Malcy’s Blog – Oil price, Eco (Atlantic) Oil & Gas, Hunting, United Oil & Gas & finally

WTI $110.60+$7.19, Brent $112.93 +$7.96, Diff -$2.33 +77c, NG $4.76 +19c, UKNG 424.36p +101.15p

By Malcolm Graham-Wood

Oil price

Oil is another 3 bucks up today as the Ukraine continues and last night’s EIA inventory stats showed a draw of 2.6m barrels of crude and gasoline drawing 468/- and distillates 574/-.

More interesting perhaps is the price of European gas, UKNG this morning has already hit 465.44p….

Eco (Atlantic) Oil & Gas

Eco has announced that the Joint Venture partnership of Block 2B, offshore South Africa, has entered into a drilling contract for the Island Innovator semi-submersible rig with Island Drilling Company AS for the upcoming drilling of the Gazania-1 well.

The Block 2B JV partners are Africa Energy, with a 27.5% Working Interest (“WI”), a subsidiary of Panoro Energy ASA holds a 12.5% WI and Crown Energy AB indirectly holds the remaining 10%WI. Eco Atlantic will become Operator and hold a 50% WI, subject to near completion of its 100% acquisition of Azinam Group Limited.

The Gazania-1 well is located in the Orange Basin in South Africa. The Orange Basin straddles the offshore waters of Namibia and South Africa, where major discoveries on both the Graff-1 well, drilled by Shell, and the Venus-1 well, drilled by TotalEnergies, have recently been announced.

Colin Kinley Co-Founder and COO of Eco Atlantic commented:

“We are pleased to be making progress in our exploration and drilling plans for 2022. We are planning for mobilization of the rig in late August and to spud shortly after arrival, with the experienced Island Drilling team and the Innovator Semi. We have good support from our partners at Africa Energy, Crown and Panoro and from the engineering advisors at NRG Group. We look forward to a successful, safe and environmentally conscious drilling program in Gazania-1.”

Things are moving apace over at Eco after a barren period in which Guyana waited on operator reluctance and in South Africa the Azinam deal and of course two big finds that somewhat upped the value of the postcode. Readers know that I have kept faith in the Eco team and indeed the shares have doubled since remaining in the Bucket list in early January. 

This announcement is therefore very good news indeed, to have hired a rig, completing the Azinam deal and of course a very fine group of partners leaves Eco incredibly well placed right now.

Hunting

Hunting today announces its results for the year ended 31 December 2021.

Whilst the reduction in activity in the global oil and gas market from 2020 continued into last year, the second half of the year saw improved trading, supported by recovering commodity prices.

The Group’s strong year-end cash and bank position, coupled with its new $150m Asset Based Lending facility provides significant liquidity and balance sheet optionality. This includes the ability to pursue new growth and diversification opportunities.

Financial Summary*

·        Revenue $521.6m (2020 – $626.0m)

·        EBITDA $3.1m (2020 – $26.1m)**

·        Underlying loss from operations of $35.1m (2020 – $16.4m)**

·        Amortisation of acquired intangible assets and exceptional items impacting loss from operations totalling $44.6m charged in the year (2020 – $203.6m)

·        Reported loss from operations of $79.7m (2020 – $220.0m)

·        Underlying diluted loss per share 27.1 cents (2020 – 10.0 cents)**

·        Reported diluted loss per share 53.2 cents (2020 – 143.2 cents)

·        Net assets of $871.3m (31 December 2020 – $976.6m)

·        Total cash and bank of $114.2m (31 December 2020 – $101.7m)**

·        Final dividend of 4.0 cents per share proposed (2020 – 4.0 cents) and payable on 13 May 2022 to shareholders on the register on 22 April 2022, subject to approval at the Company’s AGM

 *Underlying results are based on reported results before amortisation of intangible assets recognised as part of a business combination and exceptional items. Reported results are based on the statutory results as reported under International Financial Reporting Standards as adopted by the UK.

**Non-GAAP measure. Please see the 2021 Annual Report and Accounts pages 216 to 221.

Operational and Corporate Highlights

Completion of a restructuring of European OCTG businesses, to prepare for the return to growth in the North Sea.

·        Sale of $31.5m of inventory to Marubeni-Itochu (“MI”), as part of restructuring agreement, following an impairment charge of $5.2m.

·        Hunting acquires MI’s 40% interest in the residual accessories manufacturing business for $3.8m and secures exclusive three-year threading services deal.

·        Impairment of the Fordoun property by $8.6m and a provision of $0.9m recognised following the transaction.

$5.1m equity investment in Cumberland Additive Inc.

·        Transaction gives Hunting access to new additive manufacturing and 3D printing technology.

·        Provides the Group with further non-oil and gas and traditional energy opportunities.

Joint venture agreement signed with Jindal SAW Limited to access high growth Indian OCTG market.

·        Hunting to enter a 49:51 joint venture company and will build a premium threading manufacturing facility in Nashik district, India during 2022.

$2.5m convertible financing provided to Well Data Labs (“WDL”).

·        The agreement gives Hunting access to software and analytics capabilities.

·        Hunting Titan collaborating with WDL on new products for US onshore completions market.

Continued progress on building non-oil and gas capabilities.

·        The Group has pursued new sales opportunities in the year, with the development of defence, space and medical revenue streams.

Subsea Spring business expanding rapidly, with good demand for titanium and steel stress joints.

·        Significant order wins in the Gulf of Mexico and internationally reported in December 2021 and January 2022.

Board Changes.

·        As announced on 11 February 2022, Richard Hunting will retire from the Group after nearly 50 years of service on 20 April 2022.

·        The Group also announces the proposed appointment of Paula Harris as a new independent, non-executive Director. The appointment is being submitted to shareholders for approval at the Company’s 2022 Annual General Meeting.

 Commenting on the results Jim Johnson, Chief Executive, said:

“Hunting’s trading outlook continues to brighten as the world steadily escapes the negative economic impact of COVID-19. 

“Years of under investment in the energy sector have narrowed the gap between supply and demand fundamentally providing the basis for an increase in oilfield service activity due to enhanced profitability for our E&P clients. 

“For the Company, every business unit and region is witnessing increased demand for its products as evidenced by rising backlogs which have notably expanded since the start of the year given a new budget cycle. 

“While COVID-19-related operational issues continue to persist into Q1 2022, albeit less as the days go on, the Company is well-positioned for a much-improved 2022 given our robust portfolio of technology-enhanced products coupled with the benefit of strategic moves undertaken in the past year”.

I went much more positive on Hunting last November when the management were in London being incredibly positive about the market, on that day irony of all ironies I was in Houston, today as the management are presenting in London I am in Florida, I hope that they don’t think I’m avoiding them!

I would just reiterate that Hunting is very well placed to do well in these markets, it has a brilliant management team which carries great depth and knowledge of its areas of high penetration and is financially well placed to exploit the current hydrocarbon strength.

United Oil & Gas

United Oil & Gas has issued the following corporate update.

Divestments

UK CNS

On 7 September 2021 United announced that it had entered into a binding sale and purchase agreement (SPA) with Quattro Energy Limited to sell its UK Central North Sea Licences; P2480 and P2519 for a consideration of up to £3.2m (c $4.4m). Completion of the sale was conditional on receipt of approval from the Oil and Gas Authority (OGA) and Quattro completing a fundraising process. In December 2021 United announced that the long stop date for satisfaction of the SPA conditions was extended to 28 February 2022. Although OGA approval was received, Quattro did not complete a fundraising process by this date. United has decided to terminate the SPA with Quattro.

United was awarded Licence P2480, in the OGA’s 31st Licencing Round in August 2019 and Licence P2519 in the 32nd Licencing Round, in December 2020. United holds a 100% equity interest in each. Licence P2519 includes the existing Maria discovery drilled by Shell in 1976. United estimated as part of its licence application that Maria holds c. 6 MMboe mid-case recoverable resources. The P2519 Licence also contains two Jurassic discoveries, Brochel and Maol. Maol was drilled by Shell in 1987, and on test flowed at over 2,000 boepd. Licence P2480 includes the Zeta prospect. Both licences are close to existing infrastructure and are located in a highly prospective area of the Central North Sea, which includes the Marigold and Yeoman discoveries, where there is significant development activity taking place and the substantial Piper, MacCulloch and Claymore oil fields.

There are low-cost commitments on both licenses, and with rising commodity prices and renewed activity in the nearby area United believes they each contain attractive investment opportunities. United look forward to progressing the commercialisation opportunities and potential partnerships the assets offer.

Italy

United signed a conditional SPA with PXOG Marshall Limited, a subsidiary of Prospex Energy PLC for the sale of 100% of the share capital of UOG Italia Srl for a consideration of €2.165m (c. $2.54m) with an effective date of 1 Jan 2021. UOG Italia Srl holds a 20% non-operated interest in the Podere Gallina licence which contains the Selva gas development project in Italy.  United received a deposit of €108,235 (c.$150,000) in August 2021.   The balance of the consideration and any working capital adjustment from the effective date are payable on completion. The sale is conditional upon the receipt of approval of the Italian Authorities to the change of control of UOG Italia Srl and Prospex completing a fundraising process. On 23 February 2022, Prospex announced the completion of the fundraising with the proceeds to be used for the acquisition of United’s interest in Selva and to fund the development costs of the Selva project.  The longstop date for completion is 6 April 2022. United and Prospex have been advised by their lawyers that all information required for final approvals has been submitted to the Ministry of Ecological Development on 10 February 2022.

Crown disposal milestone payment

The disposal of United’s interest in the licence containing the Crown discovery to Anasuria Hibiscus UK Ltd.(Hibiscus) completed in December 2019 and United received $0.95m on completion. A further $2.85m was payable to United on completion of certain milestone events, or the licence could have been returned to United. In October 2021, Hibiscus informed United that the licence terminated on 30 September 2021. As announced in October, United sought legal advice.  Based on that advice the Company remains confident of its legal position and is continuing constructive discussions with Hibiscus. The Company looks forward to updating the market in due course.

Pre-payment facility

Further to FY 2021 Trading and Operations Update and Guidance for 2022 announcement issued on the 27 January, the Company has extended the final maturity date on its existing prepayment facility from 30 September 2022 to 31 December 2023. This extension significantly lowers the monthly repayments and provides additional flexibility for the execution of the Abu Sennan drilling programme and general working capital management.  United continues to have in place a framework for potential future offtake and financing undertaken by the Company. 

United’s Chief Executive Officer, Brian Larkin commented:

“Although the conditions of the SPA for the sale of our UK CNS assets were not met and United has decided to terminate the SPA with Quattro, we believe the backdrop of high oil process and increased investment in the North Sea means these licences offer a range of exciting opportunities for United for limited near term outlay.

“In respect of our other sales processes, we are pleased with the progress being made. In Italy we have submitted final paperwork to the relevant Ministry and are now waiting for final approvals. Similarly, we remain confident of a prompt outcome regarding our Crown disposal milestone payment which we hope to update shareholders on in due course.

“With our low-cost producing asset base, which is significantly leveraged to the rising oil price, we remain focused on implementation of our work programmes from a fully funded position in Egypt, in addition to progressing the farm out of our Jamaican assets.  We look forward to updating the market on further progress in our full year results at the end of April.”  

This is a mixed bag of information as UOG continues its disposal programme. The UK CNS assets coming back into the portfolio is good and questions why the team at Quattro led by Neill Carson couldn’t come up with the moolah. At this oil price it gives UOG an edge or perhaps one should say another bite at the cherry.

In Italy, and you know what’s coming, they are waiting for the ‘relevant Ministerial approvals’ how many times have I heard this, all I would say is not to stand on one foot waiting…Finally the Crown Disposal milestone payment is in dispute and they seem pretty confident on this one coming good. 

Overall they appear on top, just, in two and waiting for Godot in the other and you know that it was a tragicomedy….

And finally…

Last night in the FA Cup the Hatters lost 2-3 to Chelsea (not Chelski any more), the Saints beat the Hammers 3-1 and Liverpool beat the Canaries 2-1.

Tonight the Toffees host Boreham Wood, any chance for another bit of giant killing?

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


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