Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer within PDF
Market Update: Wednesday 29 July 2020
Tullow Oil (LON:TLW): Trading update, better than expected performance in 1H20 but concerns remain
Seplat Petroleum (LON:SEPL): Strong cash conversion despite material drop in revenues
Mosman Oil & Gas* (AIM:MSMN): Site preparation has commenced at Falcon-1
Global Petroleum (AIM:GBP): One-year licence extension agreed offshore Namibia
Energy Prices
Brent Oil US$43.7/bbl vs US$43.5/bbl yesterday
WTI Oil US$41.4/bbl vs US$41.5bbl yesterday
Natural Gas US$1.79/mmbtu vs US$1.74/mmbtu yesterday
Oil Price News
Oil prices have inched higher following the latest API report of a draw in crude oil inventories of 6.829MMbbls for the week ending July 24
Analyst consensus had estimated a modest inventory build of 357Kbbls
This is a sharp turnaround from last week’s significant—and unexpected--build in crude oil inventories of 7.544MMbbls, after analysts had predicted a draw
WTI was trading down yesterday afternoon before the API’s data release, as prices remained subdued as the US Government stalls over the next stimulus bill with both the Senate and the House divided and proposing their own legislation
Delays in the next stimulus bill are expected to have a negative effect on oil markets, even with strong OPEC action and 2MMbopd less in US oil production
Further weighing on prices is the potential impact of a second wave on global demand
Elsewhere, the deteriorating relationship between the US and China continues to weigh on the global markets
Gas Price News
Gas prices were up again on renewed fears of a tropical storm moving into the Gulf of Mexico, generated higher prices and increasing volatility
Tropical depression 9, has formed into the Atlantic and has a 90% chance of turning into a tropical cyclone in the next 48 hours according to the National Oceanic Atmospheric Administration
The weather is expected to remain warmer than normal on the US coasts and cooler than normal in the mid-west according to NOAA
Company News
Tullow Oil (LON:TLW): Trading update, better than expected performance in 1H20 but concerns remain
Share price: 26.6p, Market Cap: £375m
Ahead of the Company’s 1H20 results due for release in September, Tullow has provided a detailed trading update to the end of June.
Revenue for the first half of 2020 is expected to be c.US$700m with a realised oil price of US$52/bbl, including hedge receipts of US$131m.
At 30 June 2020, net debt is expected to be c.US$3.0bn and liquidity headroom and free cash are expected to be c.US$500m; full year free cash flow is forecast to break even at the current forward curve.
Capital and decommissioning expenditure guidance for 2020 remains unchanged at c.US$300m (1H20: US$192m) and c.US$65m (1H20: US$38m) respectively.
As a result of lower near-term oil price forecasts, and a revision in the Company’s long-term oil price assumption from US$65/bbl to US$60/bbl, management has today confirmed the expectation of a material impairment, in addition to exploration write-offs at the half-year in the range of US$1.4-1.7bn (pre-tax).
Currently, 60% of 2020 sales revenues are hedged with a floor of US$57/bbl, 44% of 2021 sales revenue are also hedged with a floor of US$51/bbl.
Operationally, production has held up well for the Company, with working interest production in the first half of 2020 averaging 77,700bopd in line with expectations; full year guidance has been narrowed to 71,000-78,000bopd reflecting continued good performance across the portfolio.
In the first half of 2020, gross Jubilee production averaged 84,700bopd (net: 30,000bopd), gross TEN production averaged 50,900bopd (net: 24,000bopd) and net production from the non-operated portfolio was 23,700bopd.
Operational performance in Ghana has been strong in the first half with uptime on both FPSOs in excess of 95%.
Completion operations on the Ntomme-9 production well at TEN are ongoing; the well is due onstream in August.
The impact of COVID-19 on the Kenya work programme and fiscal framework has led the Joint Venture to call Force Majeure on its licences which will delay FID and impact the ongoing farm-down process. Constructive discussions are ongoing with Government regarding next steps.
In Suriname, the drilling of the Goliathberg-Voltzberg North prospect (GVN-1) in Block 47 is planned for the first quarter of 2021. A rig is expected to be contracted shortly for this Upper Cretaceous prospect.
Sale of Ugandan assets for US$500m in cash on completion and US$75m in cash following FID, plus post first oil contingent payments, expected to complete before year-end.
Our take: Despite the challenging market backdrop in the first half of this year, Tullow has performed well in our view, delivering production in line with forecast, agreeing the sale of the Ugandan assets and re-shaping its structure and cost base. Nevertheless, the Company’s shares continue to languish at current levels due to a series of production downgrades and continuing delays to key African projects. Current production is well below the guided 89,000-to-93,000bopd given at the end of 2019, which had also been downgraded at the time. The TEN field in Ghana is also a concern, with production impacted by the suspension of a well. The Company’s precarious financial position (notwithstanding a significant net debt position) has led to a material curtailment in forward investment, against the backdrop of declining asset performance and weak oil prices.
Seplat Petroleum (LON:SEPL): Strong cash conversion despite material drop in revenues
Share price: 55p, Market Cap: £575m
Seplat’s 1H20 results show a 34% reduction in revenues to US$234m due to lower oil prices and demand.
However, a strong focus on capital discipline saw cash increase to US$343m despite lower revenues after a US$29m dividend paid in the period, in addition to US$86m of capex.
Net debt remains steady at US$457m with most maturities after 2021.
In line with the Company’s peer group, Seplat recognised a US$146m non-cash impairment in the period, reversing operating profit of US$33m to an operating loss of US$113m.
Operationally, the Company’s operations are relatively stable, with working interest production comfortably within guidance at 51,177boepd despite market volatility.
The recently acquired Eland OML40/Ubima assets produced 10,861bopd, 32% of oil volumes, with the integration progressing well.
The Company retains a low unit cost of production at US$7.60/boe, with cost-cutting initiatives ongoing, particularly at OML40/Ubima.
The overall production mix includes liquids of 34,117bopd, and 99MMscf/d of gas.
The Company’s ANOH project remains on track for Q4 2021 first gas, financing RFP launched.
However, the Amukpe-Escravos Pipeline has been delayed due to access to the Escravos terminal, expected operational in H2 2020.
In terms of outlook, full-year production guidance has been reiterated at 47-57,000boepd, subject to market conditions, and management has confirmed that it expects to narrow the guidance range in Q3.
Oil hedging: 1.5MMbbl at US$45/bbl Q3 2020, 1.5MMbbl at US$30/bbl Q4 2020, 1.0MMbbl at US$30/bbl Q1 2021.
Our take: A strong set of figures announced by Seplat today. Unlike many in the Company’s peer group (including majors), Seplat successfully delivered its 2019 dividend and increase its capital investment to ensure continued growth. Full-year capex has also been confirmed at US$120m (US$86m already invested) to include two gas wells and related infrastructure.
Mosman Oil & Gas* (AIM:MSMN): Site preparation has commenced at Falcon-1
Share price: 0.13p, Market Cap: £2m
Yesterday afternoon Mosman announced an update in respect to the planned Falcon-1 well and the other USA workovers.
The Company has confirmed that site preparation has commenced at Falcon-1. This is a relatively simple operation adding a drill pad to an existing access road that exists for non Mosman producing oil and gas wells and remains on schedule.
At the Greater Stanley Project, the Operator is now ready to commence the workover of the Duff well as soon as approval from the relevant authority is received, which is expected shortly.
The workover at Stanley-1 is currently ongoing, with results expected in the near term.
Our take: Shareholders will be encouraged by the level of activity coming out of Mosman over the past few months, demonstrating management’s strong commitment to the Company’s Strategic Review process announced earlier this year. Mosman continues to focus on building out its production base and with two workovers and two new wells planned and financed, the Company is entering an important phase of development in our view.
*SP Angel acts as Nomad and Broker to Mosman Oil & Gas
Global Petroleum (AIM:GBP): One-year licence extension agreed offshore Namibia
Share price: 145p, Market Cap: £402m
In another positive update, Global has confirmed that the Namibian government has agreed to extend the licence sub-period on PEL0094 (Block 2011A) from September 2020 to September 2021 and also to modify the work commitments.
Global holds a working interest of 78% and is operator of the licence.
Under the terms of the Petroleum Agreement for PEL0094 signed in September 2018, the four-year Initial Exploration Period was split into two sub-periods of two years each, with the first sub-period ending in September 2020.
The amendment to PEL0094 agreed by the Ministry gives Global a further year to fulfil a modified work commitment, after which the Company may elect to enter the next licence sub-period in September 2021.
The Company's announcement last week detailed the updated prospective resources in both the Marula and Welwitschia Deep prospects in PEL0094 following interpretation of the 3D seismic data licensed earlier this year.
The modified work programme agreed with the Ministry concentrates on the licensing of existing seismic data and the carrying out of studies specifically designed to focus on these two exciting prospects.
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 could have a significant read across to Global, and other small caps operating in the region including Tower Resources* which also benefits from an enviable acreage position.
*SP Angel acts as Nomad and Broker to Tower Resources
Research – Oil & Gas
Sam Wahab - 0203 470 0473
sam.wahab@spangel.co.uk