Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Tuesday 22 June 2021
Falcon Oil & Gas (AIM:FOG): Falcon commences 2021 work programme, Australia
Petro Matad (AIM:MATD): FY20 results, exploitation Licence application advancing, Mongolia
Touchstone Exploration (AIM:TX): Further 10-year Lease Operating Agreements confirmed, Trinidad
Energy Prices
Brent Oil US$74.6/bbl vs US$73.7/bbl yesterday
WTI Oil US$72.8/bbl vs US$71.9/bbl yesterday
Natural Gas US$3.22/mmbtu vs US$3.20/mmbtu yesterday
Oil Price News
In a surprising update, China’s state energy company CNPC has confirmed an oil and gas discovery with reserves estimated at 900m tons
The discovery was made after six years of exploration work in the Tarim Basin in the Xinjiang Uygur Autonomous Region, north western China
The geology of the formation is challenging, requiring ultra-deep drilling, at a record 8,470m
The Tarim Basin is the largest oil and gas deposit in China, with discovered oil and gas reserves reaching 16bn tons
Production of hydrocarbons from the basin is seen at 22mtons this year, up from 1.52m tons last year
China has abundant oil and gas reserves but tapping them is often challenging due to geological reasons, which has so far prevented the country from shrinking its overwhelming dependence on imported oil and gas
The country depends on imports for about 70% of its oil needs and is on track to overtake Japan as the world's largest importer of LNG this year
China produced an estimated 3.87MMBopd of crude oil last year, according to a Reuters report from December
That was a 1.6% increase in 2019 despite the pandemic and despite China's crude buying spree fuelled by historically low oil prices
This made the country one of the top ten oil producers globally, but with demand much higher than that, it also solidified its dependence on imported oil and gas
Gas Price News
Natural gas futures ticked up in early trading today as weather forecasts for the week ahead and a storm in the Gulf of Mexico (GOM) presented a potential supply issue
Nevertheless, the overhang of a strange government inventory report and Federal Reserve policymakers’ nod toward higher interest rates also cast shadows over the market at the close of the trading week
The July Nymex contract dipped 11.2 cents day/day and settled at US$3.240/MMBtu
August slid 11.1 cents to US$3.256
Spot gas prices are currently mixed, while liquefied natural gas (LNG) feed gas demand have been below average due to ongoing maintenance
Company News
Falcon Oil & Gas (AIM:FOG): Falcon commences 2021 work programme, Australia
Share price: 5.9p, Market Cap: £58m
In a positive update from Falcon, the Company has announced the commencement of its 2021 work programme, starting with operations at Kyalla 117 N2-1H ST2 in the Beetaloo Sub-Basin, Northern Territory, Australia alongside Origin Energy.
On-site operations at Kyalla 117 have begun, with rigging up now complete, and clean-up operations resumed.
These operations, if successful, will result in an extended production test (EPT) being carried out to determine the expected longer-term performance of the well.
Kyalla represents a liquids rich gas play, which has only been identified in the joint venture acreage.
As announced on 19 January 2021, Origin submitted a notification of discovery and an initial report of discovery to the Northern Territory Government.
Unassisted gas flow rates ranging between 0.4-0.6MMscf/d were recorded over seventeen hours, which are preliminary indications of well performance, and an EPT is required to determine the longer-term performance of Kyalla 117.
Elsewhere, the Velkerri Shale Play represents the largest play fairway in the Beetaloo with four prospective stacked targets.
Predominantly dry gas with OGIP > 500+Tcf.
Multiple successful tests within the dry gas window (Amungee NW 1H, Tanumbrini1, Shenandoah 1A).
The 2021 work programme will include targeting the Velkerri play along the south-eastern flank of the Beetaloo Sub-Basin, which is predicted to be in a liquids rich gas window.
The addition, the JV partners will drill a vertical pilot well to acquire core, run logs and perform diagnostic fracture injection test data across the Velkerri.
Our take: The commencement of operations at Kyalla 117 is a significant first step for the planned 2021 work programme which will cover three different plays in the Beetaloo providing key information that will help determine the future appraisal and development programme.
Petro Matad (AIM:MATD): FY20 results, exploitation Licence application advancing, Mongolia
Share price: 7p, Market Cap: £48m
Petro Matad FY20 results saw the Company end the year with a US$939k cash position including Term Deposits (Financial Assets) (31 December 2019: US$2.8m).
The Company’s net loss after tax for the twelve months ended 31 December 2020 was US$3.2m (31 December 2019: loss US$16.8m).
During the course of 2020, Petro Matad focused on progressing the Block XX Exploitation Licence application, working closely with the relevant Mongolian government authorities.
The Company applied for and was granted a moratorium on Block XX whilst the Exploitation Licence application progressed.
Petro Matad secured approval of the Detailed Environmental Impact Assessment (DEIA) for the Heron development phase as part of the Block XX Exploitation Licence application process.
The Company relinquished Block IV with a view to potential partnering and relicensing of its more prospective areas in the future.
Our take: FY20 represented a year of rationalisation of the Company’s portfolio whilst progressing key licence applications in Mongolia. Petro Matad will now work with the designated representatives to provide clarification and complete any minor amendments.
Touchstone Exploration (AIM:TXP): Further 10-year Lease Operating Agreements confirmed, Trinidad
Share Price: 84p, Market Cap: £176m
TXP has today confirmed that the Company has executed ten-year Lease Operatorship Agreements with Heritage Petroleum for its CO-1, CO-2, WD-4 and WD-8 Blocks effective 1 January 2021.
The LOAs cover TXP’s legacy oil producing properties expire on 31 December 2030 and were renewed under substantially similar terms to the previous arrangements.
In conjunction with the execution of the LOAs, the Company has approved the drilling of one well on each Block in the second half of 2021.
Under the new arrangements, the Company is subject to annual minimum production levels and minimum work obligations from 2021 through 2030 specified under each LOA.
Failing to reach either the annual minimum production levels or complete the annual minimum work obligations will not constitute a breach provided the minimal production levels have been attained or the minimum work obligations have been completed, as the case may be.
The LOAs contain an aggregate minimum of 20 new infill wells and 40 well recompletions to be completed over the licence periods.
Similar to the previous arrangements, TXP will be required to provide aggregate guarantees to Heritage of approximately US$0.5m to support the future minimum work obligations.
Our take: A positive, if expected update from TXP, essentially confirming the Company’s economic interests in these important assets. Volumes from the properties governed by the LOAs currently include 87% of TXP’s 2021 crude oil sales. With the execution of the new ten-year arrangements, the Company will move forward with a number of planned projects on the Blocks. The Blocks have significant oil in place across multiple stacked sand reservoirs and offer potential for recovery factor improvements through both primary and secondary recovery development. In aggregate, TXP has identified 80 drilling opportunities on the Blocks and initially the Company expects to drill four development wells prior to the end of 2021 and will review the timing of future drilling on a regular basis.
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%