Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $68.87 +15c, Brent $76.21 +39c, Diff -$7.34 +24c, NG $2.88 -4c
Last week the oil price had a healthy tick up with WTI climbing $2.81 or 4.3% and Brent rose even more, up $3.99 or 5.5%, Baker Hughes reported a sharp fall in their rig count, down 13 overall to 1044 and in oil a fall of 9 units to 860. Yesterday oil prices rose again as markets cheered the US/Mexico deal and even thought that Canada might join in too. Reuters reported that Opec + had cut July production by 9% more than required although plenty oil is getting through, having said that Iran does appear to be falling back and with forecasts of sub 1m b/d numbers in the winter the bulls took the upper hand.
Interims today from SDX which show a highly impressive delivery in a very busy period. Revenues of $24.4m (18m) were good but the netback of $19.3m (13m) drove a strong cash position of $25.2m despite an incredibly active time with the drill bit. On that note they reported 23 wells drilled with 20 successful and which will push through to production in a number of areas and strong operational cash flow of $20.3m and the $10m facility from the EBRD gives them considerable flexibility.
In Egypt, wells at NW Gemsa will add significant production as will those at Meseda as the 15 and 16 wells come on and of course at South Disouq the picture is changing rapidly. Current guidance is still for 50 MMscfd but we know that capacity is 60 MMscfd but the company are sensibly leaving room for improvement as is usual with new facilities. This has been amongst the most impressive of the developments in this quarter and by the end of the year proof will be seen in significantly higher revenues.
In Morocco, the wells from the highly successful drilling campaign are coming onstream and the company is extremely comfortable with the target of 8-10 MMscfd from way back in the year. They have signed up three new clients, Peugeot, Setaxam and Extralait where initial low volumes are expected to pick up and these newer accounts are tending to be lower volumes at higher prices. Nevertheless the range is still $10-12.50 with existing large clients tending to be renewed at $10.50 or higher.
With overall production exiting 2018 at +/- 8,000 boepd at twice the rate of the beginning of the year it will, whatever happens go down as a very strong performance indeed. But the second half will still provide a good deal of interest even if the drilling programme has been 1H weighted. I am expecting the 3D seismic operations at South Disouq to start early in the 4th quarter and of course 240km² is already underway in Morocco. Finally, a little earlier than expected, the new CPR is being worked on and should be out in the 4th quarter and I would anticipate an increase in reserves given the year that SDX has had.
SDX has reported a fine set of figures showing $3.5m of cash generation per month and a good cash position with no debt. It has the flexibility to use the EBRD facility in Morocco if needed and across both countries is continuing to look at M&A possibilities for inorganic growth. My spies tell me that there has been a seller in the market, holding the shares down at the 57p level but once that technical situation has cleared out I expect that this high margin growth company will move significantly higher. There is much to look forward to at SDX.
Echo report this morning on the well completion at CSo-2001 (d) in the Fracción D asset onshore Argentina. Despite having significant gas and hydrocarbon shows recorded on both the drilling and wireline log data testing has shown that extensive production from the adjacent Springhill formation has caused significant pressure depletion across the western flank of the field. Accordingly the remaining gas will be insufficient to contribute economically to the Fracción D gas project.
This depletion does not impact the Eastern flank of the Canandon Salto field, which remains economically viable as demonstrated through testing and pressure monitoring of the CSo-85 well and that the extensive gas resource and that asset will now be monetised following planning, sizing and timing of required infrastructure. The Quintana-1 rig will now remain in the field for the necessary pulling jobs to restore or increase current production which should be completed within six weeks. These jobs, designed to enable a near term boost to oil production should lead, in due course, to further announcements of oil sales.
In the meantime there is still much activity across the portfolio, with planning for the stimulation of the ELM-1004 well and further evaluation and testing of the EMS-1001 year later on in the year. Whilst the market reaction to this news seems to me rather overdone, given that so much work is needed on these prospects, and I don't believe that this is a major disappointment given the number of opportunities that lie in this basin alone.
The test result was of course disappointing given its proximity to an earlier well that tested gas at good rates prior to the extensive field production, but the fact that the Eastern flank still looks viable should offset any major worries about the area and accordingly the fact that the shares are now back to 11.5p seems a good opportunity for investors. Indeed, we should be looking forward to a number of pieces of newsflow around the Tapi Aike seismic and planning shortly in the not too distant future so I suggest that today's fall has been overdone.
Far has announced that the Ministry of Petroleum and Energy of The Gambia has approved its farm-out to Petronas. They will take 40% of blocks 2 and 5 and in return pay 80% of the cost of the Samo-1 well to a maximum of $45m, Far will remain operator during the exploration phase of the project. Far will now be able to bank the other proceeds which amount to around $17m for the cash element and the back costs.
This is further good news, albeit expected from Far and with the Samo well expected to be formally announced soon will mean that along with news from Senegal the company has a very strong position in West Africa. As Cath Norman, MD of Far said today, ‘this is another milestone for the company' and for investors I believe that another major chapter is about to start. The shares have eventually performed really well this year and at 12c in my view are still way undervalued, my target price in north of 30 cents…
Faroe Petroleum - Fox Not Allowed In Chicken Run Shocker...
DNO announced yesterday that it was withdrawing its request for an EGM to consider its representation on the Faroe board ‘with deep disappointment'. (what did they think the answer would be?) They suggested that FPM's ‘repeated peremptory and disdainful attitude to such representation for a greater engagement with its largest shareholder' to be ‘increasingly hostile' and will consider its position.
Not content with this poison, DNO went on to say that it wanted to raise ‘concerns and dismay' about the wider governance culture and shareholder value strategies. In my view FPM has an excellent governance record and as for shareholder value strategies I have identified this for the last three years in the bucket list as being one of the best in the sector.
The diatribe continues, ‘DNO hopes that Faroe Petroleum will initiate without further delay a constructive dialogue with DNO on corporate governance culture and shareholder value strategy'. (This really takes the biscuit as CEO Graham Stewart and Senior NED both wrote to the company, separately earlier in the year offering a meeting to which they received no reply). This incident looks like it has irritated DNO beyond belief and as I said when they first started on this road back on April 4th when they said that ‘they did not intend to make a bid for Faroe Petroleum' and were bound by rule 2.8 of the takeover code, ‘this will likely end up with DNO bidding for Faroe in a hostile takeover bid'. Six months from the 4th April takes us into early October so it will not be long before we start to find out what the plans are by DNO, so far it has been far from friendly as first intimated.
DNO bought their 28.23% stake in Faroe at 125p per share and since then the shares have climbed and now stand at 150p, however in my opinion a fair price for the company, given they have acquired 28% would be well in excess of the current price so shareholders and management alike should be on the battlements preparing for a derisory offer.
For Faroe it is business as usual as it announces that Azinor Catalyst has spudded the exploration well on the Agar/Plantain prospect in the UKCS to which Faroe recently farmed into a position of 25% in the well and 12.5% of the wider licence. This is the first in a busy seven well programme for Faroe as they press on with their famous ‘ Value add' programme so reviled by DNO.
The footy was interesting with the poor form of the Red Devils continuing as they lost at home to Spurs last night. The Noisy Neighbours are not top of the table after they were held to a 1-1 draw at Wolves albeit with a goal scored by hand… Chelski beat the Magpies, the HubCap Stealers beat the Seagulls and making up the top three in the Prem are the Hornets who beat the Eagles 2-1.
The British MotoGP was cancelled after 5 hours of delays because of the torrential rain at Silverstone. MotoGP race director Mike Webb told a press conference “This year, with the new surface, is the first time we've encountered quite so much standing water in critical places on the track. So yes it's a direct result of the track surface” ….Not ideal for an International race track and this won't appease either the fans or the teams. (Ed, why didn't they run the race on Monday when it was a Bank holiday and fine weather was forecast?)
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