Malcy’s Blog – Oil price, GMS, Pharos, Utd O&G, Trinity & finally

WTI $41.70 +69c, Brent $44.43 +28c, Diff -$2.73 -41c, NG $2.19 +9c

By Malcolm Graham-Wood

Oil price

The oil price continues to quietly show fortitude despite most analysts trying to do it down. Yes we all see some shaving of demand forecasts due to the virus as well as increased supply from Opec+ since the start of August.

But in the here and now the US stimulus is under discussion and data such as factory orders are showing that there is scope for growth, markets ‘crawled’ higher by a very decent 3.9% in the Dow, 5.6% in the S&P and 7.2% at the Nasdaq…

Finally the API stats not only continued a better trend but also to defeat the analyst community, crude inventories actually drew by 8.6m barrels when the teenage scribblers had a build of 3m b’s penned in…How we laughed until we think what these buffoons are being paid.

Gulf Marine Services

It has been a funny old time recently for GMS which culminated in a General Meeting yesterday at which Seafox succeeded in their bid to appoint two new members of the GMS board which is clearly tactical as the last thing this board needs is two new members. This follows two major shareholders changing sides in mysterious circumstances and makes us wonder if Seafox will have another crack at a bid when they are allowed by the Panel rules.

As it happens, yesterday also saw the GMS interim results where not only EBITDA was up 34% y/y but also the company said that FY numbers would be at the upper end of the $57-62m. It is very unusual at the moment for any of the service companies that I cover to have any guidance, let alone looking to be at the upper end of it so it is a very creditable performance by any means.

I was also most surprised to see that the banks that had recently completed a serious refinancing, (which included an equity rights issue much disputed by Seafox) taking the most unusual step of writing to shareholders to say that their deal was effectively not negotiable, including the equity part of it.

So what to expect from both sides following these skirmishes? Well, given what the banks have said there is little doubt that the equity raise will go ahead and that however opposed Seafox are to it they will have no choice but to participate to avoid dilution.

The work that the management have done in recent months deserves to be recognised and in any other circumstances the shares would be a solid buy against most peer group companies. With the likelihood of a bid from Seafox, assuming the Panel decide all is happy with the ‘curious’ side changing, it becomes an even more solid buy as a bid when rules allow they must surely return and having paid 22p that would be a reasonable target price. A top management, upper end of guidance earnings and a possible bid within the year, what’s the downside?

Pharos Energy

Pharos has announced a TGT field licence extension of two years has been granted by the Ministry of Industry and Trade in Vietnam, taking the date through to 7th December 2026. They have also announced the half yearly redetermination of their RBL facility over the Group’s production facility in Vietnam is now complete.

That means that repayments totalling $31.7m have now been made in accordance with the redetermination and, the Borrowing Base amount currently stands at $64.3m against a Facility Agreement of $125m plus a further $125m on an uncommitted “accordion” basis. As at 31 July 2020 net debt stands at c.$32m.

Ed Story, President and Chief Executive Officer, commented

“We are pleased to have received the formal grant of our two-year extension at TGT, which is very welcome news and allows us to embark on our FFDP with confidence as we look to increase production in Vietnam. With the two-year extension we will look to increase the tenor of the RBL and have confidence that the remaining period of a full five-year extension will be granted as our plans for future TGT drilling and enhanced oil recovery unfold over time. Moreover, the support and encouragement of the Government of Vietnam at this time of industry distress and uncertainty speaks volumes regarding our future in Vietnam.”

United Oil & Gas

UOG has been assigned Tullow’s 80% equity interest in the Walton Morant licence in Jamaica and now has an operated 100% of the ‘highly prospective frontier basin’ with comprehensive evidence of a working petroleum system.

Brian Larkin has always had high hopes for this acreage and probably wouldn’t have wanted to be now going back to square one with a farm-out process. I haven’t caught up with him lately and a detailed catch up is beyond time, I’m sure it will be interesting for this is a good company with exciting prospects.

Trinity Exploration & Production

Ahead of the Trinidad & Tobago General Election on the 10th August the reforms proposed by both parties are likely to have an important positive impact on reversing the decline in productivity levels and increasing employment in Trinidad, according to Trinity.

The proposed changes, if enacted, could significantly enhance potential cash returns for the Company, enhancing our ability to invest to scale the business and increase shareholder value. The company reiterate that there is a need to reform the regressive SPT regime.

I’m sure that Trinity Chairman Bruce Dingwall speaks on behalf of all domestic players when he says:

The Manifesto pledges to significantly reform the SPT regime would, if enacted, be extremely positive for Trinity, and for all the smaller oil producers operating in Trinidad.

 “Meaningful reform to the SPT regime would enhance the economic returns to all stakeholders; the T&T Government, Heritage, the Supply Chain and the people of T&T. Through such reforms, which are happening globally, incentivising increased activity and greater oil production will lead to maximising recovery from our reservoirs which in turn would lead to enhanced employment opportunities (and associated taxes paid) and a step-change in potential cash generation levels and returns for operators.

And finally…

The final ODI between England and Ireland resulted in a win for Ireland after a particularly close finish.

Today, with the red ball England start the first test against Pakistan, at lunch having chosen to bat first, the visitors are 53-2.

Last night in the Championship play-off resulted in a victory for the Cottagers who triumphed 1-2 after extra time.

Tonight the Boropa Cup continues with the Red Devils hosting LASK.

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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