WTI$92.10 +19c, Brent $96.84 u/c, Diff -$4.74 -19c, NG $4.62 +12c, UKNG 285.0p +92.16p
By Malcolm Graham-Wood
Oil price
In the above only European gas has taken into account the Russian invasion of Ukraine overnight, this morning WTI is $98.01 and Brent is $103.57.
My hero Daniel Yergin has said this morning that ‘Washington is just catching up and recognising that American LNG- and the shale revolution- is a geopolitical asset. Without US LNG exports the situation would look very different in the tense stand-off over Ukraine’.
And he is of course right and it would do UK politicians a power of good to realise that upping the game in domestic hydrocarbon production, both onshore and offshore wouldn’t be a loss of green credibility but more a way to ensure that domestic needs are catered for. No surprise that UKNG is up nearly a pound a therm, look and learn and shame on those who needed to see that start of a war for it to sink in.
Diversified Energy Company
Diversified has announced that on 23 February 2022 it closed a sustainability-linked asset backed securitisation (“ABS”) of certain Barnett Shale assets in North Texas. This financing represents the Company’s second sustainability-linked ABS and fourth ABS since late 2019 demonstrating the increasing depth of investors for this product. The Assets were previously pledged as collateral under the Company’s Revolving Credit Facility led by KeyBank National Association and represent the Company’s first ABS transaction involving assets outside of its Appalachia operating area. Diversified will use the ABS proceeds to reduce its RBL borrowings resulting in liquidity of more than $400 million pro forma as of 31 December 2021.
Transaction Highlights:
• Key terms
◦ ABS note amount of $160 million ($152 million, net of a certain transaction costs and $5 million restricted cash interest reserve for the notes)
◦ Fixed coupon of 4.95% (notes issued at par)
◦ Rating of BBB (Fitch Ratings, Inc.)
◦ Scheduled fully-amortised maturity of September 2030a
• Moody’s ESG Solutions has provided an ESG Assessment on Diversified. The coupon rate on the sustainability-linked financing will be tied to Diversified’s ESG Assessment from Moody’s ESG Solutions.
• Favourable hedge structure
◦ Long dated natural gas swaps at a weighted average price of $3.36/MMBtu
◦ Long dated NGL swaps at a weighted average price of $33.34/bbl
◦ Natural gas puts purchased in outer years; providing price floor and exposure to increased prices
• Assets constitute 9% of assets previously pledged under the RBL
◦ RBL borrowing base of $500 million (reduction of $50 million) on the remaining RBL collateral
◦ Leverage neutral – ABS proceeds reduce outstanding RBL borrowings and increase liquidity
◦ Pro forma as of 31 December 2021, liquidity approximates $418 million, up more than 30% from the Company’s pro forma liquidity following its securitisation announced last month
Rusty Hutson, Jr., CEO of the Company, commented:
“We are pleased to close our fourth ABS in less than a month of closing our third ABS. This transaction represents the first group of assets we securitised outside of our Appalachia area, demonstrating our ability to securitise assets at low, fixed rates across both of our operating regions. As with our most recent ABS and reflective of our broad ESG commitments, we are delighted to again be incorporating our ESG score from Moody’s ESG Solutions into the coupon of the notes.
Pro forma for this transaction, our year-end 2021 liquidity is the highest in Diversified’s history, strengthening our ability to transact attractive acquisition opportunities without relying on new equity contributions. Having significantly expanded our portfolio of producing assets last year with our entry into the Central Region, we look forward to pursuing additional ABS transactions this year given a favourable commodity price backdrop and increasing investor demand for securitisations of well operated oil and natural gas assets.”
Business as usual for DEC as they continue to streamline their loan book this time by another abs which ties in assets at very low rates and has the added advantage of the gaining of Moody’s ESG Solutions discount to the coupon.
This makes further transactions inevitable and given the market situation as far as I can see, bring it on as I can’t see anyone better in the market place to do it than Rusty Hutson’s team, in his words ‘ we look forward to pursuing additional ABS transactions this year given a favourable commodity price backdrop and increasing investor demand for securitisations of well operated oil and natural gas assets’.
With potentially good news on the way and given what a good state DEC is in right now I think that at 110p the shares offer exceptional value with both capital and income growth on offer, a rare opportunity…
Eco (Atlantic) Oil & Gas
Eco (Atlantic) has announced the successful sale of the Kozani project in Greece by Solear Ltd. for c.€1.8m (c.$2 million) to Nepcoe Capital Partners Ltd, in partnership with PowerChina New Energy Power Co., Ltd. a Chinese state owned company active in civil engineering construction and the renewable energy infrastructure industry. This transaction enables the re-payment of this consideration to Eco Atlantic pursuant to the shareholder loan advanced by Eco to Solear in 2021.
As announced on 26 January 2021, Solear acquired the 10.57 MW Kozani project in Greece for a consideration of c.€1.1m (plus additional €417K as a grid connection bond). The transaction was funded via a shareholder loan provided to Solear by Eco Atlantic.
Since the Kozani project was acquired, Solear has further developed the asset and brought it to a ready for construction stage, including necessary building permits and a connection agreement with HEDNO (the Greek grid operator).
On 28 January 2022, Solear entered into a Share Purchase Agreement with Nepcoe (in partnership with PowerChina as engineering partner) for the sale of the holding companies for the Kozani project for a total consideration of €1,793,680, which Eco will receive in cleared funds by the end of February 2022. The Disposal represents approximately a 25% margin on the initial acquisition price of the Kozani project and the repayment to Eco further strengthens the Company’s balance sheet.
Nepcoe is a UK based renewables investment and asset management business focused on creating a platform for access to renewable energy opportunities that provides and generate predictable cash flows in combination with positive environmental and social impact. Nepcoe has a strategic memorandum of understanding with PowerChina to jointly identify, develop and construct up to 750MW renewable energy infrastructure in Europe.
Gil Holzman Co-Founder and CEO of Eco Atlantic commented:
“We are very pleased with this transaction and pleased that the first development we entered into, the Kozani project, has generated a 25% return for our shareholders in just a year. We want to congratulate Nepcoe and PowerChina on this successful deal and believe they have acquired an excellent project from Solear. We have an exciting and busy year ahead, targeting a drilling campaign in H2 2022, and we look forward to keeping the market appraised on developments in our core exploration activities in South Africa, Namibia and Guyana, over the coming months. In addition, we will continue to further build our corporation to offer additional exploration catalysts as and when we believe these opportunities will be value accretive to our stakeholders.“
Stanley Goh, Managing Partner of Nepcoe commented:
“We would like to thank Eco for supporting us with this very smooth transaction process. Kozani represents a bankable entry for Nepcoe Capital and its engineering partner PowerChina in the Greek renewable energy market. I wish the Eco and Solear teams all the best in their future endeavours.”
This is nice work from Eco and of course shareholders will be delighted to have made such a good return and so quickly. As to serious business that will really start to motor as their exploration portfolio starts to come in. Looking at the Total announcement from block 2913-B offshore Namibia in which they say that they have found a major light oil discovery which has exceeded pre-drill estimates can only help Eco and others in or near the Orange Basin. All round very good news for Eco and the shares are bound to gain significantly as the year proceeds.
i3 Energy
i3 has provided the following Q4 operational and financial update.
Highlights:
· Q4 2021 average production of approximately 18,229 barrels of oil equivalent per day (“boepd”), a 38% increase from the previous quarter, with current production of approximately 19,000 boepd
· Q4 2021 revenues of US$57.6mm (+64% versus Q3 2021), generating US$31.5mm of NOI (+75% versus Q3 2021)
· Full-year 2021 net operating income (“NOI” = revenue minus royalties, opex, transportation and processing) is now forecast to be approximately $66mm(1,2), and $150.3mm for 2022 assuming implementation of the Company’s approved and ongoing 2022 capital programme
· Dividend of £2.25mm paid in October, bringing total 2021 distributions to £3.41mm
· Concluded multiple non-core divestitures, realizing a reduction in end-of-life obligations while decreasing i3’s average opex per producing boe
· Four (1.5 net) non-operated wells were brought onto production and 16 (14 net) recompletions/reactivations were successfully completed to yield aggregate net IP30(3) rates of approximately 600 boepd (65% oil and Natural Gas Liquids (“NGLs”))
Majid Shafiq, CEO of i3 Energy plc, commented:
“We are very pleased with the progress we’ve made with the Cenovus assets since acquisition in August 2021. We spent the following months on an extensive integration process to optimise the portfolio and generate a development programme to organically grow our production and income base. The execution of these plans during Q3 and Q4 2021 allowed us to replace declines, grow production and enhance margins in an improving commodity price environment. I am pleased to report that this has resulted in significantly improved income projections for the coming year.
We entered 2022 with a significant working capital surplus and a disciplined hedging program, covering approximately 36% of forecasted 2022 production, ensuring the fully funded 2022 programme and a monthly dividend commitment. We are also very excited to have commenced our high impact 2022 drilling programme in January and initial results are very promising; we will update the market as we commence production from these new wells.”
Whilst I am still waiting for a meeting with management and technically don’t cover i3, as last time I am just noting another good update.
Block Energy
JKT-01Z Update
Highlights
· Production remains stable at well JKT-01Z at 310 boepd
· Gas produced from the well is already being sold
· Plans for the fully funded side-track of WR-B1 remain on track
Block has announced production from well JKT-01Z continues at a current rate of 310 boepd, comprising 182 bopd and 21,800 m3 (128 boe) of gas per day. It is encouraging to note, after over a month of production data, well productivity is consistent with pre-drill forecasts.
As planned, gas production from the well was rapidly tied into the previously installed gas infrastructure to enable early monetisation.
Plans for the drilling of the previously announced side-track at well WR-B1 are well advanced, with long-lead items having been ordered. The well is being funded from existing cash from current production.
Block Energy plc’s Chief Executive Officer, Paul Haywood, said:
“Continued stable production from JKT-01Z has added to our confidence in the updated geological model, derived from the integration of the data acquired from the drilling of WR-B1 and other wells. We now look forward to the drilling of the planned side-track at WR-B1, with the aim of delivering production more in line with initial expectations. I would like to take the opportunity to reassure investors that operations in Georgia remain unaffected by the wider geopolitical tensions and the Board remains confident there will be no disruption due to any existing or potential sanctions or restraints of trade imposed.”
A positive comment from CEO Paul Haywood today but the market is missing something that Block are trying to say and I share some of that mystery. Over a year the shares are down from 3.4p to 0.95p and with oil at $104 and European gas 285p a therm one might have thought that things would be better, the current well is apparently funded from production, maybe it’s the longer term that is less inspiring? Boy I would love to have a meeting with the company…
And finally…
Last night in the Champions League the Red Devils picked up a 1-1 draw at Athletico courtesy of youngster Anthony Elanga. In the Prem Spurs lost 1-0 at Burnley, the Eagles went to the Hornets and won 1-4 whilst Liverpool whipped Leeds 6-0.
I’m taking a few days off, like most people I guess the first break for two years but the blog will still be coming out but probably at US times while I am in Fort Lauderdale.
The opinions expressed here are those of the author
Malcolm Graham-Wood
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
