Malcy’s Blog – Oil price, DEC, Challenger, Kistos & finally

WTI $62.05 -$1.31, Brent $65.11 -$1.55, Diff -$3.06 -24c, NG $2.92 -4c, UKNG 63.21p +4.53p

By Malcolm Graham-Wood

Oil price

Oil is having a bad time this week as the usual problem areas are getting worse not better just now. In India virus numbers continue to grow and with only 3% of the country vaccinated aint nothing gonna change anytime soon. As already mentioned the spread of the virus through Asia is happening and bets on the Olympics happening are still to be avoided.

The second worry is Iran where, with the Russians saying earlier in the week that talks were going well, yesterday Iranian President Rouhani said that the USA has agreed to the deal and that they had agreed to lift all sanctions on the country. I’d be surprised if that happened quite so soon but I am told that they would rather have a nuclear armed up Iran inside the tent than outside…

Diversified Energy Company

What was DGOC is now DEC  and as I predicted in only Wednesday’s blog they have already made another move in the new Central Regional Focus Area (RFA). They announced yesterday that they had entered into a conditional
agreement to acquire certain upstream assets and related infrastructure from Blackbeard Operating, LLC.

This announcement follows the announcement on 30 April 2021 in relation to the conditional acquisition of certain Cotton Valley upstream assets and related facilities also located in the Central RFA from Indigo Minerals LLC, which was subsequently announced as completed on 19 May 2021 which is when I commented.

The company announced that it would launch a fundraising to fund this extension of the first acquisition and this morning ahs announced the details.

So, DEC has announced that it has successfully raised gross proceeds of US$225 million (approximately £159 million) (US$215 million net of expenses, approximately £151 million net of expenses), by way of a placing of new ordinary shares of £0.01 each in the Company and an offer by the Company on the PrimaryBid Platform of new Ordinary Shares.

 The Fundraising was completed at a price of 112 pence per placing share the. The Fundraising represents 19.99% of the Company’s existing ordinary share capital, or 141,540,782 new Ordinary Shares in total (135,404,835 Placing Shares, 6,135,947 Retail Offer Shares). The Fundraising Price is equal to a 2.5% discount to the 30-day volume-weighted average price and an 8.3% discount from the closing mid-market price on 20 May 2021. Given the nature of the acquisitions and their size this is a very creditable raise at a very thin discount under the circumstances. 

‘Subject to closing of the Blackbeard Acquisition, the Company will use the net proceeds from the Fundraising to (i) part fund the Acquisitions; and (ii) part repay amounts drawn down on its Revolving Credit Facility (“RCF“) in connection with the acquisition of certain Cotton Valley upstream assets and related facilities also located in the Central RFA from Indigo, which was subsequently announced as completed on 19 May 2021,  in order to provide financing capacity for additional potential acquisition opportunities. The Fundraising is not conditional on the completion of the Blackbeard Acquisition. Should Diversified not complete the Blackbeard Acquisition, the Company will determine the most appropriate use of the net proceeds, including potentially paying down further amounts drawn on its RCF and/or investing in other acquisition opportunities aligned with its stated strategy.

 It is worth noting that ‘The Company consulted with and received strong support from many of its largest shareholders prior to the Fundraising. Consistent with each of its prior placings, the Company respected the principles of pre-emption through the allocation process’. This has been important in the company’s progress in London and why it is deemed to be in my view a blue chip investment. 

Commenting on the Fundraising, CEO, Rusty Hutson said:

 With strong shareholder support for the expansion of our proven strategy, I am pleased to announce a successful placing to part fund our announced Blackbeard and Indigo acquisitions. This placing, through the assets we are acquiring, delivers share-level earnings accretion and strengthens our balance sheet to position us for additional success in our Central Regional Focus Area and within Appalachia. I would like to thank our investors for continuing to share our vision and our employees who work diligently each day to efficiently integrate and diligence the new assets to deliver exceptional results for all stakeholders.”

This deal as well as the fundraise come as no surprise especially to blog readers from earlier in the week. But the first move clearly whet the company’s appetite and I’m sure this won’t be the last deal in the RFA. A high quality management in a soundly financed company with a model that is proven to work is a rare beast and I expect the shares to return to previously higher levels before long.

Challenger Energy Group

Challenger Energy Group is launched today as it prepares for its drilling the Saffron-2 appraisal well and the ensuing programme. With the £6.9m of new equity successfully under its belt and new management taking the controls it is an important but exciting time for the company. Eytan is a dynamic and top quality executive and I have for many years watched him in these types of situations.

Eytan Uliel, Challenger Energy CEO Designate, said:

 With the spud of the highly anticipated Saffron-2 appraisal well now just days away, we are pleased that in addition to the successful completion of our fundraising as announced on 20 May 2021, shareholders at the EGM supported all of our broader corporate reset objectives, including the change of name of the company to Challenger Energy, which has now taken effect. As Challenger Energy, our immediate strategic priority is to drive production and cashflow growth, through intelligent management and deployment of our resources. Our change of name, and the broader corporate reset currently underway, is in support of this strategic priority, which we see as the lynchpin for shareholder value growth both in the near-term and in the years ahead. All of us at Challenger Energy look forward to beginning the next chapter.

Kistos Plc

Kistos has announced the completion of the Tulip deal as per the documents of 21st April. From the get go the company has committed to ensuring ‘its Scope One Emissions are at net zero from completion’. The producing asset Q10-A has a ‘uniquely’ low carbon footprint partly as the platform is powered by wind and solar energy, averaging 0.013kg CO2e/Boe since first gas against a North Sea average of 22kg CO2e/Boe.

Kistos is more than likely to be the first company to commit to net zero now, not further down the road. I would expect that to a re-rating of both debt and equity and the strength that provides, as well as a cash position would mean that the company could make further acquisitions without recourse to the market.

Trading wise, production for the ytd has been in-line with expectations whilst realised gas prices have been higher than those assumed in the  Admission document. Group cash at bank on closing is £46.8m implying net debt of £82.2m.

The Kistos board has already sanctioned, subject to partner approval, the appraisal of the Q11-B discovery as well as a drilling and workover campaign on the Q10-A field, scheduled to start 2H 2021. The primary objectives are to appraise additional horizons in the Q10-A area whilst enhancing potential production rates with the side-track of the Q10-A04 well and workover of the Q10-A06 well. 

Andrew Austin, interim CEO, said 

“We are very excited for the future of Kistos, with a proven low cost  production base from the Q10-A field and two further appraisal wells planned this year, we look forward to extending our reserves base and increasing our presence in the Q Block core area . We welcome the team at Tulip on board. They have shown great professionalism and ability in the way they have led activity in the Q-Block area to date. We look forward to working together as we continue to grow Kistos into a company which can play a role in the broader energy transition”.

Kistos does indeed look very promising, with todays trading news better than at least I was expecting, as usual AA is not letting the grass grow under his feet. At 177.5p I suspect that the upside for this stock is substantial and I expect the shares to go significantly higher as the story unfolds.

And finally…

It is the last day of the Premier League on Sunday, all matches kick off at 1600. The Gooners face the Seagulls, Villa host Chelski, the Magpies visit the Cottagers, the Blades host Burnley, the Baggies go to Leeds, the Foxes host Spurs, Liverpool entertain the Eagles, the Noisy Neighbours host the Toffees, The Saints go to the Hammers and Wolves who have just parted company with their excellent manager Nuno Espirito Santo are host to the Red Devils. Chelski, Liverpool and the Foxes are playing for the two remaining spaces in the Champions League, complicated by the fact that if Chelsea beat City in the CL final they would get a place…

Its the Championship play-offs and I know I have a very keen Tykes fan, they are a goal behind going into the 2nd leg against the Swans whilst the Cherries face the Bees in the other semi.

And of course it’s the Scottish Cup Final where the Mighty Saint Johnstone face Hibs at Hampden Park.

With the weekend being one of the best in the calendar it is the Blue Riband F1 Grand Prix at Monaco, it really is a magnificent event and I can guarantee  a wonderful time, Ferrari were 1st and 2nd in first practice, 2nd practice is tomorrow.

Unusually for Mid-May the Irish Guineas meeting at the Curragh faces a rain check, it has been horrible there too. Also flat racing all over the UK.

The USPGA continues, the overnight leader was Corey Conners but already much is changing out there.

One might have hoped that Brexit meant Brexit and that included despatching the Eurovision Song Contest to the Vortex of pap where it belongs

(The opinions expressed here are those of the author, a columnist for Share Talk.)

Malcolm Graham-Wood

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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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