Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $69.80 -45c, Brent $77.42 -35c, Diff -$7.62 -10c, NG $2.92 +4c
Today is Labor Day in the US and the holiday marks the end of the driving season with its cross-state driving marathons and consequent use of gasoline. The refiners will change their mix but only recreational driving will fall away and come the cold weather space heating in homes, offices and factories will take over. The rig count rallied a bit on Friday after three weeks of falls and US production is still rising to 10.674m b/d in June.
Internationally everyone seems to think that Iranian production is falling faster than expected although Reuters reports that the others, led by Iraq and Russia are making up the shortfall, plus the US of course. At the moment with the US economy strong and GDP figures from India last week up with best estimates at least demand is strong, any change in that or more supply will call for renewed Opec+ discipline and certainly next year.
Coro has announced its first acquisition in Indonesia, a 42.5% interest in the Lengo gas field offshore East Java in the Bulu PSC. The asset has independently certified gross 2C resources of 359 bcf of recoverable dry gas with gross 3C resources of 420 bcf representing additional upside. The Indonesian authorities have approved the FDP and local marketing efforts are underway and an MOU has been signed with a gas buyer earlier this year, prices in the region are currently in the range of $5.50 MMbtu- $8 MMbtu.
For a total consideration of $10.96m plus cost reimbursements of approximately $1.04m Coro are acquiring over 152 Bcf of discovered appraised and certified net 2C gas resources with an upside of over 26 Bcf of net additional gas resources. This makes the acquisition price of $0.10/MMbtu very low and with attractive economics enhanced by an existing gross cost pool of approximately $100m to be recovered from production by field partners, this looks like a very good deal indeed.
With $8m being paid in cash and $4m in shares spread over a reasonable period the structure looks imaginative and I would expect it to be replicated in due course. Coro has a high quality management team with the vision to make potentially larger moves on the acquisition trail and the region is very much open to investment such as this.
Hurricane has announce that it has farmed-out 50% of its Greater Warwick Area (GWA) to Spirit Energy, this deal is a momentous one which accelerates the development and appraisal of Lincoln and the exploration at Warwick. It starts with the drilling of three wells next year and, subject to FID on each subsequent phase, includes tying a single GWA well back to the Aoka Mizu, drilling three more wells in 2020 and FID on a GWA FFD by 2021.
This is incredibly financially attractive to HUR, the carry for the work, worth up to $387m will now facilitate a ‘new limb' to the business by going ahead with both the GLA and the GWA in parallel thus effectively transforming the business whilst saving at least five years.
Before this news broke I was concerned that HUR shareholders may end up sacrificing or delaying some significant upside as drilling more wells only on Lancaster might let in a bidder who would do it on their terms. As a result of this deal, with both areas being developed concurrently, existing prospective and contingent resources should be converted into reserves and thus value. The deal will also facilitate the tying in to the WOSP gas export system for the GLA and optimise the Aoka Mizu oil production facilities.
It is difficult to know what is not to like about this deal, the farm-out supplies the finance for GWA whilst the Lancaster EPS cash flow is freed up for the GLA development. By the mid 2020's HUR will have two full field developments underway with all the advantages that this brings. It also, as mentioned above, brings higher reserves – the company target is 750m barrels net to them by 2025- which will be worth a significant amount. After this closes HUR will retain 100% of Lancaster where production is still on track for 1H 2019 and in the GWA it now has a wealthy partner who shares its belief in the basement play in the UK, what's not to like? As I write, the shares, which rose 15% initially have fallen back somewhat, this is an incorrect reading of the situation as Hurricane is now being funded to bring on production, add reserves and will not affect the attractiveness of the portfolio, indeed the value just went up, significantly.
Frontera has announced that it has entered into non-disclosure and data exchange agreements with two industry majors and is currently progressing with technical work and commercial discussions regarding possible transactions involving a farm-out or a JOA within its Block 12 holdings in Georgia. Whilst these discussions are at an early stage they have moved ‘a big step forward' so now FRR is conducting EWT's to better establish production capabilities. The detailed report shows which zones of which wells are being tested and co-mingled with further news to come.
This is very good news that the shareholders have been waiting for for some time and it is understandable why the company could not discuss it. It certainly explains why I havent had a chance to speak to Zaza lately although I am hoping to soon. The shares are up a ripping 60%+ today but still only at 0.38, they deserve better, maybe when these discussions come to fruition, the real value that I believe they should be trading at will be realised.
The blog is so late today that this morning's Podcast gets in. Two weeks worth of news plus today's announcements in the link below.
England won a tight, low scoring test at Southampton and with it the series 3-1. Heroes were Moeen Ali, Jos Buttler and young Sam Curran and Alistair Cook has announced his retirement after the Oval test.
Lewis Hamilton won at Monza after Vettel cut things too fine and the rest was tyre history for the Tifosi on home territory…McLaren has announced that 18 year old Brit Lando Norris has replaced Vandoorne for next season.
The top of the Premiership clash was the Hornets v Spurs and it ended 2-1 so the Hornets join the HubCap Stealers and Chelski as unbeaten so far. (I have had a request to stop the HubCap Stealers so it may be the last time…) The Noisy Neighbours beat the Magpies, the Gooners won in Cardiff and the Red Devils won at Burnley.
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