Oil & Gas Daily Flow
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Market Update: Wednesday 2 March 2022
Jadestone Energy PLC (AIM:JSE): Montara Project resumes full production
Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD): 2P reserves increase by 73%
Energy Prices
Brent Oil US$111.0/bbl vs US$101.2/bbl yesterday
WTI Oil US$109.5/bbl vs US$98.4/bbl yesterday
Henry Hub Gas US$4.72/mmbtu vs US$4.67/mmbtu yesterday
UK NBP Futures 424p/therm vs 255p/therm yesterday
Oil Price News
- Oil prices surged again in early trading today as supply disruption fears mounted following significant sanctions on Russian banks amid the intensifying Ukraine conflict, while traders seeking alternative oil sources in an already tight market
- The backwardation in the Brent futures contract, when prompt prices exceed later dated supply, surged to the highest ever according to data going back to 2004
- The premium of the first-month Brent future to the sixth-month contract rose to as much as US$18.55/bbl
- Russia's economic isolation worsened as the world's biggest shipping firm Maersk on Tuesday said it would halt container shipping to and from Russia
- Major oil and gas companies, including BP and Shell, have announced plans to exit Russian operations and joint ventures
- Buyers of Russian oil are facing difficulty over payments and vessel availability due to sanctions with BP cancelling fuel oil loadings from a Russian Black Sea port
- The massed Russian assault by land, sea and air was the biggest attack on a European state since World War II, prompting tens of thousands of people to flee their homes
- Ministers of Arab oil-producing countries announced that OPEC+ should stick to its current agreement to add 400,000bopd each month to output, rejecting calls to pump more to ease pressure on prices
- Tight supply was seen in US crude oil stockpiles which unexpectedly fell 4.8MMbbls in the week to 4 February to 410.4MMbbls as overall refined product demand reached an all-time record
- This compares with a consensus forecast of a 369kbbl rise
- OPEC has forecasted that world oil demand might rise even more steeply this year
- The group has forecast an increase of 4.15MMbopd this year, as the global economy posts a strong recovery from the pandemic
Gas Price News
- UK natural gas futures have spiked 50% from yesterday following significant concerns over supply disruptions with hefty sanctions being imposed on Russia
- European natural gas rose after a raft of sanctions against Russia over its invasion of Ukraine amplified concerns about energy shortages
- Russia supplies 40% of Europe’s gas supplies, and concerns that flows could be disrupted after Moscow’s invasion of Ukraine saw the price surge almost 70% on Thursday
- But prices cooled on Friday as traders analysed US president Joe Biden’s decision to include in his sanctions package a carve-out for energy payments, a crucial source of revenue for Moscow
- Russian forces fired missiles at several cities in Ukraine and landed troops on its coast after President Vladimir Putin authorised what he called a special military operation in the east
Company News
Jadestone Energy PLC (AIM:JSE): Montara Project resumes full production
Price: 104p, Market Cap: £480m
- Jadestone has confirmed that full production has resumed at the Montara Project, offshore Australia.
- As previously announced, Montara production has in recent weeks been running at reduced rates following an engine failure in the gas reinjection compressor.
- The engine has been replaced and gas lift reinstated, allowing for full production to be restored at rates seen immediately prior to the gas compressor fault.
Our take: A positive update, having a spare gas re-injection compressor engine core on hand allowed the Company to effect timely repairs, thereby limiting the period of reduced production. Elsewhere, Jadestone’s 2022 operational programme will include two infill wells at Stag and initial development activity at the Akatara gas project in Indonesia. Production is also expected to see a healthy increase of 36% in 2022 to between 15,500-18,500boepd, which excludes any contribution from Maari. Increasing production, robust realisations at Montara and Stag and no hedging has resulted in strong cash generation during last year, with a cash balance of US$117m at year-end and no debt. Elsewhere, the development of the Akatara gas field will not only displace coal in Indonesia’s energy mix but will also deliver LPGs for domestic use in the local market. Fixed-price, low-opex gas production provides a balance to the Company’s existing oil assets and has the added benefit of reducing the GHG emissions intensity of the Company’s operations. The Lemang PSC is a key growth project for JSE and will provide meaningful gas production to the local market; displacing coal-fired power generation. A final investment decision is still expected in H1 2022 with first gas also still on track for H1 2024.
Southern Energy Corp (TSX-V:SOU, AIM:SOUC, OTC:MAXMD): 2P reserves increase by 73%
Share Price: 26.7p, Market Cap: £20m
- The latest operations update from Southern outlines the Company’s year-end reserves position and also the status of its three well drilling program at the Gwinville field and a non-core asset cash disposition.
- The NSAI Report was prepared by Southern's independent qualified reserves evaluator, NSAI.
- The Company anticipates announcing its fourth quarter and audited year end 2021 financial results and filing an annual information form for the year ended 31 December 2021, in April 2022.
- Relative to year-end 2020, the NSAI Report states an increase in proved developed producing (PDP) reserves by 9% to 5.7MMboe.
- In addition, 1P reserves remain in line with 2020 numbers at 10.5MMboe.
- 2P reserves increased by 73% to 20.2MMboe in 2021, whilst the PDP reserve life index (RLI) has been refreshed to 9 years and 15-year RLI for 2P reserves.
- Additional drilling locations have been identified at Gwinville, based on previous Selma Chalk horizontal drilling successes, which could add material levels of production.
- The NPV10 reserves valuation is US$32.4m on a PDP basis, US$53.5m on a 1P basis and US$88.3m on a 2P basis evaluated using the average forecast pricing of four independent reserve evaluators as at January 2022.
- This represents a material progression of before tax NPV-10 per share to CAD$0.53/share, CAD$0.88/share, and CAD$1.45/share for PDP, 1P, and 2P categories.
- The ongoing three well drilling program at Gwinville proceeding on schedule and on budget, with completion operations expected to begin in early April 2022
- Disposition of two non-core oil properties for US$1.3m, net of closing adjustments.
- Aggregate production from the two properties was approximately 40boepd.
Our take: The significant uplift in 2P reserves will be a pleasing outcome for shareholders, especially given the strength in commodity pricing which is slated to continue for the foreseeable. In addition, investors will take encouragement from the drilling locations identified at Gwinville, which are based on results from previous Selma Chalk horizontal drilling successes. Shareholders will now have several near-term valuation catalysts alongside potential operational progression. These wells will have a short payback and are strategically located in proximity to the Henry Hub terminal which attracts premium regional gas pricing. The Gwinville program is expected to have an immediate positive impact for the Company and provide additional near-term cash flow to the business during a period of strong commodity prices.
Research – Oil & Gas
Sam Wahab - 0203 470 0473 / 0784 385 5037
sam.wahab@spangel.co.uk
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Sources of commodity prices
Oil Brent, WTI - ICE
Natural Gas - NYMEX
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Buy - Expected return >15%
Hold - Expected return range -15% to +15%
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