Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Thursday 26 November 2020
Genel Energy (LON:GENL): First oil at Sarta confirmed
Union Jack Oil* (AIM:UJO): Final commissioning of Wressle in January 2021, £1m loan to Egdon, Director share purchase
President Energy (AIM:PPC): Positive testing results at LB-01
Jersey Oil & Gas (LON:JOG): Conditional SPA signed, likely portfolio expansion
Energy Prices
Brent Oil US$47.9/bbl vs US$48.4/bbl yesterday
WTI Oil US$45.0/bbl vs US$45.2bbl yesterday
Natural Gas US$2.93/mmbtu vs US$2.72/mmbtu yesterday
Oil Price News
Oil prices have slipped slightly following yesterday’s 1.6% rise in Brent Crude to $48.61/bbl
Similarly, WTI closed up 1.8% at $45.71/bbl on the back positive inventory news and continued bullish feeling about the demand outlook
US crude inventories fell by 754,000bbls last week, whilst Cushing inventories fell by 1.7MMbbls
Analyst expectations had been for a 127kbbl rise.
Vaccine news and strong demand in Asia have created positive sentiment on the outlook for demand moving into H2’2021
This sentiment is currently outweighing negative news as the US has recorded 2.3m new infections in the last fortnight
Dollar weakness supported crude prices as gasoline demand fell by 128,000bopd to 8.13MMbpd, the lowest since June.
The US rig count has risen by 10 to 241, while the Canadian rig count rose by 1
Gas Price News
Natural gas prices rose on inventories draws in line with expectations, inventory levels were 3940Bcf on November 20th according to the EIA
This is a net decrease of 18Bcf from the previous week
Stocks had been 322Bcf greater than this time last year and 250Bcf above the five-year historical average
There has been an improvement in the 10-15 day weather forecast with colder weather expected for the first week of December in the US
The December Nymex contract has risen to $2.896/mmbtu, a 24.6c gain over the week
Yesterday's Risers and Fallers
Company News
Genel Energy (LON:GENL): First oil at Sarta confirmed
Share price: 140p, Market Cap: £390m
Genel has announced first oil production from the Sarta field (GENL 30% WI), less than 21 months after the acquisition of the stake was completed.
Production has begun at Sarta with first oil flowing from the Sarta-3 well into the Early Production Facility.
The Sarta-2 workover operation is on track to be completed in December and the well onstream from January.
As previously confirmed, it is expected that a stable production level will be reached in Q1 2021.
Preparations for the 2021 appraisal drilling campaign, which is targeting a material portion of the 250MMbbls of contingent resources in the Jurassic, are ongoing.
Our take: More positive news from Genel with the Company adding Sarta to its production profile. Clearly the upside case targeting in excess of 250MMbbls of contingent resources will spark interest from the investment community in our view. The Company’s appraisal campaign will begin with the Sarta-6 well in H1 2021, followed by the Sarta-5 well and Sarta-1D re-entry. Well pad and road access civil works are well underway at both the Sarta-6 and Sarta-5 locations, and minor remedial civil works are also about to commence at the existing Sarta-1D site. On a Company level, regular payments from the KRG will remain the focus, however the Company’s net cash position of over US$100m and a dividend maintained will provide sufficient comfort to investors in our view.
Union Jack Oil* (AIM:UJO): Final commissioning of Wressle in January 2021, £1m loan to Egdon, Director share purchase
Share Price: 0.13p, Market Cap: £25.8m
Union Jack has provided an update on the development of the Wressle oil field (UJO 40% WI) and details of a loan facility provided by the Company to the Operator, Egdon Resources (EDR LN)
The Company has reconfirmed that Wressle is at an advanced stage with site reconfiguration works completed and the installation of surface facilities currently ongoing at the site.
To date, the storage tanks and inspection gantry have been installed and work is advanced in respect of the electrical and control system installation.
Delivery of all remaining equipment is expected during December, despite the challenges posed by the impact related to COVID-19 restrictions around certain suppliers.
The PEDL180 and PEDL182 Joint Venture has decided to defer workover operations and final commissioning of Wressle until January 2021, eliminating any possible operating and supply chain issues associated with the December festive shutdown.
The mobilisation of the workover rig will take place immediately in the New Year, with the workover being completed and initial oil flows anticipated later in January 2021.
In addition, Union Jack has agreed to provide a £1m loan facility to Egdon.
The facility will have an 18-month term, with the principal sum payable at end of the term or in part or in full at any earlier time at the discretion of Egdon.
Interest will accrue daily on the outstanding loan amount at a healthy interest rate of 11% per annum and is payable quarterly, commencing on the earlier of the first quarter end-date following initial production or 1 April 2021.
Significantly, the loan is secured against an unencumbered 25% interest in PEDL180, and PEDL182, including the Wressle development project and associated infrastructure
The facility, as well as providing a commercial return on funds will also assist in the development of the Wressle oil field, a key asset for Union Jack, with anticipated, constrained, production rate of 200boepd net to the Company.
Our take: With all of the recent hype surrounding Union Jack’s interest and the ongoing drilling of the West Newton discovery, it is easy to overlook the positive progression being made across the Company’s wider portfolio. First oil at Wressle is anticipated to commence during early 2021, coming on-stream at 200bopd net to Union Jack. In-depth modelling infers a break-even oil price of c.US$17.62/bbl, further highlighting the compelling project economics on offer at Wressle in the growing oil price environment. We also note further upside value drivers including the possible production of gas and electricity sales over and above that used on site, in addition to the c.50% increase in the Contingent Resource volumes within the Penistone Flags reservoir. Elsewhere, the Company’s loan facility to Egdon also represents shrewd business in our view, supporting a partner in two of its core assets (Wressle and Biscathorpe) with a healthy interest rate (11%), and secured against an unencumbered 25% interest in PEDL180 and PEDL182. We also note that two Directors (David Bramhill and Joseph 0`Farrell) have increased their stakes in the Company this morning, purchasing a further 19.4m shares – further underlining their view of the Company’s outlook ahead of near term drilling results at West Newton.
*SP Angel acts as Nominated Advisor and Broker to Union Jack Oil
President Energy (AIM:PPC): Positive testing results at LB-01
Share Price: 1.575p, Market Cap: £30m
Following the success at LB-1001 the Company initiated perforation and testing of the previously shut in LB-1 well drilled into the shallow Centrenario interval
Following perforation and acid treatment the well flowed freely and continuously to the surface through multiple choke size from 4-16mm with little to no water.
Once testing was complete the pressure was rose back to its original pressure within the hour.
It is estimated that on production this well will flow at approx. 21,000M3/d (120boped) which could increase with additional acid or hydraulic stimulation.
Work has commenced on subsurface mapping of the interval across President’s license acreage.
The Company feels this result is a potential play opener at the Las Bases field that at minimum will make a positive addition to its end of years reserves.
The workover well will be placed on production before year end at a cost of US$350k.
Our take: As no reserves had previously been logged at this interval it is positive news for President, more importantly it could be a sign there may be greater untapped resource potential at the field. It is further incremental improvement following similar news at EVN-x1, in the Estancia Vieja North structure where hydrocarbons have also been produced for the first time.
Jersey Oil & Gas (LON:JOG): Conditional SPA signed, likely portfolio expansion
Share Price: 101.5p, Market Cap: £25m
Jersey has entered into a conditional sale and purchase agreement (SPA) to acquire the entire issued share capital of CIECO V&C, currently owned by ITOCHU.
The consideration is £150k cash on completion followed by £1.5m in cash on consent for the FDP from the UK Oil and Gas Authority (OGA) for the Verbier discovery.
A further £1m cash will be payable no later than 1yr following first discovery of oil from any part of the area subject to the FDP.
The acquisition gives JOG an additional 12% working interest in the License P2170 Blocks 20/5b & 21/1d. JOG would then hold a 100% interest and have full control of License P2170.
Completion of the acquisition is subject to OGA approval and contingent on ITOCHU acquiring JOGMEC’s shares in CIECO V&C ahead of completion.
Our take: The acquisition provides JOG with full ownership of the License P2170 which includes drilling prospects: Verbier Deep, Wengen and Cortina ahead of the farm-out Statoil. The license holds material estimated mean in place volumes of between 300MMstb and 212MMstb at two medium risk prospects.
Research – Oil & Gas
Sam Wahab - 0203 470 0473 / 0784 385 5037
sam.wahab@spangel.co.uk
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Richard Parlons – 020 3470 0472
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Sources of commodity prices
Oil Brent, WTI
ICE
Natural Gas
NYMEX
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