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Today's Oil & Gas Update - Premier Oil;

Market Update: Wednesday 15 July 2020  Premier Oil (LON:PMO): Trading update, net debt continues to fall Great Eastern Energy Corporation* (AIM:GEEC): COVID-19 update highlights robust liquidity position

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

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Market Update: Wednesday 15 July 2020 

Premier Oil (LON:PMO): Trading update, net debt continues to fall

Great Eastern Energy Corporation* (AIM:GEEC): COVID-19 update highlights robust liquidity position

 

Energy Prices         

Brent Oil US$43.4/bbl vs US$42.7/bbl yesterday

WTI Oil US$40.8/bbl vs US$39.9bbl yesterday

Natural Gas US$1.77/mmbtu vs US$1.81/mmbtu yesterday

 

Oil Price News

Oil prices have ramped up following reports from the API of a huge draw in crude oil inventories of 8.322MMbbls for the week ending 10 July

Consensus had predicted an inventory much smaller inventory draw of 2.275MMbbls

In the previous week, the API reported an increase in crude oil inventories of 2.048MMbbls after analysts had predicted a larger build

WTI was trading down on Tuesday afternoon prior to the API’s data release with prices responding to the likelihood that OPEC+ would decide to decrease its level of production cuts as of 1 August, and potentially slowing the inventory drawdown

Oil production in the US has now fallen from 13.1MMbopd in March to 11MMbopd bpd today, according to the EIA, for the third week in a row

Production has rebounded somewhat from week ending 12 June, which saw an average of 10.5MMbopd produced

 

Gas Price News

Natural gas prices moved lower yesterday, as concerns of a prolonged closure of the US economy will reduce electricity demand

The weather is expected to remain warmer than normal over the next 8-14 days according to the National Oceanic Atmospheric Administration

There is no tropical cyclone activity in the Atlantic or the Gulf of Mexico

Production in the US decreased in April by the most in 8 years

 

Company News

Premier Oil (LON:PMO): Trading update, net debt continues to fall

Share price: 44p, Market Cap: £406m

Premier has today provided an update on recent operational activities and guidance in respect of its half year financial results to 30 June 2020.

Production averaged 67.3kboepd to the end of June; and the Company has guided FY20 production of 65-70kboepd (before any contribution from the proposed acquired BP assets) which is unchanged.

The Solan P3 well was successfully drilled and due on-stream in September and is forecast to add c.10kbopd to the Company’s production rates in Q4.

With regards to Tolmount, final onshore commissioning of topsides is underway prior to August sailaway; on track to meet previously revised Q2 2021 first gas date, adding 20-25kboepd (Premier 50% net)

The Company has maintained its forecast FY20 capex (US$340m), opex (US$12/boe) and lease costs (US$6/boe), reflecting US$240m of savings and deferrals secured

As previously announced, the amended BP acquisitions have been approved by creditors, subject to agreed refinancing terms and equity funding; adds 17kboepd (net) from targeted completion date of 30 September 2020.

Discussions with a subset of Premier's creditors regarding a long-term extension to its credit maturities remains ongoing with the aim to agree terms which can be recommended to the full lender group by the end of July.

Importantly, net debt has been reduced to US$1.97bn as at the end of June (31 December 2019: US$1.99bn), and financial covenants have been waived through to end September; forecast free cash flow positive for full year 2020 at current forward curve.

Our take: Shareholders will be encouraged by the continued focus on net debt reduction in our view. With regards to the ongoing BP acquisitions, the latest terms see a significant curtailment in the initial consideration resulting in much less stress on what is already a fragile balance sheet. The re-negotiation also relieves some of the pressure on the company from one of its largest shareholders.

 

Great Eastern Energy Corporation* (LON:GEEC): COVID-19 update highlights robust liquidity position

Share price: 12.5p, Market Cap: £15m

STRONG BUY, 252p/share TP

GEEC has provided a comprehensive update on the latest COVID-19 lockdown relaxations in India.

Whilst the country has experienced a relaxation which continues, India has not yet fully "unlocked".

The Company also confirms that the country’s "unlock-3" phase guidelines will be announced towards the end of July 2020.

The State of West Bengal, where the Company's operations are based, has extended the lockdown until 31 July 2020, albeit with some relaxations.

India, being a federal structure, means that each State can choose its own guidelines which may or may not be in line with the guidelines issued by the Central government.

Encouragingly, GEEC has confirmed that compared to the average per day sales achieved by the Company in the quarter ended June 2020, there has been an increase in the per day sales in the first two weeks of July 2020.

However, sales remain lower than the pre-lockdown levels and the Company's management now expects to achieve pre-lockdown sales levels within the next two months.

Management has however confirmed that the Company remains in a sound financial and operating position and continues to service all its debt obligations on, or before time, including payment towards principal of approximately US$4m since the beginning of the lockdown.

The Company also continues to maintain sufficient liquidity to meet all its financial obligations and has not availed itself of the optional debt moratorium allowed by the Reserve Bank of India due to COVID-19.

Our take: A solid update from GEEC today, underlining the Company’s robust liquidity position, and uniquely relative to its E&P peer group continuing to reduce its net debt position. Importantly, the Company’s strategy of optimising production, as well as pursuing further exploration continues, as is the exploitation of its potentially transformational shale acreage.  More recently, the Indian Government has taken positive steps to accelerate growth in the country’s economy, and as a result, demand for hydrocarbons in India continues to grow, recently evidenced from rising LNG import data. As such, we see GEEC’s current share price as representing compelling value and therefore retain our STRONG BUY rating and 252p/share TP.

*SP Angel acts as Corporate Broker to Great Eastern Energy Corporation

Research – Oil & Gas

Sam Wahab - 0203 470 0473

[email protected]

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