Posted by Malcolm Graham-Wood - Malcy's Blog
WTI $70.80 -32c, Brent $78.70 -70c, Diff -$7.90 -38c, NG $2.98 +7c
As we discussed earlier in the week, the Opec+ meeting occurs on Sunday in Algeria and participants have been doing a bit of pre-meeting position taking. Yesterday it was President Trump and he's not even at the meeting. In one of his usual Tweets he reminded Opec+ who actually polices the Gulf and why they are artificially keeping the oil price up. It is only a matter of time before Novak reminds him that without sanctions on Iran oil would be $50 a barrel, also aware that the mid-term elections are imminent.
On Sunday all the usual representations will be made but it is probably fair to say that there will be no change to formal production levels although i'm sure that the communique will say something like ‘we will ensure that the market is adequately supplied at all times'.
SAVP announced two strategic updates to the Seven Energy transaction yesterday, increasing its stakes in both the Uquo field and the Stubb Creek field, and also announcing that Accugas had commenced work on the Calabar pipeline extension which will open up new gas customers from H1 2020. An MOU has been signed with Frontier Oil Limited to conduct a gas for oil swap at the Uquo field increasing SUGL's rights to gas production to 100% from the current 87.7%. Secondly, an agreement has been reached to acquire the 37.5% minority shareholders interest in Universal Energy Resources Limited, increasing the enlarged group's interest to a 51% operated interest from the current 32%. The cost of these deals will be a payment on completion of $20m and $14m in Naira over three years – which is expected to be offset against capex which was due to be spent on the oil project.
The combination of these two deals will add 25.1 mmboe 2P reserves and 2C resources increasing reserves and resources being acquired in the transaction by c.19%. These deals will not only reduce forward capex by c.$35m but also ‘serve to secure effective control over the full gas value chain in South East Nigeria'. These deals have obviously delayed the final completion of the wider transaction, but for good reason as they leave SAVP in control of their own destiny, and the deal is now expected to complete ‘in Q4 2018' with the Implementation agreement anticipated to be signed by the end of October 2018. Finally, right of way works have commenced in relation to the construction of the 18km pipeline extension into the Calabar Free Trade Zone and the greater Calabar area which should be able to supply new customers from H1 2020, adding another revenue and cash flow string to SAVP's bow.
These deals are of considerable strategic significance to SAVP as they give increased operational control across the gas value train and enable the company to reduce costs at Uquo and Stubb Creek and deliver profitable growth through Accugas from the Calabar Gas Distribution Project. Combined I expect a material source of new revenue for SAVP which significantly enhances the value in the Seven assets across the board.
SDX announced yesterday that as a result of press speculation that can confirm that it is in discussions with BP for the potential acquisition of a ‘significant package of assets in Egypt'. As the size of any potential package is so substantial that it would be considered to be a reverse takeover under Aim rules and the shares have been suspended.
With Jann Brown and Mike Watts joining Soco it was inevitable that meaningful acquisitions would be on the cards, this and the recent foray into the debt markets rather gave the game away. The deal they announced yesterday, the purchase of Merlon Petroleum, a private company in Egypt is the result. Soco are paying $215m for the company of which $135m is in cash and 66m Soco shares, the company is also paying off debt of $22m in Merlon. The deal is immediately accretive to Soco's operating cash flow per share and brings 7,859 bopd net in 2017 with a plan to increase that number to 15,000 bopd by 2023. The company says that the production is free cash flow generating with ‘tangible development upside for discovered resources and exploration prospectivity', indeed with local capacity of 20,000 bopd that wont be a problem.
Egypt is a popular place at the moment and Soco have clearly decided that this is a good place to acquire a business that they appear to have known for a long time, it brings with it a management team and one that can expand not only in Egypt but across the MENA region. The jury will be out on this but it looks like a reasonably inexpensive deal and along with trusted management a low-risk entry point into the region.
In Vietnam it is worth noting that whilst production for the first half was 7,748 boed the guidance has now been reduced from 7,400-8,000 boed to 7,000-7,400 boed as a result of delays in re-entering and sidetracking the CNV-5P well. Taking everything into account it is clear that the cash is now being invested but that shareholders interested in the dividend should be content that this payout will be continued.
RockRose is always a changing beast and right now that is no exception to the rule with two deals in the pipeline. Production in the period was 5,176 boed but the Dyas deal, backdated to January 2018 would have made that nearer 11,000 boed. The Dyas deal is imminent, with the conditions precedent satisfied completion is only a matter of days away.
The Arran development asset with Shell is now up to 30.43% and provides another significant boost to medium term production, indeed the chart in the new presentation shows growth and no fall for several years. With such a long period of positive cash flow, worries about decommissioning are unnecessary, the Company sees the cash cost of decommissioning averaging around 20-25% of annual EBITDA for the next five years at current hydrocarbon prices. I am meeting with Andrew Austin on Monday and will report back anything more after that.
Yesterday RBD announced that the VG-3 well in California had been successfully tested and would produce at 200 bopd and 60 mmcfd which is a fine result. The success will mean that further investment can be made and the rate of return on this project is extremely high.
Today they announced that Andalas Energy & Power has farmed-in to 8% of the Colter licence by funding 10.67% of the upcoming well costs to a maximum of £8m, plus back costs. RBD own 32.9% of Corralian who now own 49% of Colter appraisal.
MATD announced yesterday that Snow Leopard-1 was a dry hole and that they were moving on to now drill Wild Horse-1. This is clearly a disappointment for the company but must be taken in the context of a long drilling programme of rank wildcats, it is too early to write it off.
A Barryroe update from PVR yesterday in which they finalise the farm-out details to APEC. It looks slightly sweeter with more wells in the programme which is due to start in 2Q 2019 and last for 200+days. PVR's costs are covered by the non-recourse loan from APEC who are putting $19.5m into the process, $9m now and the rest at spud date.
The largesse of Premiership matches is spread around this weekend, the Happy Hammers host Chelski and unbeaten Liverpool entertain the Saints at fortress Anfield. The Noisy Neighbours are at the Bluebirds whilst the Gooners host the Toffees and the Wolves are at Old Trafford.
All eyes will be on Wembley as Anthony Joshua takes on Alexander Povetkin who is older and smaller than AJ but packs a mighty punch and he has been warned not to take it easy.
The big match in the rugby looks like Sarries v unbeaten Cherries which should be worth watching and to see you know who…
And as the racing season slowly draws to a close its the Ayr Gold Cup and a decent card at Newbury.
The MotoGP moves to Aragon in Spain this weekend. The Spanish support will be split between Marquez and Lorenzo who are both in great form whilst Dovizioso will be hoping to capitalise on his Misano victory. Although Yamaha haven't had a win for 22 races and their electronics problems continue, who could ever discount Valentino Rossi ?
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