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Today's Oil & Gas Update - Kistos Energy; PetroTal and more...

Market Update: Tuesday 20 July 2021 Kistos Energy (AIM:KIST): Drilling campaign commences PetroTal (AIM:PTAL): Strong Q2 2021 update, development operations to ramp up in H2 2021

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Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below

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Market Update: Tuesday 20 July 2021

Kistos Energy (AIM:KIST): Drilling campaign commences

PetroTal (AIM:PTAL): Strong Q2 2021 update, development operations to ramp up in H2 2021

 

Energy Prices         

Brent Oil US$69.4/bbl vs US$72.4/bbl yesterday

WTI Oil US$67.1/bbl vs US$71.5/bbl yesterday

Natural Gas US$3.74/mmbtu vs US$3.58/mmbtu yesterday

 

Oil Price News 

Oil prices continue to fall following as the market digest the latest OPEC+ agreement that would gradually increase monthly production until in late 2022 all of the 9.7MMbopd that had originally been withheld from the market, was restored

There was already an agreement in place through December of 2021, but Saudi Arabia’s desire to extend it to the end of next year was a bone of contention with the UAE

This agreement was not reached easily and required some negotiation and compromise to achieve

It has been widely reported that the disagreement between KSA and the UAE, was the latter’s desire for a higher output ceiling from which its share of curtailment would be calculated

There is a dichotomy of perspective about the peak for oil that has developed between the KSA and the UAE

The Saudis’ five-year plan to diversify their revenues away from oil has not been as successful as initially hoped, and they now view oil production as underpinning their economy for decades to come

They also view the transition to renewables as having a multi-decade arc that will keep demand for oil and derivatives relatively high over this period

The UAE have had more success in attracting foreign investment, and on a parallel track, have energised their oil sector with a US$122bn investment plan, to dramatically increase production in the near term

Their view on the energy transition is that it will have a much shorter arc that could lead to substantial reserves being “stranded”

A very undesirable outcome for this tiny middle-Eastern nation, and makes them want to up production regardless of the impact on prices

This the underlying fear behind their insistence on a higher baseline for allocating their share of OPEC+ production

This led to the impasse that resulted in the first meeting ending abruptly with no statement forthcoming

 

Gas Price News 

Natural gas prices closed at a fresh contract high yesterday

Warmer than normal weather is expected to cover most of the US West Coast and mid-West over the next two weeks

The weather on the East coast is expected to become milder

According to the National Oceanic Atmospheric Administration, there are no tropical storms in the Atlantic or Gulf of Mexico that are expected to become tropical cyclones over the next 48-hours

Production of Natural gas in the US also increased last week

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

Kistos Energy (AIM:KIST): Drilling campaign commences

Share Price: 202p, Market Cap: £168m

Kistos has confirmed that its jack-up drilling rig has arrived on location at the Q10-A field (Kistos 60%) and that the Company's 2021 drilling campaign is underway.

The work programme is scheduled to last approximately four months and to start the process of converting c.100MMboe (gross) of 2C resources into 2P reserves.

The planned activities include the appraisal of the Q11-B gas discovery, conducting a flow test of the Vlieland light oil discovery and other activity designed to enhance production from the existing Q10-A well stock.

Kistos expects the Q10-A gas field to exit 2021 with gross production of more than 2.0 MM Nm3/d (71MMcf/d or 12,700boepd).

Our take: Kistos’ robust financial position is underpinned by a solid production base and active drilling campaign slated for the next 12 months, providing several valuation catalysts over the coming four months. Elsewhere, Kistos is continues to evaluate a number of business development opportunities in the energy transition space, in line with its strategy, and we would not be surprised to see another deal take place this year.

 

PetroTal (AIM:PTAL): Strong Q2 2021 update, development operations to ramp up in H2 2021

Share Price: 15.5p, Market Cap: £127m

A timely operations update from PTAL sees Q2 2021 production averaging 8,825bopd which was 2% higher than guidance of 8,655bopd.

The Company completed its second water disposal well (3WD), thereby potentially doubling its produced formation water disposal capacity to approximately 100,000bwpd once the CPF-2 facilities are completed.

Two cores were successfully recovered from the 3WD which should enhance reservoir models and understanding of Bretana’s oil in place estimates.

The 7D oil well continues to outperform expectations producing approximately 260,000bbls of oil since it started producing on April 30, 2021. 

The well achieved payout in early July and has averaged over 2,500bopd so far this month.

PTAL is currently producing a constrained 8,800bopd and disposing of all the produced formation water into the 2WD and 3WD water disposal wells, however, water disposal pumping capacity is operating at reduced levels. 

Over the next month, the Company will continue optimising water disposal pumping capacity to further enhance production rates to 10,000bopd.

Drilling commenced on the Company’s next horizontal well (BN-8H) on 12 July 2021. 

The BN-8H well should be completed by early September at a cost of US$12.25m and is expected to boost field production to over 13,000bopd.

Phase two of the Company’s central processing facility (CPF-2) is on track for Q4 2021 completion.

Total cash liquidity at the end of June was c.US$79m, of which US$54m is unrestricted. 

At the end of Q2, accounts payable and accrued liabilities were c.US$37m.

The Company recently joined the Indigenous Chamber of Commerce of Peru and was also recognised by The Ministry of Energy and Mines (MINEM) for Community Citizen Socio-Environmental Monitoring Program.

Our take: A very strong set of results announced by PTAL today underlining the robustness of the Company liquidity position, boosted by strong commodity pricing. The reopening of the Bretana oil field operations has led to a step change in the Company’s cash flow position notwithstanding a much stronger oil price globally. Indeed, the FY21 EBITDA of US$90m guidance is likely to be the bearish case given the current spot and futures market for Brent crude, and we therefore see the Company’s current share price as an attractive entry point for investors given the significant development activity slated for the second half of this year. After successfully completing the 7D well that continues to outperform its 3P forecast, PTAL completed the 3WD well which will effectively double its water disposal capacity to c.100,000bwpd. The Company is now starting to drill more of its prolific horizontal wells which are weighted to the back half of the 2021 capital investment program. 

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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+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

 

 

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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%

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