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Today's Oil & Gas Update - Union Jack Oil PLC; Tower Resources; Gulf Keystone Petroleum; Genel Energy and more...

Oil Price News Oil prices continue to trade in the same narrow margins as both bullish and bearish data continue to influence trading The COVID-19 situation in the US continue to raise uncertainties over the prospects of demand recovery, while the announcement of a vaccine by the University of Oxford provided significant price support and optimism

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

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Market Update: Tuesday 28 July 2020 

Union Jack Oil* (AIM:UJO): OGA approves acquisition of additional interest in PEDL253

Tower Resources* (AIM:TRP): Considerable read across potential confirmed offshore Namibia

Gulf Keystone Petroleum (LON:GKP): June 2020 payment received from KRG

Genel Energy (LON:GENL): US$9.8m net received in June

 

Energy Prices         

Brent Oil US$43.5/bbl vs US$43.2/bbl yesterday

WTI Oil US$41.5/bbl vs US$41.2bbl yesterday

Natural Gas US$1.74/mmbtu vs US$1.77/mmbtu yesterday

 

Oil Price News

Oil prices continue to trade in the same narrow margins as both bullish and bearish data continue to influence trading

The COVID-19 situation in the US continue to raise uncertainties over the prospects of demand recovery, while the announcement of a vaccine by the University of Oxford provided significant price support and optimism

Markets were increasingly concerned about a second wave of COVID-19 over the past week as data reflected a sharp rise in the number of cases

Rystad Energy now forecasts demand in 2020 to stand at 89.7MMbopd while considering a second wave as a base scenario, significantly less than the latest forecast of OPEC, IEA, and the EIA

Yet the impact of a second wave on global demand is not expected to be as bad as the first demand shock last April as the world is far more prepared to handle lockdown measures in a more local manner

Yet, the impact may continue to weigh on crude markets in 2021 and beyond as fuel demand continues to suffer due to movement restrictions

Elsewhere, the deteriorating relationship between the US and China continues to weigh on the global markets

 

Gas Price News

Natural gas prices have pulled back as tropical storm Hanna has now faded in the Gulf of Mexico and no longer headed for the Texas coast

There are some natural gas installations that will be impacted by the storm

Tropical storm Gonzalo is headed for the Caribbean and could make its way into the Gulf of Mexico

Supply rose in the last week according to a recent report from the EIA

 

Company News

Union Jack Oil* (AIM:UJO): OGA approves acquisition of additional interest in PEDL253

Share price: 0.25p, Market Cap: £39.1m

STRONG BUY – 0.82p TP

Further to June’s acquisition of an additional 3% interest in PEDL253, containing the Biscathorpe Prospect, Union Jack has today confirmed that the OGA has approved the transaction.

Union Jack will hold a 30% economic interest in this licence following the implementation of the Settlement Agreement.

The last well drilled on the licence (Biscathrope-2) recorded elevated gas readings and oil shows supported by oil saturations in the Dinantian Carbonate, indicating proximity to an effective petroleum system.

The Company and its partners are in the process of integrating the well data into an updated subsurface model, ahead of a proposed sidetrack of Biscathrope-2 as early as 2021.

Our take: Biscathorpe represents a key project for the Company, and indeed the UK energy market in our view. With a robust cash position, Union Jack continues to fire on three key fronts, most notably through the upcoming EWT on West Newton, and first commercial oil at Wressle before year end. We retain our STONG BUY stance and 0.82p/shr TP.

*SP Angel acts as Nomad and Broker to Union Jack Oil

 

Tower Resources* (AIM:TRP): Considerable read across potential confirmed offshore Namibia

Share price: 0.4p, Market Cap: £5m

Tower has noted the announcement by Global Petroleum of updated prospective resource estimates in respect of its license PEL 94, covering block 2011A which is immediately to the South of Tower's block 1911.

Global estimates that its Welwitschia Deep Albian carbonate prospect has Best Estimate unrisked gross prospective resources of 671MMbbo, with a geological chance of success of 17%.

Global's estimate is based on a reinterpretation of existing 3D data which Global licensed from Namcor, taking into account recent well results in the area.

Management has therefore confirmed that this figure corresponds to the portion of the prospect on block 2011A, and notes that approximately 25% of the Welwitschia structure lies in block 1911, which is covered by Tower's license PEL 96.

Although this proportion is an estimate made without the details of Global's detailed reinterpretation, it would imply that the total Best Estimate unrisked gross prospective resources of the Welwitschia Deep prospect's entire structure would be in the region of 89MMbbls.

Of this, approximately 224MMbbls would lie in block 1911, of which approximately 179MMbbls would be attributable to Tower.

We also note that Tower's PEL 96 licence also includes two other giant structures and four other substantial leads in the Dolphin Graben, each of which contain multiple stacked reservoir targets including Albian carbonates and Upper Cretaceous turbidites.

Both Alpha and Gamma are interpreted to be giant 4-way dip closured structures with billion-barrel potential analogous to Welwitschia.

The Dolphin Graben Leads A, B, C & D, all of which are located directly adjacent to areas with mature source rocks, are estimated individually to range in size from 250 to 686MMbbls of prospective resources (arithmetically summed gross, unrisked, Pmean), based on Tower's own initial unaudited estimates.

In addition to the structural plays identified above, Tower has also identified significant prospectivity in stratigraphic plays within the Cretaceous and Palaeogene intervals, with potential for deep-water turbidite reservoir interbedded with mature source rocks.

These are analogous to plays being explored by others in the Walvis and Orange basins in the South as well as the Namibe basin directly to the North.

Tower is now undertaking further technical evaluation of the leads identified to-date as part of the work programme for the Initial Exploration Period for PEL 96.

As previously announced last year, Tower received an unsolicited approach from a Major oil company regarding its PEL 96 license.

That company has informed Tower that it remains interested in working on this project, but has not prioritised it during the first half of 2020, and will likely resume later this or early next year.

Our take: Offshore Namibia has seen significant sector interest over past three years, and we are not surprised given the giant structures being mapped and interpreted. Upcoming activity includes Shell’s well on license PEL 39 and Total's Venus well, all of which will enhance Tower’s own basin modelling and prospect evaluation. In addition, if Global drills an early well on PEL 94 targeting the Albian carbonates and Cretaceous turbidites, this would bring considerable read across to Tower on the multiple structures and leads on its PEL 96 licence.

*SP Angel acts as Nomad and Broker to Tower Resources

 

Gulf Keystone Petroleum (LON:GKP): June 2020 payment received from KRG

Share price: 98p, Market Cap: £207m

GKP has confirmed that a gross payment of US$9.6m (US$7.6m net to GKP) has been received from the KRG for Shaikan crude oil sales during June 2020.

Despite the challenges presented by COVID-19, production operations continue at c.36,000bopd (gross), with average gross production for the year to date at 37,232bopd.

DQE's Rig 40 has been stacked on site at zero cost, which will aid the timely resumption of drilling activities, when appropriate.

During this period of reduced activity, the Company continues to optimise its plans for a quick and effective restart of the 55,000bopd expansion project.

On a financial level, management has confirmed that as a result of a continued rationalisation, the Company remains on track to achieve its previously announced target of opex and G&A savings in excess of 20% in 2020 compared to 2019.

Management is now guiding 2020 guidance for opex of US$2.7 to US$3.1/bbl (vs US$3.9/bbl in 2019).

The workforce is in the process of being reduced by c.40%, including over 60% of expatriates, due to the reduction in the work programme.

Capex for 2020 remains in the range US$40 - US$48m (net), a 50% reduction compared to 2019, of which US$30m (net) had been spent by the end of April 2020.

The Company’s cash balance remains strong at US$144m as at 17 June 2020.

Payments by the Kurdistan Regional Government to GKP are in line with the peer group, with invoices from March 2020 onwards being settled the following month.

The Company has also confirmed that there is an ongoing dialogue relating to the payment of invoices for November 2019 to February 2020, aggregating US$73m (net).

Our take: With the Company's ongoing prudent approach to managing its financial position and the decisive measures taken to reduce its cost structure to preserve liquidity, GKP remains financially resilient. There will continue to be pressure to ensure that the Company recovers payments due, which is likely to be a drawn out process in our view.

 

Genel Energy (LON:GENL): US$9.8m net received in June

Share price: 145p, Market Cap: £402m

Similarly, Genel has confirmed that payments have been received from the KRG for oil sales during June 2020.

The Taq Taq partners have received a gross payment of US$4.5m, with Genel's net share of the payment being US$2.4m.

The Tawke partners have received a gross payment of US$30.2m, with Genel's net share of the payment being US$7.4m.

Our take: Whilst the payments are optically low relative to historical receivables, the Operator (DNO) has stated that gross production at the Tawke licence in the KRI including the Tawke and Peshkabir fields, is expected to average 100,000bopd this year with a year-end projecte rate of 85,000bopd absent any new wells. Genel’s share price has held up well in our view against the subdued sector backdrop due to its low-cost production, strong balance sheet and a robust dividend policy.

Research – Oil & Gas

Sam Wahab - 0203 470 0473

[email protected]

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