Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Tuesday 16 March 2021
San Leon Energy (AIM:SLE): Comprehensive operations update confirms solid progress in Nigeria
Helium One (AIM:HE1): Commencement of seismic operations, Tanzania
Energy Prices
Brent Oil US$68.2/bbl vs US$69.7/bbl yesterday
WTI Oil US$64.7/bbl vs US$66.1/bbl yesterday
Natural Gas US$2.49/mmbtu vs US$2.53/mmbtu yesterday
Oil Price News
- The UK is exploring the option to ban new offshore oil and gas exploration licenses in what could be a radical move away from fossil fuels and part of the country’s net-zero and green recovery commitments
- In 2019 the UK became the first industrialised nation to implement its net-zero ambition into law
- The government, as well as industry associations and other stakeholders, support the net-zero plan and call for a green recovery from the COVID-inflicted crisis that has hit the UK offshore sector
- The UK, however, needs to strike a balance between net-zero actions and keeping the oil and gas industry in good shape as it supports 270,000 jobs across the UK and is a major contributor to tax revenue
- The UK government has already announced that under its green recovery plan and as part of the net-zero-by-2050 pledge, it would ban the sale of petrol and diesel cars from 2030
- Now, according to The Telegraph, UK ministers are considering ending the issuing of licenses in 2040, an immediate temporary pause in license issuing, or no changes in the licensing regime
- The push to shift away from oil and gas is seen as the UK taking global leadership in the net-zero pledges ahead of the COP26 climate summit it will host in Glasgow, Scotland, in November.
- A possible ban on new offshore licenses would be a controversial move in Scotland, which is home to many companies and supply chain operators in the oil and gas industry
Gas Price News
- Natural gas futures continue to fall on signs of weakness as natural gas markets are still oversupplied
- The early price action also suggests that traders are anticipating another anaemic storage report from the US government this week
- Natural gas in storage was 1,793Bcf as of Friday 5 March 2021, according to the EIA
- This represents a net decrease of 52Bcf from the previous week
- Expectations were for an 85Bcf draw according to survey provider Estimize
- Stocks were 257Bcf less than last year at this time and 141Bcf below the five-year average of 1,934Bcf
- At 1,793Bcf, total working gas is within the five-year historical range
Company News
San Leon Energy (AIM:SLE): Comprehensive operations update confirms solid progress in Nigeria
Share Price: 32p, Market Cap: £144m
- San Leon has provided a comprehensive operational update primarily with regards to its Nigerian portfolio.
- In common with many oil and gas projects, operational activity on OML 18 remains low whilst OPEC quota restrictions are in place.
- In addition, appropriate budget restrictions have been implemented which are designed to preserve cash.
- Eroton, the operator of OML 18, anticipates the startup of the Alternative Crude Oil Evacuation System (ACOES) project, which is expected to positively impact production, further details of which are set out below.
- During the course of this year, San Leon is due to receive, under the Loan Note instrument which governs the loan it made at the time of its investment in OML 18, its final payments of over US$98m in three equal instalments, commencing in July 2021 and completing by December 2021.
- Midwestern Oil & Gas, as the guarantor of the Loan Notes, has confirmed to San Leon that it expects to make these payments on schedule.
- However, there has been a delay to the interim repayment due in the fourth quarter of last year.
- US$5.75m has so far been paid by Midwestern of the US$10m due, of which US$5m has been paid to ELI in accordance with San Leon’s investment agreement with the balance of US$750k having been paid to San Leon directly.
- Midwestern has acknowledged that the outstanding payment of US$4.25m to San Leon is overdue and has explained that the delay has been caused by the combined effects of Covid-19, OPEC quota cuts and the fall in the oil price during 2020.
- Consequently, the Company is confident that payments will be brought up to date and that the remaining payment schedule under the Loan Notes instrument will be delivered.
- As San Leon continues to earn interest of 17% on all payments until such time as they are made the delay to the payments has increased the Company’s return from this investment.
- The Company’s cash balance as at 12 March 2021 was US$10.8m (not including the US$6.75m already allocated to its investment in the Oza oil field).
- Elsewhere, management has confirmed that considerable progress has been made since San Leon invested US$15m in ELI, the company which owns the ACOES project.
- ELI has received the Terminal Establishment Order approval from the Nigerian Minister for Petroleum Resources for the floating storage and offloading vessel, ELI Akaso, to be set up as an oil terminal.
- ELI Akaso is currently undergoing preparatory maintenance in Ghana ahead of its expected arrival in Nigeria in the coming months.
- Several oil producers in the region have made enquiries to ELI with regards to using the ELI Akaso for storage and export operations. Some of these enquiries are based on delivering crude oil to the oil terminal by barge, meaning that these storage and export operations can potentially commence ahead of completion of the pipeline.
- Construction of the pipeline continues to progress and hook up with ELI Akaso is expected to take place in the summer of 2021.
- As previously announced, the ACOES is expected to significantly reduce the pipeline losses and downtime currently applicable to OML 18 production.
- With regards to the ongoing transaction with Decklar Resources, the due diligence required to finalise the term debt arranged with a Nigerian bank and the trading subsidiary of a large multinational oil company active in Nigeria continues to progress.
- Decklar also announced that the final report by the independent technical consultant contracted to review reserve and production data and financial projections had been issued.
- As previously announced, the remaining US$6.75m for the subscription agreement with Decklar is in escrow and will be released upon satisfaction (or waiver) of the final conditions precedent which is anticipated in the near future.
- Decklar also recently closed a C$4.7m financing which will be used to immediately advance operational activities to re-enter the Oza-1 well and to re-establish oil production at the Oza Oil Field.
- This includes the mobilisation of the drilling rig during April 2021 as well as all testing and completion equipment.
- Various civil works have been completed around the Oza-1 well in preparation for its workover.
- Immediately following the re-entry of Oza-1, the rig will be skid on the same drilling pad and a new horizontal well will be drilled on one of the three oil zones anticipated to be tested at the Oza-1 well re-entry.
Our take: Following the challenges of FY20, shareholders will be encouraged by the Company’s ongoing progression made to enhance and diversify its Nigerian portfolio. To date the Company has received US$196m in Loan Notes repayments from its 2016 investment of US$174.5m n into OML 18 and expects to receive over US$98m during this year. San Leon has previously confirmed that it intends to return 50% of free cashflow to shareholders by way of special dividends. In addition to these Loan Notes repayments, San Leon also holds an indirect equity interest of 10.58% in OML 18 as part of that transaction. The Decklar transaction also appears to be gaining real momentum. On completion the deal will see 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.
Helium One (AIM:HE1): Commencement of seismic operations, Tanzania
Share price: 7.1p, Market Cap: £35m
- HE1 has confirmed the commencement of seismic data acquisition with mobilisation of vibroseis trucks and geophones to its Rukwa Project (100%) in Tanzania, ahead of the Company’s maiden drilling campaign in Q2 2021.
- This includes the mobilisation of data acquisition team, vibroseis trucks and geophones.
- 150km of infill 2D seismic targeting multiple trapping styles.
- Interpreted seismic data will define optimal well locations and reduce risk in drill targeting.
- Final technical input prior to commencement of Helium One’s
- Close spaced seismic data acquisition will be focussed in areas of known prospectivity to assist in providing greater clarity on the subsurface structures which the Company believes have the highest chances of successfully discovering Helium.
- The seismic campaign is fully permitted and benefits from strong community and governmental support.
Our take: An important step for HE1 with the data acquired enabling the Company to better visualise subsurface structures that could be trapping substantial helium resources and reduce geological risk ahead of its much-anticipated drilling campaign later this year.
Research – Oil & Gas
Sam Wahab - 0203 470 0473 / 0784 385 5037
sam.wahab@spangel.co.uk
Sales
Richard Parlons – 020 3470 0472
Abigail Wayne – 020 3470 0534
Rob Rees – 020 3470 0535
Grant Barker – 020 3470 0471
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Sources of commodity prices
Oil Brent, WTI ICE
Natural Gas NYMEX
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