Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Tuesday 3 August 2021
Genel Energy (LON:GENL): 1H 2021 results, robust financial position and outlook
IOG PLC (AIM:IOG): Second development well spudded at Blythe
Energy Prices
Brent Oil US$72.8/bbl vs US$74.7/bbl yesterday
WTI Oil US$71.2/bbl vs US$73.3/bbl yesterday
Natural Gas US$3.97/mmbtu vs US$3.99/mmbtu yesterday
Oil Price News
Oil prices reversed course after an early bounce today, as concerns over coronavirus curbs combined with slowing factory activity in key markets weighed on sentiment
Cases of the highly contagious Delta variant have emerged in 14 of 32 provinces in China
It is likely that this could see further restrictive measures introduced in the country
As a result, manufacturing activity as a key concern, to both China and the US
China's economic activity in particular continued to ease in July, with the official Manufacturing Purchasing Managers Index falling to 50.4 from 50.9 in June
Manufacturing activity also slowed in the US, with the ISM index falling to 59.5, the lowest reading since January, from 60.6 in June
Asian stocks were mostly negative this morning as the Delta coronavirus variant spread in key markets
Meanwhile, Iran will respond promptly to any threat against its security, the foreign ministry said yesterday, after the US, Israel and Britain blamed Tehran for an attack on an Israeli-managed tanker off the coast of Oman
Elsewhere, US crude and product inventories likely declined last week with both distillates and gasoline stockpiles predicted to have fallen for a third straight week
Gas Price News
Natural gas futures traded both sides of the US$4.00/mmbtu mark yesterday as bullish weather forecasts and persistently sagging storage levels quickly reversed the losses from late last week
The September Nymex gas futures contract hit a US$4.042 intraday high but ultimately finished the day at US$3.935, up only 2.1 cents from Friday’s close
Natural gas has jumped more than 53% from the start of the year and 130% from a year ago
Prices are back to levels they traded at in December 2018, when gas last traded above US$4
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
Genel Energy (LON:GENL): 1H 2021 results, robust financial position and outlook
Share price: 144p, Market Cap: £402m
Genel has issued its unaudited results for the six months ended 30 June 2021.
The Company has reported revenues of US$152m (H1 2020: US$88.4m) - close to full year revenue last year, with margin per barrel increasing from US$6/bbl in 2020 to US$19/bbl, benefitting from the resumption of the override, which contributed US$9/bbl.
EBITDAX was US$123m (H1 2020: US$65.1m), greater than the full year EBITDAX last year.
The company achieved a production asset margin of US$111m reflecting the high cash generation of its production and results in free cash flow before investment in growth of US$62m.
On an annualised basis this represents over 20% of the Company’s current market capitalisation.
The Company ended the period with a healthy cash position of US$266.4m (FY 2020: US$354.5m).
During the period, the KRG has commenced payment of the US$159m owed for unpaid sales made from November 2019 to February 2020.
Capital expenditure of US$58m in the first half of the year was split evenly between production capex, principally at Tawke, and growth capex at Sarta and Qara Dagh.
Overall, free cash flow in the first half of 2021 was US$22m, up US$16m on the prior period despite the US$30m impact of the change in payment terms.
Operationally, net production averaged 32,760bopd in H1 2021, slightly above the average in the prior year and in line with guidance (H1 2020: 32,100bopd).
The Company achieved a low production cost of US$3.7/bbl, oil price increase, and restart of the override helped deliver an overall margin from its production assets of $111 million
Genel’s high-potential drilling campaign is well underway, with the QD-2 well at Qara Dagh having spud in April, and the Sarta-5 well in June.
Production guidance for 2021 of slightly above the 2020 average of 31,980bopd maintained.
2021 capital expenditure guidance maintained at US$150m to US$200m, with the expectation that expenditure will now be around the middle of this range, following delays in approvals from the KRG and ongoing challenges relating to COVID-19 causing some planned activity to move to Q1 2022.
Genel expects to generate free cash flow in 2021 and end the year in a net cash position, despite material investment in growth.
Our take: A solid set of results reported by Genel today, and investors will be encouraged by the high margin potential of an active drilling campaign slated for the remainder of the year in our view. The Company remains in a robust financial and operating position, whilst operationally, Genel expects to drill a total of 12 wells across the portfolio this year. These wells have the potential to add incremental low-cost and cash generative production at the Tawke PSC and convert contingent resources to reserves in addition to added production at Sarta and open up a new field at Qara Dagh. Capital investment made last year, despite the low oil price and over US$150m of deferred payments, has meant this period has benefitted from the addition of oil from Sarta and increased production from Peshkabir, with production having increased in line with guidance. This high-margin production is expected to generate sufficient cash flow in 2021 to more than cover investment in growth and the increased dividend.
IOG PLC (AIM:IOG): Second development well spudded at Blythe
Share price: 21.5p, Market Cap: £105m
IOG has confirmed the spudding of the Blythe development well.
Following Elgood, Blythe is the second development well in IOG’s Phase 1 project and is expected to take under three months to drill and complete, after which the rig will move on to Southwark.
The Noble Hans Deul jack-up rig mobilised from the Elgood field location on 27 July and jacked up at the Blythe Platform on 29 July.
After preparations for drilling the Blythe well spudded yesterday evening.
Our take: The rig has now over from Elgood to spud the next development well at Blythe, another important step for IOG in delivering its Phase 1 project, ahead of first gas expected in Q4 2021 from the Blythe Hub before continuing into 2022 at Southwark. Last month, the Company tested Elgood at a surface-constrained maximum well test rate of 57.8MMscf/d and 959bbl/d condensate - very encouraging for initial production rates. On this basis, it is likely that the Elgood volumetric range will be revised once the Company fully integrates the well and production data. Initial field revenues look likely to be strong given the positive well test rates and the very buoyant gas market, with Winter 2021 prices currently over 90p/therm.
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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