Malcy’s Blog – Oil price, Genel, IOG, San Leon, Lamprell, Trinity & finally

WTI $71.26 -$2.69, Brent $72.89 -$2.52, Diff -$1.63 +17c, NG $3.93 +2c, UKNG 107.0p +0.63p

By Malcolm Graham-Wood

Oil price

It’s funny how these sharp price falls have been happening on Monday’s recently, as if the traders come back from the weekend all up for a fight then if history repeats itself will buy back the shorts pretty quickly. The starter was the China factory growth report which fell for the first time for a year and panicked the traders.

Opec July output rose according to Reuters but roughly in-line with its policy and I don’t see anything above the agreement of +400/- b/d as we progress through August. Also there has been a ‘surge’ in Covid cases although in an excellent piece of research from CNBC’s Brian Sullivan showed that it amounted to only 0.004% of those vaccinated being hospitalised.

And of course it’s the day for retail gasoline prices with a gallon of Exxon’s finest rushing you an average of $3.159 which is up 2.3c w/w, 3.7c m/m and 98.3c y/y.

Genel Energy

Results for the six months to June 30th today from Genel highlighted its strong cash generation from low-cost oil production in Kurdistan. Net production averaged 32,760 bopd in H1 2021, slightly above the average in the prior year and in line with guidance (H1 2020: 32,100 bopd).

More significantly, low production cost of $3.7/bbl, oil price increase, and restart of the override helped deliver an overall margin from our production assets of $111 million. Free cash flow for the period was $22 million, despite the Kurdistan Regional Government changing its payment schedule from one to two months in arrears, moving c.$30 million that was due in H1 into July and $123 million of cash proceeds were received in H1 2021 (H1 2020: $110 million).

This fulfilled the first stage of the strategy,  viz generating cash, the second leg is investing in growth where the  high-potential drilling campaign is well underway, with the QD-2 well at Qara Dagh having spud in April, and the Sarta-5 well in June. So, $58 million of capital expenditure in H1 2021, with activity accelerating in H2 as more wells continue to spud.

After investment in growth, stage three is creating the financial strength to return proceeds to shareholders  and to underpin a material and progressive dividend. So with cash of $266 million, with net debt of $2.2 million due to the rise in the oil price boosting expected cash generation, and Management’s confidence in Genel’s future prospects, interim dividend increased to 6¢ per share (H1 2020: 5¢ per share).

This strength leads to production guidance for 2021 of slightly above the 2020 average of 31,980 bopd being maintained. 2021 capital expenditure guidance is maintained at $150 million to $200 million, with the expectation that expenditure will now be around the middle of this range, following delays in approvals from the KRG and ongoing challenges relating to COVID-19 causing some planned activity to move to Q1 2022.

High-impact appraisal results are yet to come in 2021 including results from the QD-2 and Sarta-5 wells which are expected around the end of Q3 2021. In addition, the Sarta-1D well is set to spud in coming days and the Sarta-6 well is scheduled to get underway immediately following the completion of drilling at Sarta-5. Taking all this into account Genel expects to generate free cash flow in 2021 and end the year in a net cash position, despite material investment in growth.

Pilot production results from Sarta are not quite as hoped, but it is very early days and pilot production is all about field development rather than near-term production. The field retains great potential.

Bill Higgs, Chief Executive of Genel, said:

“Genel continues to deliver on its strategy and demonstrate the merits of its business model. Capital investment made last year, despite the low oil price and over $150 million of deferred payments, has meant this period has benefitted from the addition of oil from Sarta and increased production from Peshkabir, with production having increased in line with guidance. This high-margin production will generate sufficient cash flow in 2021 to more than cover investment in growth and the increased dividend, and we are set to end the year in a net cash position.

Our appraisal campaign at our exciting growth assets Sarta and Qara Dagh is now well underway, and we look forward to the results of three of these high-potential wells later this year. Given the cash generation of the business, our strong balance sheet, and the resilience of our business model, we are fulfilling our aim of paying a progressive dividend by increasing the interim payment.”

I continue to like the model being applied by the Genel board which is clearly working right now as the margins of $19 per barrel (2020 $6) are boosted by high oil prices and some although not complete, help from the KRG. With some very exciting drilling going on now, as well as those yet to spud in the second half, there is much more to look forward to.

Shareholders should be pleased with the strategy which can only benefit them, not just in increased dividends but also as the company is in a very strong position now and for the future. The shares at 141p have fallen way too much and do not reflect such a strong position.

IOG

IOG has announced the spudding of the Blythe development well. Following Elgood, Blythe is the second development well in IOG’s Phase 1 project and is expected to take under three months to drill and complete, after which the rig will move on to Southwark. The Noble Hans Deul jack-up rig mobilised from the Elgood field location on 27 July and jacked up at the Blythe Platform on 29 July. After preparations for drilling the Blythe well spudded at 2300 hrs on 2 August.

Andrew Hockey, CEO of IOG, commented: 

 “We are pleased to have moved safely over from Elgood to spud the next development well at Blythe, another important step for IOG in delivering our Phase 1 project. The Blythe well has been meticulously planned by the IOG drilling, subsurface, subsea and HSE teams in collaboration with our main drilling contractors Noble Corporation, Petrofac and Schlumberger, our Platform Duty Holder ODE Asset Management and our partner CalEnergy Resources (UK) Limited and fully integrates the learnings from the Elgood well. We have a very clear collective focus on ensuring safe and efficient performance leading successfully to First Gas in Q4 2021 from the Blythe Hub before continuing into 2022 at Southwark.”

San Leon Energy

SLE has announced that Lisa Mitchell, has resigned as CFO in order to take up a new role. She will stay on the board of SLE as the company continues to progress its current proposed transactions.

Lamprell

A Trading update from Lamps this morning, the company say that against the backdrop of COVID-19 and related supply chain bottlenecks, the Group continues to make solid progress on all projects. This brought in revenue of USD 175 million, with USD 295 million secured for H2 2021 whilst full year EBITDA expectations remain at broadly breakeven levels.

Net cash decreased to USD 81.1 million as projects enter critical working capital phase, with USD 55.0 million restricted on project bonds and guarantees. The bid pipeline increased 15% to USD 6.9 billion, momentum in renewables opportunities continues to improve with a number of decisions on current renewables bidding opportunities expected in Q3 and Q4 2021.

The working capital schedule was ‘actively managed to allow additional time for the debt and/or equity funding to be secured and final discussions with three banks on USD 90 million working capital facilities for the completion of two IMI rigs, expected to be comprised of two equal tranches (first anticipated to be available in August and second in Q4 2021, consistent with working capital requirements)

The planned potential equity raise of USD 30-60 million is expected to complete in Q4 2021, instead of Q3 2021, subject to market conditions.

Christopher McDonald, CEO of Lamprell said: 

“Our strategy is now fully aligned with the broader energy transition. The Renewables business unit is benefiting from the growth in global opportunities and limited fabrication capacity and we are encouraged by the level and quality of engagement with current and prospective clients. Our credentials in the oil and gas business enable us to access the opportunities available in the Middle East and we are actively seeking to transition our Oil and Gas business unit to Saudi Arabia. Our Digital business unit is developing rapidly with the right financial and technical partnerships in place. The work in recent years to reposition the business, reduce overheads and develop a strong track record in renewables has transformed Lamprell and provides us with an improving outlook.”             

 Europa Oil & Gas

Europa has announced the formal launch of the farm-out of its high-impact exploration opportunity, the Inezgane Offshore Permit, offshore Morocco in the Agadir Basin, awarded to the Company in 2019. Inezgane ‘represents a high-impact exploration opportunity in a highly underexplored area of the world representing an excellent farm in opportunity for interested companies and complements Europa’s existing strategy of seeking to develop a balanced portfolio of assets’.

The Licence is located on the same geological trend which has led to major oil and gas discoveries along the west coast of Africa with reservoirs and source rocks in common with the prolific West African play. Europa say that recent evaluation has identified a significant volume of Licence resource, in excess of 2 billion barrels (oil equivalent), in the top five ranked prospects alone.

Simon Oddie, CEO of Europa said: 

“We are delighted to announce the launch of the Farm-out initiative of the Inezgane Licence which represents not only a high-impact exploration opportunity for Europa but also sits comfortably within the Company’s strategy of creating a balanced portfolio of complementary assets.  Morocco is a welcoming jurisdiction in which to operate and has excellent ESG credentials in the fields of wind, solar and hydroelectric with ambitions to source 50% of its electrical energy from renewable sources by 2030 as well as becoming a net exporter to Europe. 

 “In holding a 75% interest in, and operatorship of, the Licence, Europa controls an area of 11,228 sq. km with Morocco’s ONHYM holding the remaining 25% interest.  The work completed thus far has focused on the top five ranked prospects which each have mean resources in excess of 200 mmboe at the Albian level, with total mean resources in excess of two billion barrels. These are extremely positive numbers for the Company and we hope to capitalise on the prospectivity demonstrated along this prolific geological trend.  I look forward to providing further information in due course.”

Trinity Exploration and Production

I was very saddened to read that Trinity announced this morning that Bruce Dingwall, Executive Chairman of Trinity, has recently been hospitalised due to a serious health incident. Bruce remains in a stable condition, but continues to undergo clinical assessments.

The Board has appointed Mr. Nicholas Clayton, Senior Independent Non-Executive Director, as Interim Non-Executive Chairman during Bruce’s period of absence from the business.

 Jeremy Bridglalsingh, Managing Director, will continue to lead the Executive Management Team, which was recently strengthened and expanded to include Mr. Denva Seepersad as the Finance Director and Dr. Ryan Ramsook as Executive Manager Sub Surface.

I would like to wish Bruce a full and speedy recovery at this time, in more ways than one he is a Goliath of the industry.

And finally…

News from Tokyo this morning is pretty good with 2 golds and 2 silvers in sailing and a bronze in windsurfing. A silver in the velodrome for Jason Kenny and a silver for Pat Mc Cormack in the boxing ring.

Plenty of changes in the Lions team for Saturday, across the board in the scrum and the backs and Farrell and Stuart Hogg dont even make the bench.

The opinions expressed here are those of the author

Malcolm Graham-Wood

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Website Link www.malcysblog.com

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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