Malcy’s Blog – Oil price, Jadestone, Touchstone, PetroTal & finally

WTI $57.72 +95c, Brent $63.30 +$1.02, Diff -$5.58 +7c, NG $2.69 +4c

By Malcolm Graham-Wood

Oil price

With a little flourish late on Friday the oil price stayed in positive territory on the week, WTI to the tune of 48 cents, Brent by 79c. This means that at a peak since the summer oil companies should be happy with their lot and  investment plans for next year should be in the comfort zone.

Friday’s bullish tone was set by the ebullient Wilbur Ross who thinks that there is a high chance of a deal on trade so markets stayed in positive frames of mind and reached new highs. Indeed, despite a very mixed bag in terms of US production forecasts the rig count fell by another 10 units and major US producers announced substantial cutbacks for next year.

The 10 days or so between the Opec meeting starting on December the 11th and the Trade deal deadline on the 15th are not far away, much can change but with the Aramco float details popping through the inbox this morning ($1.75tn cap) reminded me that whatever needs to be done will be done, period…

Jadestone Energy

The company is to pay $50m to OMV New Zealand to acquire an operating 69% interest in the Maari Project in shallow water offshore New Zealand. A mid-life producing asset with significant reserves upside with JSE hoping to use their own skills to increase recovery factors this looks like a no-brainer to me and opens up a new country for them.

‘An opportunity we foresee to add value without relying on further exploration or appraisal success’ was how CEO Paul Blakeley described it and with it being immediately acretive to shareholder value, in a country which is a natural fit makes it look very sensible. The deal is funded by cash in hand and will involve setting up an office in-country which should be the start of something substantial.

Touchstone Exploration

The company’s Coho-1 well on the Ortoire Block onshore Trinidad has come in with results well ahead of expectations. Production testing of the 64 ft of prospective natural gas pay showed during final flow-back period of a peak rate of 19.8 mmcfd of dry sweet natural gas with a wellhead pressure of c. 2,630 psi on a 32/64″ choke. The average natural gas rate associated with this final period was 17.5 MMCFD (2,917 BOEPD) with an estimated 23% draw down. During the total flow-back test period, 2.1 MMCF of natural gas was recovered as well as 22.5 barrels of water, representing approximately 68% of the total load fluid used during completion operations.

The company shortened the flow-back period due to equipment limitations and environmental considerations such was their confidence. This is a seriously good result for Touchstone who will now shut in the well for an extended pressure build up test. It is also worth noting that this should come onstream during 1H 2020 and that Coho-1 is the smallest prospect on the Ortoire Block.

PetroTal Corp- A growth play par excellence 

I have written about PetroTal a number of times, notably on 4th July after I had met the management again and I have been lucky enough to have met them again several times recently. The company is developing assets in Peru, it has a very strong and experienced management team recently bolstered by the appointment of Douglas Urch as CFO, from the Chairman role and of course first rate CEO Manolo Zúñiga.

The company’s primary, at least for the time being, asset is the Bretaña field (100%) with 16.9m of 1P reserves, 37.5m of 2P reserves and 75.8m of 3P reserves. The company also owns 100% of block 107 in the Ucayali Basin on trend with other large fields and four leads that, combined with Osheki prospect, have an unrisked high estimate of prospective resources of 4.6 billion barrels of oil. There is a farm-out process planned here as the numbers are so substantial with management confident of a partner for the project.

Recent growth has been spectacular with promised production increases keeping up with market expectations. Currently production is between 7,500-8,000 b/d as each well delivers better than expected results and is expected to be 10/- b/d by the year end if not somewhat more.  Indeed, the company has one of the five oil wells shut in and could produce more, something they will surely do with more successful drilling and an increase in processing capacity. Indeed the production facilities due to be installed next month may even give the company up to 12/- b/d with a following wind.

A combination of careful management of cash flow, for example the phased approach of facilities coming onstream, is also seen in the drilling of the wells which are all drilled from one site and the same platform. Here there may be 20 oil producers and 6 water disposal wells, water is not a problem here as it is treated as a natural waterflood’ and from now I suspect all wells will be horizontal with electro submersible pumps. The wells drilled so far, as well as those due in the future, it is becoming more obvious showing that the structure of the reservoir is defined and management feels comfortable with Netherland Sewell’s 2P OOIP estimate of 330 m barrels, and at current prices an operating netback of around $40.

Longer term the story gets better, the production target for end 2020 is 15-20,000 b/d and with the CPF-2 to be installed in ‘late 2020’ provided the wells deliver the goods production should double again next year. Another thing that I’m not sure the market gives the company credit for is the increase in recovery factors, given 12% by Netherland Sewell the well data coming in so far indicates is moving towards 24%, no wonder CEO Manolo said recently that ‘this will be a cash machine for years to come’.

With distribution channels not a  problem to PetroTal, they detail 7 export routes in their presentation, optionality is excellent and come the completion of the Talara refinery in 2020 that gives a 20/- b/d capacity to aim for. Operationally it is obvious that PetroTal is in very good shape as it is financially.

The company has a strong balance sheet and no debt after this year’s raise and a dividend is forecast along with a growing band of E&P companies. As for valuation this has been steeply rising as wells come in better than expected and forecasts delivered, another well scheduled for December may also beat the whisper. Assuming all goes according to plan this gives me a NAV of 40p of which hardly anything is high risk upside, more likely can be regarded as a very fair medium term target price. Adding in the 2P and the 3P gives me a graded 40p between them giving me a fair upside of some 80p per share.

And finally…

A very late blog today for all sorts of reasons but just to say that England have qualified for the Euro’s next summer, good thing as its at Wembley. It is also more than possible that all the other home nations will join them subject to results.

The Brazilian GP was quite amusing yesterday, none more so when the Ferrari’s squared up to each other and both went off, no one likes to see that.

Sarries have decided not to appeal against their fine and points dock, handy that as they appear to have a smoking gun in their hand… The players are apparently considering not playing for their countries in the Six Nations too help the relegation effort

By Malcolm Graham-Wood

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