Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $68.58 +$3.o4, Brent $75.55 +$2.50, Diff -$6.97 -54c, NG $2.94 -3c
The Opec and Non-Opec meetings on Friday and Saturday can best be described as trying to please everyone, a strategy that rarely works but the road is paved with good intentions. As it happens the agreement was almost exactly as forecast here but that is no great shout, there wasn't much choice if the truth be told. Starting at +1.6m b/d the top end came down rapidly and the nil increase also disappeared quickly, leaving the middle ground as most fertile for a deal.
With a nominal +1m b/d virtually impossible, especially in the summer months and with short notice, the realistic increase has settled between 600,00 b/d and the Iraqi number of 770,000 b/d. With Libya and Nigeria not in the agreement without scope, the countries with limited or no ability to raise production such as Angola, Venezuela, Iraq and of course Iran tried to keep the number down without much success. Only the Saudis, Kuwait and UAE can hike much and Russia is able to add a bit giving 600,000 b/d as a realistic target.
What is more, if the Opec numbers are correct and that call on Opec crude in 2H 2018 is 33.34m b/d then the oil price bulls will be firmly in the driving seats. Interestingly, Donald Trump had called on Opec to get the oil price down and the KSA have tried hard but if you look at the recent form of WTI, now at a sub $7 differential to Brent it is because the market is short WTI made worse by the outage of Syncrude's oil sands facility in Alberta cutting exports across the border. Part of the problem is on his own doorstep it seems and with pipeline capacity unlikely to change in the foreseeable future it may get worse before it gets better.
Trinity Exploration & Production
Trinity has announced what looks like a smart refinancing with a $20m raise comprising a placing of $11.1m, a subscription of $6.9m and an underwritten Open Offer of $2m, all at 15p, a 28.2% discount. The placing was oversubscribed and brought in welcome new institutions and the Directors and senior management added as did 88.2% of the holders of Loan Notes who have undertaken to convert at the issue price (effectively re-investing rather than cashing out). Total raised from Directors and Senior management was $3.1m giving them 22.7%, still plenty of skin in the game, something that I am, as readers know, particularly keen on, this level is way more than a lot of companies in the sector.
The raise means that both the BIR & MEEI debts alongside loan notes not converting at the issue price will be repaid in full at a cost of $5.5m and the company will be debt free. This funding, with the sorting out of the Loan Notes does take away the invisible overhang at 6p which had been playing on investors minds and obscuring the upside potential. As a reminder, come January 2019 the Loan note holders would have the ability to convert at c.6p/share bringing significant dilution but no new cash into the business. This deal brings in new capital to simultaneously fully cleanse the balance sheet and invest for growth at less dilution than would have occurred should the loan notes have been able to convert come January 2019.
More importantly it means that the TRIN management can accelerate the onshore drilling programme and grow production by >10% y/y in the short term and with many, largely fixed operating costs, can self-fund the drilling programme after 2020. In addition the company will be able to ‘ selectively pursue acquisitions and other value accretive opportunities that become available in the future'. This should include progressing the highly promising East coast Galeota licence I know the management is keen on.
Although at first glance the refinancing looks expensive by way of the discount, the shares have spiked recently and it is by far the best call for the longer term. With some inevitable dilution as a result my previous target price of 36p may come down a touch but certainly by less than 10% still giving a substantial upside for what is one of the best stocks in the energy sector. This fundraising completely clears the decks, acknowledges the past but puts TRIN on a good path for the future.
Eco (Atlantic) Oil & Gas
Eco Atlantic has been granted an extension of one year on the Tamar block offshore Namibia to 20 March 2019 in recognition of necessary work committed in this period. The company will continue to progress its exploration programme to better understand the resources indicated by the 2D seismic work that has been carried out.
This part of offshore Namibia is becoming an incredibly desirable post code with Chariot and Azinam drilling nearby and also Tullow spinning the drill bit much will be de-risked. With Exxon and ONGC taking positions in the basin and others taking up participation opportunities there will be much to look out for 2H 2018.
Finally, last week in a very busy patch, I noticed that the company had received further good news in Guyana following news from Exxon who announced the Longtail discovery on the Stabroek block which is adjacent to Eco's Orinduik block. With the 3D seismic work nearly complete on that block and initial thoughts being pretty positive I understand, once that finishes the clock starts ticking on the Total option… I am seeing Gil Holzman for a catch up tomorrow so will update further after that.
Zenith has announced that it has signed a commitment letter for the Genesis BQ500 2000 HP rig which it has announced before but is now on more favourable terms. The six year operating lease has a further six year option and will be gifted to the company if it goes the full twelve years. There is also a six month grace period before the leasing costs kick in.
I have mentioned a number of times following recent announcements how much the potential upside will be if the drilling programme succeeds in Azerbaijan and with such a huge discount to potential asset value all the building blocks are now being put in place.
The new CEO of Wentworth Resources, Eskil Jersing starts today, I am looking forward to meeting him shortly. The company also announces that the pre-announced relocation of the business from Calgary to London is under way along with de-listing from the Oslo Børs.
Soco has confirmed the sale of its Congo (Brazzaville) interests for $10m and an overriding royalty on any future oil and gas produced from those interests. The company is to concentrate on the value it sees in Vietnam but also ‘portfolio enhancing acquisition opportunities' which I know they are clearly trying to find.
Almost too much sport to find room for but the easiest is Lewis winning the French GP although the race back through the field by Vettel made the 5 second penalty a bit of a joke…
England, mainly thanks to Jos Buttler won a low scoring ODI at Old Trafford against Australia and with it the series whitewash 5-0.
In the rugby honours to Ireland who turned over the Wallabies by winning 20-16 down-under and the series while England saved some honour in a good 10-25 win against South Africa but lost that series 1-2. Scotland recovered from losing to the USA by beating the Pumas 14-44.
So to the World Cup, Germany rallied to beat Sweden 2-1 in injury time which the Swedes were, how you say naive in not protecting a draw. With Brazil also leaving it late to win the big guns are slowly coming out. England did turn it on and although only Panama still won 6-1 taking the top of the Group space on fair play..
Tonight sees final group games, Saudi Arabia v Egypt and Uruguay v Russia and later Iran v Portugal and Spain v Morocco.
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