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Today's Oil and Gas Update - Union Jack Oil; Diversified Gas & Oil; San Leon Energy; Aminex; Deltic Energy and more...

Energy Prices          Brent Oil US$45.9/bbl vs US$44.4/bbl on Friday WTI Oil US$43.2/bbl vs US$41.5bbl on Friday Natural Gas US$2.72/mmbtu vs US$2.63/mmbtu on Friday

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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 23 November 2020

Union Jack Oil* (AIM:UJO): West Newton B-1 appraisal update

Diversified Gas & Oil (LON:DGOC): US$425m borrowing base reaffirmed

San Leon Energy (AIM:SLE): Further three-week extension to Decklar financing

Aminex (LON:AEX): FFD program ongoing Chikumbi-1 to spud in 2022

Deltic Energy (AIM:DELT): Prospective resources confirmed at License P2428

Gulf Keystone Petroleum (LON:GKP): SH-12 workover well completed on schedule and production restarted

 

Energy Prices         

Brent Oil US$45.9/bbl vs US$44.4/bbl on Friday

WTI Oil US$43.2/bbl vs US$41.5bbl on Friday

Natural Gas US$2.72/mmbtu vs US$2.63/mmbtu on Friday

 

Oil Price News 

Brent Crude futures are currently trading up 0.4% at US$45.13/bbl and WTI up 0.1% to US$42.46/bbl

Prices are being bolstered by positive sentiment regarding vaccine efficacy trials and potential rollouts following regulatory approval

It now appears likely the FDA will grant approval for the Pfizer/BioNTech vaccine in mid-December (11/12), rollout could begin within days of this according to Moncef Slaoui, head of US Operation Warp Speed

Even with vaccines on the horizon, a recovery in oil demand faces obstacles with governments under pressure to tighten restrictions and curb the spread of the virus

Boris Johnson’s officials are considering tougher pandemic rules placed on broader regions of England next month after a national lockdown is set to end and the country returns to its tiered system

Meanwhile, the shift toward working from home may have an overhang on gasoline demand, according to Federal Reserve Bank of Kansas City President Esther George

US figures remain high at around 110,000 cases per day while the proposed Hong Kong-Singapore travel bubble has been delayed due to rising case numbers in the region

Elsewhere in support of prices, expectations are for OPEC+ who meet early this week will look to delay prospective January production increases, and Houthi Rebels have claimed to have fired a missile at a fuel distribution centre in Jeddah

 

Gas Price News

Natural gas futures are trading higher this morning after plunging to their lowest level since 23 March the previous session

Prices fell on Thursday on weak weather driven demand and a bigger than expected storage build in the latest government storage report

The outlook remains bearish with national weather forecasts pointing to weak heating demand over the near-term

 

Friday's Risers and Fallers

 

Company News

Union Jack Oil* (AIM:UJO): West Newton B-1 appraisal update

Share Price: 11.5p, Market Cap: £22.8m

Link to Research Note

 

Union Jack has provided an update on the West Newton B-1 appraisal well (WNB-1) where drilling operations are on-going.

The Company holds a 16.665% interest in PEDL183, containing the conventional West Newton A-1 discovery well and the West Newton A-2 appraisal well.

The WNB-1 well has been drilled to a TD of 2,295m, encountering both the primary and secondary objectives, the Kirkham Abbey and Cadeby formations.

Encouragingly, the Kirkham Abbey formation indicated a hydrocarbon charge based on wireline logs, cuttings and mud gas readings. 

The secondary target, the Cadeby formation contained insufficient reservoir development within the targeted slope environment.

The Joint Venture has commenced a side-track drilling operation from the WNB-1 well and following preparatory engineering exercises the West Newton B-1Z (WNB-1Z) will be drilling ahead during the next few days.

The objective of the WNB-1Z side-track well is to further appraise the Kirkham Abbey formation on a structurally superior location, targeting enhanced reservoir quality and on-trend with the previously discovered Kirkham Abbey accumulations. 

The information derived from both the WNB-1 and WNB-1Z wells will provide additional data to inform the optimal locations of future development wells at the West Newton project.

Our take: Union Jack’s latest drilling update of the West Newton B-1 well (WNB-1) outlines that the Kirkham Abbey formation is hydrocarbon bearing which supports pre-drill expectations and previous drilling results from the A-1 and A-2 wells. The secondary target (the Cadeby formation) was always deemed to be much higher risk and therefore we had not previously valued this interval, therefore today’s update has no impact on the material resource estimates at West Newton (146MMBbl oil, 211Bcf gas). The JV partners continue drilling activities with a side-track of WNB-1 to further appraise the Kirkham Abbey which we fully expect to yield positive results given significant de-risking achieved to date. The shares are trading down at the time of writing which we believe is an overreaction to the high risk Cadeby interval which is unwarranted in our view. As such, we retain our STRONG BUY stance and 0.82p/share TP.

*SP Angel acts as Nominated Advisor and Broker to Union Jack Oil

 

Diversified Gas & Oil (LON:DGOC): US$425m borrowing base reaffirmed

Share Price: 111p, Market Cap: £787m

The Company's bank lending group, led by KeyBank, has completed the semi-annual redetermination of DGO’s senior secured credit facility and reaffirmed the existing US$425m borrowing base with no changes to pricing, covenants or other material terms.

Following the redetermination, DGO's liquidity exceeds US$220m, comprised of cash on hand and availability under the Credit Facility.

The Company's current net debt (US$730m) to adjusted EBITDA ratio is 2.2x, lower than its stated internal threshold and well below debt covenant threshold. 

Our take: Receiving ongoing support through the latest credit affirmation in the current climate is no mean feat and testament to DGO’s operational performance in our view. Two consecutive dividend increases representing more than a 14% increase per share since the global pandemic began, underlines the Company’s highly resilient strategy in the current commodity price environment. DGO’s strong production profile, robust hedging positions and long-life proved developed producing reserves are key contributors in our view. 

 

San Leon Energy (AIM:SLE): Further three-week extension to Decklar financing

Share price: 22.8p, Market Cap: £103m

Regarding its proposed investment in Decklar Petroleum and the Oza Field in Nigeria, San Leon has confirmed that the parties have agreed to an additional three-week extension to 14 December 2020.

As was the case with the previous extension, worldwide restrictions in place to slow the spread of Covid-19 have presented certain logistical challenges. 

However, the Company has confirmed that good progress has been made with the final drafts of all remaining conditions precedent in the Subscription Agreement currently being reviewed by the parties. 

In particular, the trading subsidiary of a major oil company, which along with a local Nigerian bank, is to provide a five-year term debt to Decklar has provided written confirmation setting out the remaining steps that it is addressing prior to completion.

Decklar intends to fast-track the initial development of the Oza Oil Field including a re-entry on the existing Oza-1 well, anticipated to test three oil bearing zones and place the well into production from two of the three zones tested.

The drilling rig is expected to then be skidded on the same location as Oza-1 to a new drilling slot and a development well is expected to be drilled horizontal into the third zone tested in the Oza-1 well re-entry.

The Oza-1 well and new horizontal development well are anticipated to generate significant production levels and cash flow in an abbreviated time frame.

The Oza Oil Field development is anticipated to then continue with one or two more existing well re-entries and additional development drilling with the potential for eight to ten wells being drilled in total for the full field development.

Additional early production and central processing facilities will be added as required to accommodate additional production levels from the Oza Oil Field's development activities.

Decklar estimates that first production will be three to four months following the drawdown of the financing described within this announcement. 

Decklar holds a Risk Service Agreement with Millenium Oil and Gas on the Oza field in Nigeria.

Until the loan and its interest are repaid, 100% of the available funds that can be distributed from Decklar ' s RSA proceeds will be paid to San Leon in satisfaction of those payments. 

San Leon will also subscribe for a 15% equity interest in Decklar.

In addition, Millenium has entered into a non-binding term sheet with a local Nigerian bank and the trading subsidiary of a major oil company for up to US$33m in a five year term debt that provides a use of proceeds of US$22m to refinance existing debt of Millenium and US$11m for development activities on the Oza Oil Field, based on entering into a crude sales and purchase contract.

Decklar is expected to provide a corporate guarantee as part of this US$33m term debt facility.

If San Leon subscribes for the Option Loan Notes then, together with the amount subscribed under the Loan Notes, upon completion these arrangements will represent new funding for Decklar of up to US$26m.

On an operational level, Decklar intends to fast-track the initial development of the Oza Oil Field including a re-entry on the existing Oza-1 well, anticipated to test three oil bearing zones and place the well into production from two of the three zones tested.

The drilling rig is expected to then be skidded on the same location as Oza-1 to a new drilling slot and a development well is expected to be drilled horizontal into the third zone tested in the Oza-1 well re-entry.

The Oza-1 well and new horizontal development well are anticipated to generate significant production levels and cash flow in an abbreviated time frame.

The Oza Oil Field development is anticipated to then continue with one or two more existing well re-entries and additional development drilling with the potential for eight to ten wells being drilled in total for the full field development.

Additional early production and central processing facilities will be added as required to accommodate additional production levels from the Oza Oil Field's development activities.

Decklar estimates that first production will be three to four months following the drawdown of the financing.

Our take: A very shrewd investment in our view, with San Leon further diversifying and consolidating its asset portfolio in Nigeria. The structure of the transaction, which sees San Leon provide a repayable loan at an attractive interest rate and with an additional significant equity kicker, could provide a long-term cash generative dividend to the Company.

 

Aminex (LON:AEX): FFD program ongoing Chikumbi-1 to spud in 2022

Share Price: 0.875p, Market Cap: £24m

Aminex has confirmed that its Full Field Development plan (FFD) remains a priority for the Ntorya project to progress to submission of an application for a development license.

Sub-surface imaging is considered a key component of the FFD.

ATP is preparing to acquire a 454km2 3D seismic survey, an area in excess of the minimum license commitments.

The work program and budget for 2020/21 anticipates a gross JV expenditure of US$23m which is expected to cover: 3D seismic, pre-spud activity at Chikumbi-1, negotiation of commercial terms for the development license and application for a 1-yr license extension.

APT plans to spud the Chikumbi-1 well in Q1 2022 and to submit the FFD before the end of 2022.

Our take: Following the recent farm-out to ATP there is now a clear pathway to first gas from the Ntorya Gas Field in sight. Aminex is now fully carried to the tune of US$35m and its debt to ATP fully repaid. With nearly 2Tcf of in place gas at Ntorya, the development will play an important role for Tanzanian energy self-sufficiency in our view.

 

Deltic Energy (AIM:DELT): Prospective resources confirmed at License P2428

Share Price: 0.95p, Market Cap: £13m

Deltic has confirmed that three prospects have been identified in License P2428, acquired by Deltic (100% interest) in the UK’s 30th Offshore Licensing Round with an effective date of October 2018.

Total prospective resources estimated to be 2,971Bcf.

Combined P50 prospective gas measured as 904Bcf, Cupertino estimated to hold 379Bcf, Richmond 243Bcf and Plymouth 282Bcf.

P90 prospective resources measured as 205Bcf, Cupertino holding 103Bcf, Richmond 71Bcf and Plymouth 32.

Geologic change of success is estimated to be 26% at Cupertino, 20% at Rotleigrand (Richmond), 30% at Carboniferous BPU (Richmond) and 19% at Plymouth.

Deltic anticipates acquiring 3D seismic data to further de-risk the prospect due to the lack of 3D seismic in what is a complex geological area.

The Company is exploring partners to assists with maturation of the prospects to enable them to be drilled.

Our take: Given the lack of 3D seismic data in what is a relatively geologically complex area, we would expect the acquisition of modern 3D seismic data across the area will be required to further de-risk these prospects and leads prior to drilling. Following this, the likely scenario will be the engagement with a number of Deltic’s peers and operators with interests in the region with the aim of attracting partners best placed to assist in the maturation of these opportunities towards drilling.

 

Gulf Keystone Petroleum (GKP LN): SH-12 workover well completed on schedule and production restarted

Share Price: 85.90p, Market Cap: £186m

GKP has confirmed that the planned workover well at SH-12 has been completed ahead of schedule and on-budget.

SH-12 returned to production on 15 November and is currently flowing at a stable rate of 5,000bopd.

Initial production was from the Lower Jurassic Butmah reservoir.

Additional production will be stored at the PF-2 facility where there is spare capacity.

GKP confirmed they expect 2020 average gross production to be at the upper end of the guidance range: 35,000-36,000bopd. The field is currently producing 39,000bopd.

Operational and corporate update is expected in December 2020.

Our take: As announced in GKP’s half-year results, the SH-12 workover was one of a series of opportunities identified which in aggregate were expected to increase gross production by c.5,000bopd. With the successful SH-12 workover result and work to bring SH-9 online and the debottlenecking of PF-1 proceeding as planned, GKP will look to end the year at the upper end of its production guidance.

 

Research – Oil & Gas

Sam Wahab - 0203 470 0473 / 0784 385 5037

[email protected]

 

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  

 

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

This note has been issued by SP Angel Corporate Finance LLP ("SP Angel") in order to promote its investment services and is a marketing communication for the purposes of the European Markets in Financial Instruments Directive (MiFID) and FCA's Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

SP Angel considers this note to be an acceptable minor non-monetary benefit as defined by the FCA which may be received without charge.  In summary, this is because the content is either considered to be commissioned by SP Angel's clients as part our advisory services to them or is short-term market commentary.  Commissioned research may from time to time include thematic and macro pieces.  For further information on this and other important disclosures please the Legal and Regulatory Notices section of our website Legal and Regulatory Notices 

While prepared in good faith and based upon sources believed to be reliable SP Angel does not make any guarantee, representation or warranty, (either express or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein.

The value of investments referenced herein may go up or down and past performance is not necessarily a guide to future performance. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

The investments discussed in this note may not be suitable for all investors and the note does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. Investors must make their own investment decisions based upon their own financial objectives, resources and appetite for risk. 

This note is confidential and is being supplied to you solely for your information. It may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose. If this note has been sent to you by a party other than SPA the original contents may have been altered or comments may have been added.  SP Angel is not responsible for any such amendments.

Neither the information nor the opinions expressed herein constitute, or are to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. Opinions and estimates included in this note are subject to change without notice. This information is for the sole use of Eligible Counterparties and Professional Customers and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority ("FCA").

Publication of this note does not imply future production of notes covering the same issuer(s) or subject matter.

SP Angel, its partners, officers and or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA has put in place a number of measures to avoid or manage conflicts of interest with regard to the preparation and distribution of research. These include (i) physical, virtual and procedural information barriers (ii) a prohibition on personal account dealing by analysts and (iii) measures to ensure that recipients and persons wishing to access the research receive/are able to access the research at the same time.

SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SP Angel Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority whose address is 12 Endeavour Square, London E20 1JN.

 

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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