Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below
Market Update: Monday 7 March 2022
Mosman Oil and Gas Ltd (AIM:MSMN)*: Winters-2 flows at 105boepd gross
Rex International Holding* (5WH SGX): Flash note published, FY21 results underline operational excellence
TransGlobe Energy Corporation (TSX:TGL): Material upgrade to reserve base
Zephyr Energy PLC (AIM:ZPHR, OTCQB:ZPHRF): CPR update Paradox Basin, Utah, US
Energy Prices
Brent Oil US$126.6/bbl vs US$110.2/bbl yesterday
WTI Oil US$123.6/bbl vs US$107.9/bbl yesterday
Henry Hub Gas US$5.04/mmbtu vs US$4.78/mmbtu yesterday
UK NBP Futures 653p/therm vs 402p/therm yesterday
Oil Price News
- Brent briefly touched US$139/bbl at the open after the US said on Sunday that it was discussing a ban on Russian crude imports
- US secretary of state Antony Blinken announced that the US and its European allies were discussing a boycott of oil and associated products from Russia, heightening supply fears in an already tight market
- That sent Brent Crude Oil (LSE:BRENT) to its highest since 2008
- Prices have rallied c.30% since Russia invaded Ukraine on 24 February, and has led to another shock to global price pressures already at their highest levels in decades
- European Central Bank policy makers meeting later this week to discuss the ramifications on consumers
- Elsewhere, US oil inventories continued to decline
- Inventories at Cushing are at their lowest since 2018, while US strategic reserves dropped to a near 20-year low
- According to the latest report from the EIA, US energy consumption is forecast to grow set 5-30% by 2050 under a range of scenarios, with parallel growth forecast in domestic supply for both oil (for transportation) and natural gas (for LNG export)
- Renewables will be the fastest growing energy source, but still contributes a smaller share to US energy needs in 2050 than oil or gas, out with a significant change in policy
- US energy-related CO2 emissions are forecast to be stabilised over the next 15 years before emissions begin to trend upward as increasing energy consumption outpaces continuing reductions in energy intensity and CO2 intensity
Gas Price News
- The IEA announced on Thursday a 10-point plan to reduce Europe’s dependency on Russian natural gas by more than a 1/3rd within a year
- The plan includes maximising gas supplies from alternative sources, accelerating growth in renewables deployment and ramping up domestic energy efficiency mandates
- The front month gas price at the Dutch TTF hub, the benchmark gas price for Europe, has doubled last week alone, and now sits above US$204.32/MWh as Russian gas supply fears continue to dictate the market
- The higher prices come not only as Russia invades Ukraine, but after reports that the flow of Russian gas through the Yamal pipeline had stopped, and as pressures mount on world governments to cease all energy trading with Moscow in light of the invasion
Company News
Mosman Oil and Gas Ltd (AIM:MSMN)*: Winters-2 flows at 105boepd gross
Share Price: 0.11p, Market Cap: £4.3m
- Mosman has confirmed initial production from the Winters-2 well in East Texas.
- The Company has a c.23% working interest in Winters-2.
- The initial flow rate is c.545mcf/d, which equates to c.105boepd.
- This well and equipment will be monitored, and the initial rate may be adjusted in due course.
- The new production will add significantly to the average daily gross production which was 164boepd in the December 2021 quarter.
- Onsite focus has now moved to establishing production from Stanley-4 (Mosman 36.5% WI).
- The Company confirms that production rates from that well will be announced shortly.
Our take: Following completion of gas infrastructure, enabling gas production from the Winters and Stanley leases, this initial flow rate is a solid starting point and a key contributor to Mosman’s net production base. With the gas network in place, it enables gas production from Winters-2 and Stanley-4, and other wells in the area. The Winters-2 well targeted the Wilcox formation, the same zone that is producing in adjacent wells (on other leases not held by Mosman). On a project economics basis, development of the Polk County area is the priority with its low well costs, low operating costs and low risk, coupled with existing infrastructure.
* SP Angel acts as Nominated Advisor and Broker to Mosman Oil & Gas
Rex International Holding* (5WH SGX): Flash note published, FY21 results underline operational excellence
Share price: SGD 0.48, Market Cap: SGD 624m
STRONG BUY – SGD 0.77 TP (from SGD 0.62)
- 2021 was a transformational year for Rex, which has had a corresponding positive effect on the Company’s valuation.
- The current elevated and sustained appreciation in global commodity pricing, strong production profile, and success with the drill-bit, has led to a step change in Rex’s financial position.
- Our updated valuation takes account of the Company’s impressive FY2021 results, production outlook, and an inferred risked valuation of upcoming wells.
- This week will see Rex transfer to the Mainboard of the SGX-ST, having satisfied several valuation requirements, which will serve to add much greater investor visibility from a capital markets perspective in our view.
- We have also taken this opportunity to refresh our commodity price forecasts and subsequent impact on inferred risked upside across the Company’s portfolio.
- On this basis, we reiterate our STRONG BUY stance, setting a new 12-month TP of SGD0.77/share (from SGD0.62/share).
* SP Angel Acts as Corporate Broker to Rex International Holding
TransGlobe Energy Corporation (TSX:TGL): Material upgrade to reserve base
Share price: 280p, Market Cap: £203m
- TGL has announced the results of its independent reserves evaluation for the year ended 31 December 2021, prepared by GLJ.
- Proved Developed Producing (PDP) gross reserves increased 30% to 19.9MMboe from 15.3MMboe at year end 2020.
- Total proved (1P) gross reserves increased 23% to 28.0MMboe (YE 2020: 22.8MMboe) while total proved plus probable (2P) gross reserves increased 19% to 46.1MMboe (YE 2020: 38.9MMboe).
- TGL replaced 199% and 211% of 2021 production (4.7MMboe) on a 1P and 2P gross reserves basis, respectively (excluding economic factors).
- Net present value of future net revenues increased to US$423m (2P reserves discounted at 10%, forecast pricing, after tax), 114% higher than year end 2020 (US$198m).
- Canadian net present value of future net revenues (2P reserves discounted at 10%, forecast pricing, after tax) increased to US$134m, 58% higher compared to 2020 primarily due to increased reserves at South Harmattan and an increase in forecast commodity pricing.
- Egyptian net present value of future net revenues (2P reserves discounted at 10%, forecast pricing, after tax) increased to US$289m, 155% higher compared to 2020, principally due to the increased net entitlement share resulting from the Merged Concession Agreement as well as an increased Brent oil price forecast from year end 2020.
- In Egypt, the Parliamentary ratification and President's signature into law in December 2021 of the agreement to merge, amend and extend the Company's three existing Eastern Desert concessions (West Gharib, West Bakr and Northwest Gharib) resulted in increases to both reserves volumes and values.
- 2P drilling additions of 2.4MMbbls (1P: 1.4MMbbls) resulted from successful drilling in the K and H field, while improved production performance and the term extension realized from the Merged Concession Agreement resulted in positive 2P technical revisions of 3.2MMbbls (1P: 6.8MMbbls). Egypt represents 65% and 58% of TGL’s reserves on a 1P and 2P basis, respectively.
- In Canada, continued success in the South Harmattan area has led to significant increases in both reserves volumes and values, providing the Company with a large inventory of high value development locations.
- 2P drilling additions of 5.7MMboes (1P: 1.3MMbbls) resulted from the three well drilling program in South Harmattan and associated undeveloped location bookings.
- To date, the Company has drilled five wells in the South Harmattan area.
- Canada represents 35% and 42% of TGL’s reserves on a 1P and 2P basis, respectively.
Our take: Although improved commodity prices contributed to the increase in reserves and value, the quantum of the reserves increase is largely due to both the amended commercial terms in Egypt and the strong technical and operating work done in both Egypt and Canada. The agreement Egypt effectively resets TGL’s business in the coutnry; providing added time to exploit the existing producing fields in addition to the pursuit of identified contingent resources. We also note that the improved fiscal terms will serve to incentivise the Company to continue to invest across its Eastern Desert portfolio. Elsewhere, in Canada, well results have exceeded expectations and continue to increase confidence in the extent of the play in the South Harmattan area. With an active operating campaign across two geographies translating to robust production growth we see further running room in the stock this year. With stronger oil prices and spare capacity available in the South Ghazalat production facility, the Company is evaluating accelerated drilling of an exploration well on the SGZ‑7B prospect to the east of SGZ-6X.
Zephyr Energy PLC (AIM:ZPHR, OTCQB:ZPHRF): CPR update Paradox Basin, Utah, US
Share Price: 5.2p, Market Cap: £80.6m
- Zephyr has provided an update on its flagship project in the Paradox Basin, Utah, US.
- Sproule, a leading independent global energy consulting and advisory firm, is continuing its work on the Paradox project Competent Persons Report (CPR) as commissioned by the Company.
- While Sproule continues to work to deliver the CPR, a number of factors, including the large scope of the CPR and the significant increase in activity in the North American oil and gas sector, have led to a short delay to the delivery timeframe previously envisioned.
- The Company expects to receive the CPR in the coming weeks and will publish it as soon as practicable upon delivery from Sproule. A further announcement will be made once the CPR is available.
Our take: Typically, timings for CPR’s are difficult to quantify and are contingent on a number of factors. Nevertheless, shareholders will place strong focus on this report following a successful drilling campaign at Paradox and scope for further upside potential.
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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