Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $64.73 -79c, Brent $75.36 -2c, Diff -$10.63 +77c, NG $2.90 +1c
Who would be an oil trader with such odd moves that propel WTI and Brent in differing directions even on published data? Yesterday's EIA inventory stats were much worse than the teenage scribblers had predicted with crude building 2.1m barrels against guesses of a draw of 2.2m, now you know why I call them guesses. The ultimate irony is that the differential of over ten bucks is making WTO attractive to overseas buyers who can handle their crude, whilst last week the US doubled their imports of oil from Saudi Arabia….
The Sound machine is back up and running alright, today is day four of the assault on the RNS system as the company are back up and running in Morocco make no mistake. Today they announce a significant step in the company's operations in Morocco with a FEED award and HOT for conditional construction and financing of all infrastructure requirements including a 20″ pipeline and facilities to commercialise the company's existing gas discoveries in Eastern Morocco. The consortium, made up of Enagas, Elecnor and Fomento has exclusivity to finalise the funding, construction and operation of the pipeline and central processing facility under a Build-own-operate-transfer (BOOT) structure.
This is ‘a hugely important milestone for the company' without any doubt and ‘for Sound Energy shareholders who are on the pathway to commercialising existing and future gas resources in Eastern Morocco, all without additional equity dilution'. The pipeline which at 20″ is very generously sized for potential volume increases, is intended to deliver an estimated 60 mmscf/d of gas to the Gas Maghreb-Europe pipeline system, some 120km away. The 15 year operating period, during which Sound will pay an annual fee to be agreed post the FEED and will not exceed $45m per annum after which the ownership will be transferred to Sound and its partners subject to any extension agreed by the partners.
This is certainly a ‘dream deal' for Sound who are back and knocking the ball out of the park all over the place. The consortium looks very strong and the inclusion of Spanish distribution network owners Enagas is inspired when you look at end-market opportunities. There is now a clear line of sight on development funding for the pipeline and facilities and done with no equity dilution for shareholders. For those loyal investors who have stayed the trip, they are getting towards the commercialisation of the time and money during the exploration phase, to coin a phrase, is Sound beginning to look like a World Cup team with Schlumberger and Enagas as their star strikers?
Why not call it #deliveringdreamsinthedesert?
FRR has announced that it has renegotiated its deal with Yorkville and at a cost of up to $265/- per month have final closure on this financing. It is perfectly possible that this could be effected without significant dilution and in any case closing it out carries massive benefits.
This finally consigns the old financing, which might have been right at the time, to history and it is time to look forwards. I am not sure that the market has yet to appreciate quite how much FRR has changed, particularly with regard to recent successes at Taribani, where should finance be needed the company should be able to draw on something significantly better than historically. Potential that I saw in the company a long time ago is getting closer and certainly warrants investigation as the upside in Georgia is sizeable and at long last close to being delivered.
I recently met with the SOCO management and get the feeling that there are a number of opportunities being addressed by the company. In the meantime it's business as usual with production guidance remaining at 8-9/- b/d and drilling imminent on CNV and TGT. With $150m of cash there is plenty to pay the 5.25p of dividend and the company is in an very strong position with scope for much more should the right deal come along.
I mentioned Echo briefly yesterday but with little time to go through the announcement I wanted to flesh it out a bit today after a chat with the CEO. The complication in the well was that whilst the Springhill reservoir was showing only limited gas shows leading one to believe that a better chance may be up dip, the Tobifera was oil bearing in thin beds. When the test rig arrives on site it will establish whether the oil will flow here and given the well came in at 2/3 of budgeted cost it is not money wasted.
The company will drill the third well which is another Springhill/Tobifera play after which all options remain open to the company. The fourth well was certainly de-risked by the first well which leaves all options open for the company as it looks at this well programme's results as well as the successes achieved in the workover programme on Fracción D. With the drilling programme 2/2 Echo is having a good start to its campaign in Argentina and with good value too.
I attended the Hurricane AGM yesterday, I am not normally an AGM attender but as this is the annual occasion for a ‘state of the nation' presentation by CEO Dr Robert Trice it is always worthwhile. The detail of the presentation is now all on the company's website and is worth a visit, particularly the timeline and comments on monetisation.
All I would add in these respects are that the company is still very much on target for first oil in 1H 2019 as all the pieces of the jigsaw are put together. Aware that Hurricane is in the sights of many bigger oil companies, and that they themselves have no plans to develop out to full field status and their preference is to ‘monetise our resources in a timely fashion', Trice said that he didnt expect any meaningful commercial discussions would take place until they had had ‘6-12 months of steady state production'.
There is clearly a feeling amongst HUR investors that with operational achievements probably ahead of the game, production might start at least at the beginning of the 1H 2019 window, next year is going to be one of great excitement for the company and its investors.
I wrote briefly about SAVP in yesterday's flash blog and won't add much as after the announcement I was extremely fortunate to be able to interview CEO Andrew Knott on Core Finance TV. There is no doubt that the well result was right at the top of, if not above pre-drill expectations and the clue is that they are commencing detailed development concept evaluation work around the creation of a potential R3 East Area Early Production System. With another well to drill in this campaign there is more to look forward to and of course the chance of taking up options to drill more wells in the area can't be ruled out.
The words of Savannah Chairman Steve Jenkins are also most interesting as he says that ‘these two wells have the potential to underpin a future R3 East development hub'. With many leads and opportunities to capture the seemingly plentiful resources and backing from partners now and in the future, including the Government, Savannah and its very strong team are well placed and the very modest rise in the share price is nothing like enough. The link to the interview is below.
I said that I would add to comments on President I made in yesterday's blog after the conference call, little changed the overall tone of the statement but it was clear that things are going extremely well for the company. Growth that the company is able to evidence is clearly visible and that both Puesto Flores and Estancia Vieja are going to be highly profitable investments. The bringing to the fore of these parts of the portfolio has meant that others such as Puesto Guardian and the Paraguay prospect have been temporarily usurped but I am led to believe that they are very much part of the PPC plan.
This growth from the new projects is not just for highly professional operational reasons, where costs are down and production is beating forecasts, but across the board there is a continuing attack on an already low cost base. This means that the concentration on cash flow, profits and margins bode well for the future and I for one cannot understand why the share price isn't significantly higher.
Rose Petroleum had results yesterday but given the change in nature of the company recently were completely immaterial as the company focuses on its US E&P assets in the Paradox Basin in Utah. A $4m raise was followed by 3D seismic and with new acreage added one can expect a new, updated CPR before long. With a potential farm-out and hopefully a well to be drilled later in the year the metamorphosis is very much underway and it looks like an interesting proposition given the warmth of the US onshore market at the moment. I recently met with CEO Matt Idiens and was impressed by the potential scalability of Rose, he is a man on a mission, or should i say, another mission.
England play Costa Rica tonight in their last warm-up game before the World Cup, now there's a familiar name from the not too distant past of England misery…
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