Malcy’s Blog – Oil price, Genel, Sound, Hurricane & finally

WTI $42.19 +49c, Brent $45.17 +74c, Diff -$2.98 +25c, NG $2.19 u/c

By Malcolm Graham-Wood

Oil price

Buoyant markets, a weak greenback and a huge inventory draw of 7.4m barrels (making 18m over two weeks) pushed the oil price up again and although it drifted off later in the day it reflects the current situation, not what the experts think might happen.

Genel Energy

1H 2020 results from Genel with production of 32,100 bopd despite Covid-19 effects and payment uncertainty but following fast tracking flexibility as the ‘backdrop improved’ led to 33,000 bopd in July. Cash of $355m ($353m 6/19) with net cash of $57m ($56m) with KRG receipts in 1H of $110m with $121m remaining outstanding and the company remain in discussions with the KRG.

Despite all this Genel had a $6.5m of fcf in H1 with lower costs and the ‘resilient business model’ doing its thing. Production costs of $2.9/bbl in the period and with reduced capex of $58.5m and a 30% cut in G&A costs to $6.6m without any reduction in personnel was very creditable. Capex in the 2nd half is expected to be $45m of which 50% goes on moving Sarta to production in Q4. Finally, but hugely significantly Genel are paying an unchanged interim divvi of 5c.

On the conference call the CFO was keen to emphasise the maintenance of flexibility, a trait that is embedded through the whole business like a stick of rock and shown in the approach at Tawke where wells can be brought on very quickly if conditions determine.

This is also clear as Sarta production approaches in Q4, a low capital beginning but the company expect to scale up in due course, remember that it has a mid-case of 593 Mmbbls total technical resource with a mid-case 298 Mmbbls discovered and 250 Mmbbls in the Jurassic. Having been on this site I can confirm not only is it a superb achievement in the time but that it has been a wise call to go for early production in Q4 of this year.

Bill Higgs, Chief Executive of Genel, said:

“Genel’s robust business model, which is designed to provide resilience in a challenging environment, has demonstrated its value as the Company negotiates the headwinds facing the sector in 2020. Our low-cost production and the capital flexibility within our development programme have enabled us to preserve the strength of our balance sheet even while investing in growth. Given the lower oil price and overdue payments, the fact that we still expect to end 2020 in a net cash position – even after dividend distributions and making the investment to bring Sarta to production this year – is a testament to our resilience, and we have today confirmed an interim dividend of 5¢ per share.”

I have been saying for some time that the Genel business model is a first class demonstration of how to run a business, one which provides consistent, flexible and resistant policy, importantly through the cycle. Shareholders can see that this low cost production enables management to recycle cash into a choice of investments and continue to pay a meaningful dividend. Further out and dependent of course on the oil price, Genel has Qara Dagh and Bina Bawi for longer term excitement.

Good delivery from Genel has been reflected in the share price although it is off its recent highs, with a highly competent operational performance and the divvi offering a meaningful yield, the shares offer a potentially substantial return.

Sound Energy

Sound announce that a pre-sale agreement for the disposal of the Badile land has occurred and that the buyer is meeting the costs of restoration of the land that were previously down to Sound. If all goes to plan Sound would anticipate receiving total net consideration of €600,000 net.

Verdict, another smart move by the Chairman and board which as he says will allow total concentration on the current job in hand.

Graham Lyon, Sound Energy’s Executive Chairman, commented:

“Confirmation that Sound Energy will not, pursuant to the Pre-Sale Agreement, be exposed to the ongoing restoration obligations in Italy, and that Sound is expected to benefit from the terms of the sale of the Badile Land between Appenine and the buyer, will enable our small team to focus entirely on the Company’s strategy of transitioning the Company into a cash generating business with significant exploration potential.”

Hurricane Energy

Shareholders will be disappointed to see that the Technical Committee of Hurricane’s board has concluded that ‘there is a reasonable probability that the oil water contact in the Lancaster field is shallower than the range of oil water contacts envisaged in the 2017 Competent Person’s Report by RPS Energy.

‘Consequently, the Company believes there is a risk of a material downgrade to estimated reserves attributable to the Lancaster Early Production System, and that there will also be a material downgrade to estimated contingent resources across the West of Shetland portfolio’.

Let’s hope that the technical committee and new management team have half as much knowledge of the fractured basement as it appears and that the decimation of the shares recently is temporary as I imagine that decent, profitable production is still possible.

And finally…

Last night in the Boropa Cup the Red Devils beat LASK 2-1, 7-1 on aggregate. Tonight Wolves play Olympiakos where it is 1-1 from the first leg, whilst Rangers are at Bayer Leverkusen.

At lunch in the 2nd Test against Pakistan the visitors are 187-5 the match still quite close, new ball is due…

Malcolm Graham-Wood

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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.

(The opinions expressed here are those of the author, a columnist for Share Talk.)

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