Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Tuesday 06 October 2020
Premier Oil (LON:PMO): Premier agrees to merge with Chrysaor
Solo Oil (AIM:SOLO): US$5.5m cash injection received
Energy Prices
Brent Oil US$41.5/bbl vs US$40.7/bbl yesterday
WTI Oil US$39.4/bbl vs US$39.6bbl yesterday
Natural Gas US$2.67/mmbtu vs US$2.52/mmbtu yesterday
Oil Price News
Oil prices continue to drift as Libya’s ramp up of crude oil production reaches new highs with the daily total now getting closer to 300kbopd and exports also on the rise
By the end of last week, production had risen from below 100kbopd to 270kbopd, exceeding the country’s National Oil Corporation’s expectations and now, according to Bloomberg, it has hit 295kbopd
Exports, as a result, are also on the rise at the three terminals that eastern-affiliated forced allowed to reopen last month
The Brega terminal is likely to see some 1.8MMbbls exported this month, divided into three cargos, while the Hariga terminal has already loaded two cargos of one million barrels each
The third free terminal, Zueitina, is scheduled to export five cargoes of crude this month
The head of the Libyan National Army, General Khalifa Haftar, whose troops, with help from affiliated groups, had blockaded Libya’s oil ports in January, announced the end of the blockade on September 18
A week later, the National Oil Corporation lifted the force majeure on the Zueitina port after seeing “significant improvement in the security situation that allows the NOC to resume production and exports to global markets”
The effect of this renewed production growth in Libya, however, has been devastating for oil prices
The North African producer has been exempted from OPEC+ production cuts because of its security situation and now it can pump at will to recover vital oil revenues
As a result of the latest string of news coming from Libya, Brent last week fell below US$40/bbl for the first time in weeks, with WTI dropping closer to US$37/bbl
This week, both benchmarks started trade with strong gains, with Brent returning above US$40/bbl It’s an open question how long it would stay there given the latest from Libya
Gas Price News
Yesterday saw a 10% surge in natural gas prices on hopes of an economic stimulus deal in the US continue to persist, an increase in LNG exports, and positive reports of President Donald Trump’s bout with the coronavirus reinvigorates the markets
While some reports suggested that colder temperatures in the MidWest were responsible for the surge in natural gas prices, NatGasWeather predicted that national demand for the fuel would be moderate on Monday and low the rest of the week due to very warm temperatures in the rest of the US
While demand is expected to perk up in the Great Lakes region, nationally, natural gas demand is determined to stay low for the remainder of the week
According to the Energy Information Administration, natural gas inventories are still 405Bcf above the five-year average
Yesterday’s Risers and Fallers
Top 10 Risers
Top 10 Fallers
Lansdowne Oil & Gas PLC 17.4%
Tlou Energy Ltd 14.6%
Ascent Resources PLC 8.7%
Chariot Oil & Gas Ltd 8.7%
Touchstone Exploration Inc 8.6%
Attis Oil and Gas Ltd 6.7%
Empyrean Energy PLC 6.3%
IGas Energy PLC 5.3%
Hurricane Energy PLC 4.8%
TomCo Energy PLC 4.8%
Egdon Resources PLC -10.0%
Union Jack Oil PLC -7.1%
Nostra Terra Oil & Gas Co PLC -6.3%
Europa Oil & Gas Holdings PLC -4.8%
Enwell Energy PLC -4.7%
Savannah Energy PLC -4.2%
Advance Energy PLC -3.7%
Coro Energy PLC -3.5%
Petrel Resources PLC -3.5%
Rockhopper Exploration PLC -3.4%
Company News
Premier Oil (LON:PMO): Premier agrees to merge with Chrysaor
Share price: 17p, Market Cap: £156m
In another twist to the Premier story, the Company has today agreed to merge with Harbour's UK operating company (Chrysaor) through a reverse takeover therefore retaining the London listing.
The deal will also include the reorganisation of Premier's existing debt and cross-currency swaps.
The transaction is expected to result in Premier's stakeholders owning up to 23% of the combined entity and Harbour and other Chrysaor shareholders owning at least 77%. Of these, Premier's shareholders are expected to own up to 5.45% of the merged entity.
It is expected that the merger will create the largest independent oil and gas company listed on the London Stock Exchange with combined production of over 250kboepd (as at 30 June 2020).
Premier's approximately US$2.7bn of total gross debt and certain hedging liabilities will be repaid and cancelled on completion.
In addition, a cash payment of US$1.23bn will be made to financial creditors of Premier and its subsidiaries and its cross-currency hedge counterparties.
Premier's US$400m of letters of credit will be refinanced, whilst existing creditors will also receive shares in the combined group.
The combined group will represent a significant producer with 2020 H1 revenues of US$1.76bn and H1 EBITDAX of US$1.27bn, with much lower operating costs of US$10.5/boe in H1 2020.
Our take: The current operating environment has given rise for opportunistic M&A activity and the Premier/ Chrysaor merger represents the most interesting of 2020 in our view. Whilst the merger will result in significant scale and diversification, through the combination of material operated and non-operated cash generative production hubs in the UK North Sea, PMO’s shareholders will only benefit from limited exposure. Indeed, a 5.45% equity exposure in the combined group would infer a £2.6bn combined market cap (based on PMO’s current £156m mkt cap). These seems certainly plausible with FY2020e revenues in excess of US$3.5bn and a well-financed and established work programme in our view.
Solo Oil (AIM:SOLO): US$5.5m cash injection received
Share price: 0.1p, Market Cap: £7m
Solo has confirmed the completion of the second closing under its previously announced investment facility for up to US$5m with Prolific Basins, a US based specialist energy focused investor.
Further, as permitted by the terms of the SSD, GP Jersey, a Channel Islands-based, family office fund and private shareholder in Solo, has elected to invest on similar terms for the maximum amount permissible under the SSD, being US$500k.
GP Jersey's investment will be made as a prepayment for ordinary shares in the Company.
Upon issue of the GP Jersey Shares, which can occur in single or multiple tranches at the election of GP Jersey, application will be made for the GP Jersey Shares to be admitted to trading on AIM.
Our take: More equity dilution for Solo’s retail shareholder base will not be welcome news for investors in our view, however the injection serves to bolster the Company’s cash position adding flexibility to support its business development activities as it progresses discussions with counterparties to acquire cash generative assets in the European energy space and meet its short-term obligations.
Research – Oil & Gas
Sam Wahab - 0203 470 0473
sam.wahab@spangel.co.uk
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
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