Malcy’s Blog – Oil price, Jersey Oil & Gas & Genel Energy

WTI $26.95 -$1.75, Brent $28.73 -$1.32, Diff -$1.78 +43c, NG $1.73 -9c

By Malcolm Graham-Wood

Oil price

Closes at levels not seen since 2016 last night and today there is no sign of a rally yet. With all out war in oil from the Saudis aimed at Russia having serious collateral damage elsewhere and the virus taking away any potential demand leaves oil in some quandary. Ironically President Trump signed an emergency order to fill the SPR which at present capacity make purchases of some 77m barrels. India too has taken the opportunity to refill its SPR and ultimate of all ironies there is some demand coming from China….

Jersey Oil & Gas

Locked down in Jersey gives Andrew Benitz and team the chance to get stuck into the really hard work on the GBA where, as reported on Monday they are leading the team that will hopefully develop the area. Today’s announcement is, like many at the moment forced as they report on the virus and effects on JOG.

With early stage work well under way on Buchan, the 140m barrels discovered and recoverable as well as 230 mmboe of exploration upside is a prize worth waiting for and the OGA are looking at the whole area and then some for the GBA to be an important hub in due course.

As previously reported JOG is fully funded until end of 2021 with the £12.3m it has in cash, ironically slightly more than its market cap, leaves the company in a very strong position.

Genel Energy

DNO as operator report on licence activity at Tawke this morning where they say that they are completing the $100m Peshkabir -to-Tawke gas capture transport and reinjection project to reduce CO2 emissions at Peshkabir, boost oil recovery at the Tawke field and gas reinjection starts in early April. However, development drilling at the licence has been scaled back, as both DNO and contractor staff movements and rotations have been impacted by border closings, quarantines and other coronavirus travel restrictions.

By the end of March, the number of active drilling rigs deployed on the Tawke licence will drop to one, from four at the beginning of the year. DNO expects to ramp up operations quickly once the external environment improves, in the meantime, production at the Tawke licence in 2020 to date has averaged just over 116,000 bopd. Genel comment that ‘The reduced capital expenditure on the Tawke licence work programme increases Genel’s cash flow generation in 2020 at the prevailing oil price, although will result in a lower exit rate production that impacts 2021. Due to this delayed expenditure, Genel’s 2020 net production guidance of close to Q4 2019 levels of 35,410 bopd is expected to be impacted.’

On the reserves front Genel is upbeat with CEO Bill Higgs commenting ‘Genel’s producing assets are profitable even at an oil price of $30/bbl and this, coupled with our robust balance sheet, supports investment in growth and the payment of a material dividend. The reduction of reserves at Tawke largely relates to production towards the end of the life of the field, and consequently our mid-term production outlook is materially unchanged and there is no reserves impact on our business plan’.

It is important to note that with such low operating costs and still ticking all the ESG boxes with, for example, 7Kg of CO2 being pretty competitive across many peer group companies, more of that tomorrow I would guess with the numbers. The key thing that gives Genel a serious advantage is that it has built a business with a resilience to low oil price model which effectively accelerates the difference between winners and losers.

Genel has today indicated that they will probably reaffirm the dividend tomorrow, because it can, it is not by chance that  at $30 oil it can pay a dividend and break even created by a flexible capital programme that allocates money back to the balance sheet for just such times. In the winners v losers stakes Genel demonstrates growth and growing returns at almost any price, something that the market should take cognisance of.

By 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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