays, the only real focus for investors is the Company’s liquidity position and going concern status. BPC seems to be comfortable ahead of its much-anticipated exploration well at the end of this or early next year. Given the significant curtailment of global rig spend, rates are falling as service providers scramble to secure contracts with E&Ps. Key elements of the BPC’s finance package have been rescheduled and the Company remains in a strong cash position and in the coming months will be seeking to redefine operational plans and major contractor arrangements consistent with the revised work programme timetable. Despite very difficult market conditions, the Company’s farm-in process continues, and the well cost reduction will be seen as another positive for any prospective partner in our view.

Independent Oil & Gas (AIM:IOG): Award of Phase 1 Well Management Contract to Petrofac

Share price: 12.3p, Market Cap: £59m

IOG has announced that it has awarded the Core Project Phase 1 well management contract to Petrofac.

Confirmation of this award follows a competitive tendering process and the approval last month of the Phase 1 FDP by the OGA.

Phase 1 comprises the development and production of the Southwark, Blythe and Elgood fields in the UK Southern North Sea (SNS) through a total of five wells, with gas transported onshore via the Thames Pipeline.

The contract scope covers the planning, execution and close-out phases of the Phase 1 drilling programme, with Petrofac intended to act as Well Operator on behalf of IOG.

The planning phase includes detailed well design, risk assessment and management of well-related regulatory requirements. During the execution phase Petrofac will manage well engineering, procurement and logistics, assure well construction and integrity, and provide onshore and offshore personnel to support the drilling campaign.  

Management has confirmed that extensive work has already been undertaken so far this year between the IOG and Petrofac teams under a letter of limited commitment to ensure all preparations for the 2021-22 Phase 1 drilling campaign proceed to plan.

Our take: A good move for IOG in our view, adding Petrofac to the recent services award to Subsea 7 bring a wealth of experience to the table. Petrofac has performed this role for nine other companies in the UK North Sea and has drilled over 400 wells for more than 100 operators globally and will bring invaluable expertise in our view.

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

 

Disclaimer   Non-Independent Research

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Recommendations are based on a 12-month time horizon as follows:

 

Buy - Expected return >15%

Hold - Expected return range -15% to +15%

Sell - Expected return < 15%

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