WTI $83.76 u/c, Brent $85.99 +46c, Diff -$2.23 +46c, NG $5.90 +62c, UKNG 226.58p -6.31p
By Malcolm Graham-Wood
Oil remains quiet, a modest gain by Brent on WTI yesterday. US retail gasoline prices continue to rise strongly, at $3.383 per gallon it is up 6.4 cents w/w, up 20.8c m/m and $1.24 y/y.
Angus has shared the updated Competent Persons Report for the Saltfleetby Gas Field which reflects the higher revenues expected from the field. The Full Report is available for download in the Presentations section of the Company’s website.
The CPR, performed by Oilfield International Limited, gives the net present value of the cash flows from the SGF, including the impact from the revised capex, the loan facility debt service costs, the associated royalties and the mandatory hedging. Oilfield International Limited has used a conservative discount rate of 10%. The previous February 2020 report values in parentheses, presenting the values attributable to Angus:
- A conservative case, or P90, NPV10 of £25.4 million (previously £16.7 million)
- A mid-case, or P50, NPV10 of £38.5 million (previously £25.2 million)
Alternatively expressed as estimates of net future cashflows, again after all taxes, but without discounting, Angus’ 51% interest can be summarised as follows
- A conservative or P90 sum of future cashflows to Angus of £31.7 million (previously £21.5 million)
- A mid-case, or P50, sum of future cashflows to Angus of £55.9 million (previously £36.3 million)
In summary the Report estimates production giving rise to gross field revenues, before costs etc on a mid-case basis of £230 million (previously £141 million) of which Angus’s share is 51%. This approximates to a gas price of 64p/therm being a mix of the actual volumes already hedged at 43p/therm and the remaining unhedged volumes accorded prices derived from the quoted and traded NBP forward curve to December 2026 and thereafter escalated by 1.5% per annum. The gross volume of reported Gas Reserves is unchanged.
George Lucan, CEO, comments: “Obviously this Report is a solid validation of our efforts to restore this great onshore gas field to production with the help of our many UK based suppliers, advisors and contractors. Regardless of near-term fluctuations in the gas price, the higher forward gas price curve from mid 2022 onwards, which is reflected in this CPR valuation, is the result of structural gas supply-demand imbalances which, whilst only brought to light recently, are likely to favour producers for many years to come and highlight the national importance of this domestic gas supply.”
I have reported above the Angus comments verbatim, there is nothing to be gained by trying to paraphrase the CPR. What does come out of the report, and clearly while not unexpected is the value that Angus have here with Saltfleetby and that for whatever reasons the investment of time and money by the current management team is wholly justified.
Revenues are going to be considerably more substantial and with canny hedging and treatment of costs will provide substantial profit given the forward curve and the change in the gas market that has happened recently and in my view is a long term thing. George Lucan comments on domestic gas supply and Angus is a senior player in this market and its importance is more than significant, it should be observed by Government as a leading company who can deliver gas for the United Kingdom.
To the figures first before taking a look at the raise and comments from the webcast which I was on. The six months saw improved profitability and conserved cash in challenging market conditions and PFC is on track to deliver US$250 million of cost savings in 2021.
Trading and new awards in line with expectations, continue to be impacted by COVID-19, business performance net profit of US$39 million a reported net loss (2) of US$86 million, largely reflecting the Court penalty. However, the company are maintaining full year net profit margin guidance and net debt of US$188 million and liquidity of US$1.0 billion.
Perhaps more importantly was the resolution of the CFO investigation which concluded ‘following plea agreement’. The Crown Court imposed a total penalty of GBP£77 million (c.US$106 million)(12), payable in 2022.
Right now it is time for a refinancing to create a long term, sustainable capital structure, including a $275 million equity issue through an underwritten Firm Placing and a Placing & Open Offer, launched this morning. Also $550 million of new debt facilities, comprising US$500 million bridge to bond and a US$50 million term loan; and a $180 million revolving credit facility.
Petrofac is now ‘well placed to benefit from the expected increased activity levels over the coming years’ with contract awards expected to accelerate with a $46 billion bidding pipeline, including US$7 billion in new energies, scheduled for award by December 2022 .
Perhaps most illustrative of the turnaround is the medium term ambition to deliver US$4-5 billion revenue, with over 20% from New Energies, and sector-leading Group EBIT margins of 6-8%.
Sami Iskander, Petrofac’s Group Chief Executive, commented:
“These results cover my first six months as Chief Executive of Petrofac. During this time, our focus has been on aligning the business behind a strategy that will deliver the Petrofac of the future: a business known for consistent, best-in-class delivery, growing in both core and new geographies with a competitive and fast-growing proposition in new energies, and delivering superior returns.
“While the first half performance reflects the challenges of the market and Covid-19, we have continued to deliver successfully for clients and enhance our delivery capability. Importantly, the conclusion of the SFO investigation allows us to focus on the future and unlock new opportunities – with an uncompromising approach to compliance and ethics that will always be at the core of how we operate. This rigorous approach to governance sits alongside our environmental and social agenda and is critical to our future success.
“We are excited about the future. We have a new management team, an engaged and motivated staff, renewed purpose and a winning strategy in place. As announced simultaneously this morning, we have launched a refinancing plan to create a long-term, sustainable capital structure. We have strong positions in highly attractive markets at a time of exceptional growth potential. The Group has a strong bidding pipeline which includes significant opportunities in new energies, and contract awards are expected to accelerate in 2022. This supports our ambitious medium-term objectives, which will create significant shareholder value over the coming years.”
I listened into the webcast and it was a very positive affair given the quality of business that Petrofac is. The header of rebalance, reshape and rebuild makes sense and given the data that we received there is little doubt that there is much upside at the company from here.
The E&C business is ‘best in class’ and as described a ‘local business’ especially to the Middle East which more often that not leads to repeat business. Indeed the $32bn pipeline in E&C shows desire from customers to return after years on under investment and with a $14bn pipeline in EPS gives $46bn which includes $7bn in ‘new energies’ which works to the company’s advantage.
I find it easy, having visited so many of Petrofac’s local businesses and customers that the company is more than capable of building a huge book of work from here on in. In places like Oman where I visited before lockdown and where relationships are beyond solid I expect it to be more business as usual and I got the distinct impression that where the SFO investigation had halted business they too would be returning to the fold before long.
Petrofac is a best in class international, local business with excellent relationships built of outstanding operational capability. With its hands untied and sales teams unleashed I expect a good deal of high margin business to get into the order book in no time and the shares to go substantially higher in due course.
Prospex has updated on the Selva field this morning, it is over budget and behind time which will come as no surprise to anyone, least alone myself. First gas is now expected in 1H 2023 and the increase in costs is of the order of 15% which whilst not a surprise is very bad news for the company.
Mark Routh Prospex’s CEO commented:
“It is disappointing that the revised schedule for the tie-in works for our 4-inch pipeline to the national gas grid will delay the delivery of first gas from this project at a time when Europe is facing an unprecedented energy crisis and a shortage of gas. We have asked Po Valley Energy, as operator, to engage with SNAM to seek an acceleration of the tie-in works to the national grid network.”
It will come as no surprise to readers of the blog, and for many, many years that a project in Italy is behind time and over budget. Even at a time when mouth-watering gas prices beckon, between the lot of them they can’t construct a pipeline nor tie-in to the grid in time or in line with budget, after all it is not rocket science.
Just imagine what the vote against the board would have been if shareholders had known then what they know now, CEO Mark Routh is highly experienced in the energy business and I couldnt blame him if he is exasperated by the Italian business he has on his hands. The only worry is that when I put my concerns to him about Italy in a call on his joining as CEO he still believed in the country as a place where investment in energy assets could be justified. I have more belief in fairies at the bottom of the garden than I do in Italian authorities ever getting things done, carbon neutral by accident the country is uninvestable, period.
Scotland lost by plenty to Afghanistan yesterday in the T20 World Cup. Today it is South Africa v Windies and Pakistan v New Zealand.
The opinions expressed here are those of the author
Malcolm Graham-WoodRead More
Disclaimer: Malcy’s Blog is provided for general information about the international oil and gas industry and the companies that operate within it. It does not constitute investment advice and Malcy does not buy or sell shares, warrants or bonds in any company written about within the blog. Information is taken from publicly available sources and any comment is that of the author who does not take any third party comment in the blog
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