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

WTI $34.35 +63c, Brent $36.17 +64c, Diff -$1.82 n/c, NG $1.79 -6c

By Malcolm Graham-Wood

Oil price

Oil remained firm yesterday primarily due to support from Russia. I have noted in recent comments that those people who doubted that Russia would participate to its minimum quota were wide of the mark which seems to be accurate. Yesterday’s news was that they have nearly reached their 8.5m b/d target, ex liquids, a pretty amazing achievement given April production was 11.35m and it is much more difficult to do than in the Middle East.

With that cut now appearing genuine, along with other Gulf states also beating targets, it looks like the total cuts really are of the order of 15m b/d again a figure that was treated with derision by some alleged industry experts only a few weeks ago. Next thing is we will be getting stock draws, oops we already have, how did that happen….

It’s retail gasoline prices day and the first one of the Driving Season and prices are rising sharply. Today the average price of a gallon of gasoline in the US is $1.91 up 7.3c w/w, up 13.3c m/m and yet still down 76.1c y/y. Next stop the inventory stats where we will get an idea of how demand might pick up during the spring.

Hurricane Energy

Hurricane has announced that in the light of the COVID-19 pandemic it has requested extension to certain licence commitments pertaining to the Lincoln area. The Oil and Gas Authority has responded positively to these requests, extending the deadline for commencement of the GWA joint venture’s commitment well on Lincoln to 30 June 2022 and extending the deadline for plugging and abandoning well 205/26b-14 (Lincoln Crestal) to 30 June 2021.

Diversified Gas & Oil

DGO announces this morning that it has completed the purchase of certain upstream and midstream assets from Carbon Equity Corporation announced last month. Concurrently they closed on a 10-year amortising $160m gross senior secured term loan underwritten and funded by Munich Re that concludes a 6.5% fixed coupon and a 10 year hedge portfolio to stabilise cash flows.

Rusty Hutson Jnr commented ‘Today’s transactions continue our commitment to create long-term shareholder value through selective expansion of our upstream and strategically important midstream assets. Like our largely conventional legacy assets, Carbon’s wells display the same long-life, low-decline profile and expand our base of stable production and Smarter Well Management opportunities.’ And added ‘We share a common belief in the low-risk profile and high-quality nature of the underlying assets and their associated cash flows, and believe this amortising financing, in concert with proceeds from our successful equity fundraising, further demonstrates our commitment to maintain a healthy balance sheet and appropriate leverage profile relative to the strength, reliability and visibility of our cash flow.’

I remain convinced that DGO offers a unique opportunity in the sector, its model precludes exploration so it is driven by a well financed, through high quality debt and regular popular equity support for its production base. Historic questions of accounting have been put to bed especially with the recent prospectus, at this level and 12%+ yield it is highly attractive.

Genel Energy

DNO has stated that gross production at the Tawke licence in the KRI including the Tawke and Peshkabir fields, is expected to average 100,000 b/d in 2020 with a year end projected rate of 85,000 b/d absent any new wells. ‘The operator believes the reduction in oil production is reversible with a restart of drilling as and when the market recovers.’

Genel has been amongst the best performers in the sector lately, todays 128p being well more than double the 53.1p low mainly due to its low cost production, flexible and strong balance sheet and a management aware that all options, including dividends are open to them. Having visited the region last autumn it is clear that operations are growing, with significant upside even at lower oil prices, for these reasons I remain very comfortable with Genel at these levels.

And finally…

The Last Dance documentary recently aired by Netflix is without doubt the best sporting bio ever, it is must see TV.  It will also one day be a magnificent case study of how to go from heroes to zeroes as Owner Jerry Reinsdorf and General Manager Jerry Krause destroyed a dream team at the drop of a hat.

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.

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