WTI $23.36 +73c, Brent $27.03 +5c, Diff -$3.67 -88c, NG $1.60 n/c
By Malcolm Graham-Wood
A very modest rally yesterday although May WTI caught up slightly and this morning both are up by a dollar or so. The 2tn stimulation package still hasnt gone through but Democrats although having been like turkeys voting for Christmas must before long agree before public sympathy disappears for good. The other news was that the US are sending an energy Minister to Saudi Arabia to negotiate a ‘potential alliance’ between the two countries, whatever next, the President going to Opec and demanding prices are raised…..?
The other thing is my long term favourite, retail gasoline prices in the US where the bottom really has fallen out of the market, yesterday gasoline futures reached 41.18 cents per gallon as the announcement of lock-down saw demand crater. FWIW the gasoline price in the US overall yesterday was $2.12 per gallon, down 12.8c w/w, 25.5c over 2 weeks and 34.6c on the month, y/y was down 50.3c. With gas on the Gulf coast only $1.86 per gallon there is scope for further falls.
Diversified Gas & Oil
DGO has extended its 5-year definitive asset retirement agreement with Ohio by an additional 5 years to 31/12.2029. The terms are substantially unchanged increasing DGO’s commitment to plug 20 gas and oil wells, up 2 from its previous agreement. The company will post a surety bond of $0.65m for the life of the agreement for the benefit of Ohio where DGO owns and operates c.7,100 wells, the Agreement remains aligned with the ‘Company’s ongoing Systematic Asset Retirement Programme to safely and permanently retire those wells that have reached the end of their productive lives’.
DGO now has agreements of ten years or longer with Kentucky (10 years), Pennsylvania (15 years; extendable to 20 years), West Virginia (15 years) and Ohio (10 Years) covering more than 98% of its total gas and oil wells with related bonding arrangements in these states approximating $13.2 million.
Once again DGO are proving that the stewardship of their substantial portfolio of wells is at or above leading industry standards at the end of their productive lives. This fits well with the model, that the company works to and that they elucidated so well in their recent results presentation. With a significant double figure yield DGO is a go to stock even in these troubled times.
Gulf Keystone Petroleum
In the absence of results and an analysts meeting GKP has produced and ops update take two this morning. With any production increases now ruled out for a while the current Shaikan production of 38,000 b/d should be, in the absence of company guidance, be considered to be what to expect.
With capex of $50-60 on current commitments break-even, covering all operating, general and administrative costs and interest payments are considered to be c. a Brent price of c.$35 per barrel. Although GKP has one of the strongest balance sheets around, given the Covid-19 virus stopping activity to increase production, along with some uncertainty about being paid by the Ministry has meant that both the dividend and share buy-back have been suspended until things become clearer.
An update from Ascent Resources where the new board is reviewing the existing asset in Slovenia cogniscent of the election of a new Government, JV partners and stakeholders in country. In addition, ‘As part of its ongoing strategic review in Europe, the Company is pleased to confirm that given its existing skill sets and regional relationships, it continues to evaluate multiple opportunities to grow its European footprint, including in neighbouring Central Eastern European countries and in the United Kingdom’.
Under a new subsidiary, Ascent Hispanic Ventures, as part of an expanded international strategic review, the Company has also identified the Caribbean and Hispanic America region as highly prospective for oil and gas, and a region where the new team’s industry experience, existing relationships and skill set can add value for shareholders. The company notices attractive production and appraisal portfolios in the region and the low oil price environment is working as an opportunity to secure advantageous entry terms.
Finally the company is issues a placing update, it is planning to take proceedings against an investor who so far has not paid for stock worth £200,000.
An operations update yesterday from MATD in which the company discuss Block XX where an exploitation licence is progressing, a requirement to enter into development phase. Whilst the company say that there is support ‘at the very highest levels of Government’ , especially as the Government has committed to construct a domestic refinery the procedure is still taking longer than expected to complete.
The CPR increases resource value potential by some 20% to 194m barrels giving a base case of 33m barrels recoverable at a 17% recovery factor. Whilst there is still significant process involved such as detailed appraisal and reserves reports as well as development and detailed EIA submitted it should all be done ‘in a number of months’. The 17% recovery factor is in line with up-to-date Mongolian practices but there is considerable upside potential realised by use of improved industry techniques.
At Blocks IV and V the company expect to relinquish Block IV but keep Block V after previous drilling showed promise but expect a partner or funding before drilling here. This will likely be something to be considered after Block XX and the excitement of Heron is delivered.
Overall MATD may or may not drill in the forthcoming season as the process slightly holds them back but the season lasts from now until November so rule nothing out. The company has cash of $3m and very low costs at present so a decision will have to be made in the autumn, hopefully when both the oil price and the virus have taken a turn for the better. Petro Matad has a good asset, reasonably protected from China but will need some of the returning workforce when the borders reopen, a market cap of £14m doesnt justify what it has found but like others in the market patience will be required.
The Tokyo Olympics have finally bitten the dust
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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.
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