Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $65.91 +45c, Brent $71.83 +40c, Diff -$5.92 -5c, NG $2.95 +4c
Another poor week for oil, WTI slipped by 2.6% and Brent by 1.4% as markets got the jitters about tariff wars, China demand, the strong dollar and some indifferent inventory numbers. The rig count was unchanged overall at 1057 units and also in oil which was 869 units. This morning Brent is up 32 cents with WTI up a meagre 4c.
PMO has announced this morning that the Tolmount gas development has been sanctioned which is excellent news for shareholders as it brings ‘ around 500 bcf of gas and peak production of up to 300 mmscfd' to the company. The development will have a minimal facilities platform and gas will be taken ashore via a new gas pipeline to the Easington terminal in an innovative infrastructure setup. Premier will therefore only pay a tariff for transportation and processing of the gas and first gas is expected in Q4 2020.
Tolmount is similar in size to the highly successful Catcher development and with the innovative infrastructure JV minimising capex, whilst keeping exposure to the upside, makes the development economics very attractive to the company. With Catcher firmly underway, Tolmount now in progress and Sea Lion moving to a potential 4Q FID PMO is astutely replacing declining mature production whilst replacing it with short, medium and long term barrels. Whilst acknowledging the debt, the company should be starting to increase payments early next year thus making Premier a favoured bucket list stock even after recent out-performance.
Eco (Atlantic) Oil & Gas - Surrounded by Exxon, Again
I thought it highly interesting to see that Exxon had farmed into the Azinam acreage offshore Namibia in the Walvis Bay so I took the opportunity to chat to Eco (Atlantic) CEO Gil Holzman about its relevance to them. Exxon has farmed into acreage which is adjacent to all four Eco blocks in the Walvis Basin and is clearly building a significant position in this up and coming post code. With Tullow drilling next month and Chariot after that, there should be a light shining on the area as we head into the autumn.
In Guyana, Eco are waiting for the imminent arrival of the final assessments from PGS and CGG before completing its CPR which should show interesting a number of new prospects. Once that is completed the company will wait to see if Total exercise their option which as I have said many times I am convinced that they will do so. Accordingly I imagine that is purely a matter of time before Eco move significantly higher as its portfolio is being de-risked on a regular basis.
Falcon Oil & Gas
Following their announcement last week I took the opportunity to have a chat with Philip O'Quigley, CEO about the company's forward programme in the Beetaloo Basin following the renegotiation of the farm-in deal with Origin. The new deal is equally advantageous to both companies as it moves swiftly to phase two of the drilling programme with $15m added to the cap on costs.
The second phase of the 2019 drilling campaign is aimed at both the Kyalla shale and hybrid liquids rich gas play and the Velkerri shale liquids rich gas play where horizontal drilling should be able to identify the preferred target for the 2020 programme. At this stage, carried by another $48m, there would be a two well programme aimed at the best of the now assessed of the three targets and these would be longer (3,000m) horizontals with multi-stage fraccing processes. The advantage of the Kyalla is that it is much shallower and may be a stacked play above the Velkerri and give greater opportunities.
Falcon has, with the ending of phase 1 at this stage, saved many months of time by instead of re-drilling the original Velkerri taking a look at the other prospects. This means that the company, carried for 2019 and 2020 is likely to have a highly prospective significant resource in a country that is, ironically short of domestic gas. Although this is a long term play I was surprised that the shares havent improved markedly since the moratorium was lifted although I do understand that the market is rarely able to take a longer term view. For those looking to lock away shares Falcon offer a potentially massive upside, possible a ‘ten bagger' although I know that most will try and fine tune their timing of entry.
Last week I met with Graham Lyon, Chairman and John Wood, CEO of Infrastrata the UK listed stock which is dedicated to developing the Islandmagee Gas Storage Project of multiple salt caverns. Investors will have noticed that Adrian Pocock, until recently CEO, was responsible for the change of management and fundamental change in the company's fortunes is staying on the board as Business Development Director. The company fights well above its weight at board level with its CFO Andy Duncan and non-execs Matthew Beardmore and Arun Raman on board.
The project has been granted the status of Project of Common Interest by the EU which opens up grant funding, accelerated permitting procedures and ‘inventivised regulatory conditions'. The importance of the project to both the UK including Northern Ireland and the Republic of Ireland has led to support from both countries and awarded the UK guarantee scheme status, giving access to Government Guarantees on debt finance for 65% of the project cost.
All these things are of significant importance as whilst the technical nature of completing the caverns and making the project work it is the financing that will make or break the company. The first piece of the jigsaw is to get an arrangement with a leading trader who can ensure that the gas is traded with both it and the company getting a fair part of the action. This would also likely secure the completion of the first two of the caverns giving scope for the company to develop several more at a later date.
I say piece of the jigsaw as the funding process for Infrastrata will have to be creative whilst getting all funding partners into place conditional on each other. A partial farm-out to, say a pension fund, with long term requirements for income offset against liabilities would lead to the company keeping some of the project leaving it able to develop other similar challenges in the space. This would avoid dilution at PLC level which pension fund investors would find preferable.
The good thing is that along with a top quality management team in place a good deal of the FEED milestones have already been met and with a team of industry leading teams as partners work is already well under way. I like the look of the project economics and as readers will know have been exasperated in recent years as gas storage has been ignored in the UK as it is not only of national importance but also incredibly profitable. Just consider how much Islandmagee would have made just this last February when gas prices soared and the UK imported expensive LNG from Qatar and other sources. I look forward to watching Infrastrata over the next few months and think that investors should keep it on the radar screen.
The cricket is very strange at the moment. After two low scoring games where England dominated matters this test is effectively all over before England bat again. Yesterday afternoon England lost all 10 wickets in one session with the pitch being made to be a snake pit whereas ten minutes later the Indian batsmen appeared against a high quality attack and made it all look remarkably easy. As I write India are 220-2!
The football season has started almost where it left off, the Noisy Neighbours are coasting with a sixer yesterday against the Terriers, Spurs winning and nowhere near White Hart Lane yet, Chelski eventually seeing off the Gooners and the Red Devils being tortured by Mourhino who is bringing the club into disrepute and like last season losing games they shouldn't lose. Assume that the HubCap Stealers beat the Eagles tonight and order at the top will be restore, almost…
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