WTI $22.41 -35c, Brent $31.74 +26c, Diff -$9.33 +61c, NG $1.72 -1c
By Malcolm Graham-Wood
We pretty much got the Opec+ deal that we predicted, overall it does just about reach the 20m barrel mark but that includes a bit of jiggery-pokery with it containing countries not committing just guessing shut-ins and of course those who are taking crude off the market via buying for SPR’s.
The deal itself has come in for some criticism and as usual there are those cynics that just don’t think it will work. That’s fair enough as the state of the current physical market is so awash with crude that not much can be done to mop that up.
The deal to a certain extent acknowledges that, by fixing the initial cut of 9.7m b/d (expected to be 10m b/d if Mexico had come in) only for the May 1- end June takes account of huge April output, indeed getting to that level by early May might be a struggle. After that the July-December figure is 7.7m b/d then from January 2021 – April 2022 is 5.8m b/d. Note that the next virtual Opec+ meeting is scheduled for June 10th, bang in the middle of period 1, members will have a good idea of how things are going. The Gulf states will shoulder the earliest cuts in production quotas by the nature of their production but pricing sheets due out imminently should give a guide.
This morning the oil price has hardly changed, sure the bunting isn’t out but if you take a look at the physical market you shouldn’t be surprised. Three months of Saudi led production increases coupled with super-demand falls over the same period thanks to COVID-9 have led to the immediate market being awash with oil and that inventory will take time to eradicate.
The winners and losers are fairly obvious, Russia have done badly some commentators are saying that if they had cut by 500/- b/d when the Saudis first asked them none of this would be happening, certainly not a 2.5m b/d cut now. The US and President Trump come out ok, there will be no incursion on Sherman but looking at the figures the shut-ins look much bigger than my own bearish numbers had shown. New numbers are showing that they will shut-in as much as 2m b/d this year, remember only a few weeks ago I was out on my own at a fall of 1m b/d this year and next. Almost finally the agreement also includes global buying of crude to top-up local strategic reserves, this is deemed to total around 200m barrels led by the USA with a short 80m to buy in.
Finally to keep you amused, last week I said that in my 40+ years of following the sector I had enough experience of price crashes to be able to weather one or two more. Claiming that this amounted to 8 severe falls I decided to ‘do the math’ and dig out some charts to see, in fact this 70 year chart, courtesy of Macrotrends shows that this latest fall is indeed the 9th technical fall although some analysts may differ…
This inflation adjusted chart shows that the 1973 price move signalled the start of volatility and interestingly that $20 is a long term floor, or maybe not!
Diversified Gas & Oil
DGO announces the successful completion of a second $200m securitised financing arrangement with very similar characteristics of the previous arrangement. The terms are a BBB investment grade rating from Fitch, a 5.25% coupon 6% after original discount, an 8.5 year amortising note with 17 -year final maturity secured by a 29.4% WI of proved developed producing upstream assets (excluding the EdgeMarc assets). It has 6-year extendable hedges on approximately 85% of the production volumes of the collateralised assets to provide stable cash flow, with natural gas hedged at $2.40/MMBtu and Nuveen (investment manager of ESG-focused TIAA) served as the financing’s lead investor.
DGO has clearly pulled of another fantastic deal that takes the company forward by significant steps and again proves that this is not just another E&P company. Its unique model, showed by the benefits listed below will now be applicable over a larger portfolio and with seemingly open-ended upside. The deal strengthens the company’s commitment to its dividend, its hedging strategy is not only short-term it goes longer term with 6-10 year contracts which give highly visible, dependable cash flow to compliment its stable, predictable production profile.
As a result of this 2/3 of DGO’s debt now resides in long term, fixed rate amortising notes underpinned by L/T hedges and yet no re-determination risk. Whilst doing this it enhances liquidity and balance sheet by further diversifying its debt structure while reducing reliance on its credit facility ‘appropriately aligned with DGO’s length of assets’.
Finally this strengthens the position to pursue ‘prudent and accretive growth at a time when we expect significant, high quality assets to become available at compelling valuations. This is all good news for DGO, it has taken fast, decisive and commendably smart action and should be another step to answering any questions the market might have, right now it looks in very good condition.
The operator of the Mako gas field, Conrad Petroleum has updated its resource estimate whilst waiting for an update of its GCA CPR following the highly successful drilling campaign. 2C resource estimate is 493 Bcf of recoverable raw gas, representing an increase of 79% on the pre appraisal estimate of 276 Bcf in the 2019 GCA Assessment. As well a new plateau production figure of 150 MMscf/d significantly higher than the previously modeled 44 MMscf/d.
Despite the recent announcement this looks to me that this field will provide very marketable high quality gas to sell into the key markets of Indonesia and Singapore. Accordingly permissions from the Indonesian authorities followed by the GSA and FID should be of significant benefit to shareholders.
This Caribbean entry sees the first transaction by the acquisition of Energetical, a UK company with exclusive rights to secure a PSC on its Block 9B in Cuba which contains the onshore Majaguillar and San Anton fields. Currently producing 190 b/d from three wells which the Ascent team feel that they can improve markedly with re rate potential. They also believe that Cuba can provide significant upside and is ‘one of the last remaining largely untapped hydrocarbon provinces of scale’.
Initial consideration is 6m of shares and £450/- deferred until Block 9 of which £350,000 will be satisfied by the issue of new ordinary shares, priced at the 30 day VWAP at the time of issue and £100,000 will be paid in cash. The Sellers have agreed not to dispose of any of the Consideration Shares for a period of one year. The Company has agreed to a carve-out to this lock-in which permits the sale of up to an aggregate of one million Consideration Shares following the expiry of an initial three month period. It is expected that the Consideration Shares will be admitted to trading on AIM on 20 April 2020.
Ascent also announces board changes with Andrew Dennan coming in as CEO and Leonardo Salvadori as a NED. In Slovenia the previous funder has withdrawn but the company indicate they are still in discussions and to a possible ‘litigation led’ strategy in Slovenia.
Egdon is raising £500,000 at a difficult time but general working cap needs and now the need to do some work on Wressle has clearly forced their hands. With Petrichor holding their corner and some of the directors putting up modest amounts the short-term future is at least guaranteed.
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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 publication.