Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Monday 12 July 2021
Coro Energy (AIM:CORO): Coro enters in the Vietnamese renewables space
Helium One (AIM:HE1): Further Helium gas shows detected during drilling
SDX Energy (AIM:SDX): 1H 2021 trading update underlines robust operational performance
Energy Prices
Brent Oil US$74.9/bbl vs US$74.8/bbl on Friday
WTI Oil US$74.0/bbl vs US$73.8/bbl on Friday
Natural Gas US$3.62/mmbtu vs US$3.66/mmbtu on Friday
Oil Price News
Crude oil futures slipped during early trading today as concerns over slowing global growth outweighed the prospect of tightening supply after talks among key producers to raise output in coming months stalled
The spread of coronavirus variants and unequal access to vaccines threaten the global economic recovery, finance chiefs of the G20 large economies warned on Saturday
The world's top oil exporter Saudi Arabia met full contractual demand for crude oil from five buyers in August, but turned down at least two requests for additional volumes
Front-month WTI crude futures posted their sixth weekly gain last week after a bullish report from the US Energy Information Administration showed US crude and gasoline stocks fell while gasoline demand reached its highest since 2019
In response to higher oil prices, US energy firms added oil and natural gas rigs for a second week in a row, data from Baker Hughes confirmed
The market appears to be looking beyond the oil supply deficit in August and expecting the OPEC+ agreement to fall apart well before April 2022 when the agreement expires as other member countries will ask for further concessions to secure more market share
The group is maintaining nearly 6MMbopd of output cuts and was expected to add to supply, but three days of meetings failed to close divisions between the Saudis and the UAE
Russia is trying to mediate between Saudi Arabia and the UAE to help strike a deal to raise oil output
However, prices found some support from a large drop in oil inventories in the US
US inventories fell by 8MMbbls for the week ended 2 July according to the API
This compares to an estimate of a 4MMbbl draw
US oil production declines this year are expected to lessen with the EIA reporting yesterday that output will be 11.10MMbopd in 2021, down by 210,000bopd from 2020, versus its previous forecast for a drop of 230,000bopd
Gas Price News
Natural gas futures finished lower on Friday after giving up early gains on aggressive profit-taking ahead of the weekend
Prices edged higher most of the session before turning south late in the day on supply concerns, steady domestic demand and higher crude oil prices
Despite the lower close, the market seemed to be supported by Thursday’s lower-than-expected increase in government supply, a tight supply/demand balance, worries over adequate storage levels and firm cash prices
Last week, US natural gas prices rallied amid a tight natural gas market and expectations of high demand for electricity in hotter than usual weather in many parts of the US
The UK’s Winter 2021 contract hit 100p/therm during early trading today, the highest trading level for the winter contract since Refinitiv Eikon records began
Global gas prices have soared over the past month, with demand rising as economies recover from coronavirus restrictions at the same time as high prices in Asia make it harder for Europe to attract cargos of liquefied natural gas, and Europe's stock levels remain low
Company News
Coro Energy (AIM:CORO): Coro enters in the Vietnamese renewables space
Share price: 0.32p, Market Cap: £6.7m
Coro has signed binding Heads of Terms to acquire rights over a portfolio of 150MW rooftop solar projects in Vietnam from Vinh Phuc Energy (VPE), commencing with a 5MW pilot project.
Coro will acquire an 85% equity interest in a newly formed joint venture to be named Coro Renewables Vietnam in exchange for initial funding by Coro of US$500k to immediately develop a 5MW pilot rooftop project through to 'Ready to Build' status.
The transaction represents a low-cost entry for Coro into the fast-growing Vietnamese energy sector as an independent power producer.
Coro to fund the 5MW pilot project through construction once de-risked with the option to fund the broader portfolio of over 150MW solar projects.
All rooftop projects benefit from attractive economics and are underpinned by long term "take or pay" Power Purchase Agreements (PPAs) with creditworthy industrial customers and US Dollar denominated pricing.
Throughout the past two decades, Vietnam's GDP has grown in excess of 5% per annum fuelling significant power demand growth.
To meet this demand, Vietnam is now planning 15-20% (approximately 35GW) of additional renewables capacity by 2030.
Our take: An interesting acquisition in our view, effectively diversifying the Company’s SE Asian portfolio. Vietnam remains one of the highest growth markets at the forefront of the regional transition to clean energy. This transaction enables Coro to secure access to a significant portfolio in Vietnam which should see cash generative projects with short development cycles.
Helium One (AIM:HE1): Further Helium gas shows detected during drilling
Share price: 21.9p, Market Cap: £133.1m
HE1 has confirmed a further helium gas show in the drilling mud in the Red Sandstone Group and sidetrack from Tai-1 well following loss of the drill string at 561m
Helium gas shows were identified in stratigraphy above the primary targets from 552m to 561m as measured by the on-line gas chromatograph.
The gas show is supported by indications of gas visually identified as bubbles in drilling mud returns at surface.
Helium shows continued to 561m, at which point drilling operations were suspended due to parting of drill pipe in the midst of drilling the gas show.
Our take: With further drilling still to take place at Tai-1, these are early days in the Company’s drilling campaign. Early helium/gas shows are encouraging but obviously not conclusive at this stage. Nevertheless, the identification of helium gas shows in the Red Sandstone Group between 552m and 561m is another positive result as this zone was previously considered to be of low prospectivity.
SDX Energy (AIM:SDX): 1H 2021 trading update underlines robust operational performance
Share price: 15.2p, Market Cap: £30.9m
SDX’s 1H 21 trading update underlines a busy period for the Company.
The first phase of the Morocco drilling campaign, which consisted of three appraisal/development wells in SDX's operated Gharb Basin acreage in Morocco (SDX: 75% working interest), was completed in June 2021.
The OYF-3, KSR-17 and KSR-18 wells were all commercial successes, with OYF-3 and KSR-17 already connected and producing into the Company's infrastructure, with KSR-18 to be tested and connected shortly.
Management estimates that 1.5-1.6Bcf of gross resources have been added by these wells, which is in line with pre-drill P50 estimates.
Preparations are underway for the drilling of up to two additional wells in Morocco later in the year.
During the first half of the year, the Company received the laboratory analysis of the cuttings and side wall cores from the LMS-2 well.
This information confirmed that LMS-2 had encountered the targeted thermogenic gas source that exists in the Top Nappe horizon but that the reservoir in the Lalla Mimouna Nord concession has low permeability and the well is unlikely to flow conventionally.
As such, the Company will not risk US$0.5m testing this well, nor will it commit to further investment in the Lalla Mimouna Nord concession post the end of the concession date in July 2021 as a result of the limited likelihood of it being commercially developed.
As such, the Company expects to recognise a US$10.3m non-cash impairment charge in Q2 ahead of relinquishment, of which US$2.8m relates to LMS-2.
At South Disouq, the IY-2 step-out development well, the first of a two-well campaign, was spud in late June with the Company expecting to update the market on its result later in July.
The second well, the HA-1X exploration well on the Hanut prospect, is expected to spud after the completion of IY-2 in early August. HA-1X, which is targeting gross unrisked mean recoverable volumes of 139Bcf with a 33% chance of success, is expected to take approximately one month to drill and the Company expects to update the market on its result in mid-September.
In West Gharib, following the ten-year concession extension granted earlier in 2021, preparations continued for a campaign of three to four development wells, the first of which is expected to spud in early Q3.
Capex for the six months to 30 June 2021 of US$15.8m compares to an updated FY21 guidance figure of US$26.5-28.0m (previous guidance US$25.0-26.5m).
Cash and liquidity remain strong with cash as at 30 June 2021 of c.US$9.1m and the US$10.0m EBRD credit facility remaining undrawn and available.
Together with cash generated from operations, the Company is fully funded for all of its planned activities in 2021 and 2022.
Our take: A robust first half performance for SDX. With five discoveries from seven wells drilled on South Disouq, SDX and its shareholders will be confident coming into this latest drilling programme which has transformational potential in a success case, particularly at the HA-1X exploration well. This well has a 33% chance of success, has the potential to significantly transform the resource profile of the Company
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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Buy - Expected return >15%
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