Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Friday 26 March 2021
Serinus Energy (AIM:SENX): FY20 results, robust low-cost production base
Lekoil* (AIM:LEK): Operational and financial update
Energy Prices
Brent Oil US$63.4/bbl vs US$63.5/bbl yesterday
WTI Oil US$60.1/bbl vs US$60.1/bbl yesterday
Natural Gas US$2.58/mmbtu vs US$2.54/mmbtu yesterday
Oil Price News
- Despite the recent sell down in oil prices, investors appear to be returning to the energy sector following last years’ correction
- The sector has been the top performer in the S&P 500 index year to date, despite the pull back last week and earlier this week
- Some ETFs tracking oil prices have surged since the start of 2021 as investors turned their attention to industries expected to benefit the most from the economic recovery
- Debt investors are also more bullish on the oil sector as higher oil prices lifted the yields of existing high-yield bonds of lower-rated companies in the sector
- Investor appetite for high-yield bonds of low-rated US energy firms is back, while the American shale patch is enjoying what is believed to be the best opportunity to borrow at record-low interest rates since oil prices traded above US$100/bbl back in the first half of 2014
- US consumer sentiment rose this month to its highest level in a year thanks to the progress in vaccinations and the coronavirus relief bill
- In addition, travel statistics show that US consumers are driving and flying this month at the highest rate since the pandemic forced the US into lockdown a year ago
- Despite persistent concerns about near-term oil demand in Europe, expectations of economic recovery, especially in the world’s largest economy (US), appears to have boosted investor confidence in the sector
Gas Price News
- Natural gas prices moved higher during trading yesterday, rising 2%, following a larger than expected draw in natural gas stockpiles
- Natural gas in storage was 1,746Bcf as of Friday 19 March, according to the EIA. This represents a net decrease of 36Bcf from the previous week
- Expectations were for a 10Bcf draw according to survey provider Estimize
- Stocks were 263Bcf less than last year at this time and 78Bcf below the five-year average of 1,824Bcf
- At 1,746Bcf, total working gas is within the five-year historical range
- According to the National Oceanic Atmospheric Administration, the weather is expected to be warmer than normal in the US and Europe over the next 8-14 days which should boost demand
Company News
Serinus Energy (AIM:SENX): FY20 results, robust low-cost production base
Share price: 3.1p, Market Cap: £35m
- Serinus’ FY20 results saw the Company generate revenues of US$24.0m (FY19 – US$24.4m), comprised of US$16.9m (FY19 - US$15.2m) from Romania and US$7.1m (FY19 - US$9.2m) from Tunisia.
- CAPEX for the year was US$5.5m (FY19 - US$4.9m) predominantly consisting of costs incurred drilling M-1004, and preparation work for M-1008.
- Funds from operations for the year was US$7.3m (FY19 - US$8.1m) and normalised EBITDA was US$6.6m (FY19 - US$7.0m).
- The Company’s cash balance at year end was US$6.0m.
- Operationally, the Company averaged a production rate of 2,340boepd (FY19 - 1,389boepd).
- Serinus exited December 2020 with a production rate of 2,122boepd, with a December average of 2,061boepd (Romania 1,561boepd and Tunisia 500boepd).
- Production declined over the fourth quarter due to delays in specialist pump technicians crossing national borders due to COVID-19 restrictions as well as natural declines in Romania.
- 1P audited reserves at 31 December 2020 increased by 101% to 5.8MMboe and 2P audited reserves decreased by 9% to 9.6MMboe.
- The Company received approval from the Romanian National Agency for Mineral Resources to amend the last outstanding work commitment for the third exploration phase of the Satu Mare Concession and was granted a 12-month concession license extension until 27 October 2021 plus additional time equivalent to the duration of the "Romanian State of Emergency/Alert" which began on 9 March 2020 and currently remains in force.
- The amendment replaces the previous seismic commitment, which the company was unable to fulfil due to the restrictions imposed as a result of the COVID-19 pandemic, with a modified work commitment to drill two wells, one to be drilled to a depth of 1,000m and the second to be drilled to a depth of 1,600m.
- During 2020 the Company permitted and finalised plans to drill the M-1008 development well which will qualify as one of these commitment wells.
- On 23 February 2021, the Company announced the M-1008 well flowed at 4.0MMscf/d (approximately 666 boe/d) from two perforated zones and will be tied into the Moftinu Gas Plant.
Our take: The Company has successfully managed last years’ volatile commodity prices, whilst consolidating its Romanian acreage position generating material revenues and cash flows from the Moftinu gas facility. Moftinu-1008 will now add material production to the Company’s existing c.2,200boepd with a low production expense of US$8.96/boe. Without its historical debt burden and an enviable cash position, we would not be surprised to see the Company augment its asset portfolio with a string of low-cost appraisal/development acquisitions in 2021.
Lekoil* (AIM:LEK): Operational and financial update
Share Price: 2.0p, Market Cap: £11m
- Lekoil has updated the market with its latest financial and operational position.
- The Company has reported FY20 unaudited revenues of US$31.5m, a reduction of 25% from the previous year (FY19: US$42.0m).
- The decrease was due to the lower realised oil price experienced in FY20 of US$35.5/bbl vs US$62.0/bbl in 2019.
- Lekoil expects to report a FY20 total comprehensive loss of US$16.2m (FY19: loss of US$12.0m).
- Cash as at 31 December 2020 stood at US$4.5m with US$1.7m recognised as restricted cash (audited total cash balance as at 31 December 2019 was US$3.8m with US$1.1m recognised as restricted cash).
- As at 31 December 2020, total unaudited outstanding debt financing, net of cash (excluding restricted cash), was US$11.4m vs US$15.6m as at 30 June 2020 (31 December 2019: US$16.5m).
- The current outstanding balance of external interest-bearing loans and borrowings is c.US$14.7m and a total cash balance of US$2.1m, with US$1.5m recognised as restricted cash.
- Trade and other payables stood at US$33.2m as at 28 February 2021.
- In terms of the Company’s operations at Otakikpo FY20 average production levels were 5,062bopd gross with 2,025bopd net to Lekoil, down 5% from FY19 (5,305bopd gross with 2,122bopd net).
- Average daily production was 5,378bopd gross with 2,151bopd net for January and February 2021.
- The first lifting of the year occurred in February 2021 with net cash proceeds of US$3.7m.
- The Company has confirmed that the second lifting occurred last week with increased net cash proceeds of US$6.6m expected following an increase in the volume lifted and the improving crude pricing environment.
- Lekoil remains in discussions with financiers to raise its share of the funding required for the next two wells on the field, which amounts to US$10.0m in aggregate.
- With regards to OPL310, the Company has engaged with Optimum regarding its notice to terminate the Cost and Revenue Sharing Agreement.
Our take: Despite the macro-challenges across the sector last year, Lekoil successfully navigated the period with steady production and cashflow generation from Otakikpo while implementing a range of significant cost reduction initiatives across its operations ensuring a timely repayment of its facility with Shell Trading. At OPL310, the Company will understandably look to defend its position with regards to the asset, which represents a significant potential hydrocarbon development.
*SP Angel acts as Nominated Advisor and Broker to Lekoil
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
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%