WTI $67.42 -94c, Brent $71.07 -$1.18, Diff -$3.65 -24c, NG $4.18 +29c, UKNG 117.0p +5.01p
Whilst oil fell away a bit yesterday as Mexico announced that some 200/- of the lost oil production had returned, today it has rallied and is still up on the week. On the subject of Mexico worries, are that Tropical Storm IDA is approaching the coast and thought to be about to be raised to a Cat 3 hurricane, some oil installations in the Gulf are already battening down the hatches.
This afternoon the virtual Jackson Hole symposium is expected to talk taper with some Fed members already talking about October as a time to start the process. Think about the money injections, I quote Marcus Ashworth, economics and bond guru at Bloomberg who says ‘First, the U.S. House of Representatives backed President Joe Biden’s $3.5 trillion budget resolution, moving it an important step toward passage. It includes $550 billion to spend on infrastructure. Secondly, the Peoples Bank of China just signalled it is going to pump credit into the world’s second largest economy. A trillion here, a trillion there and pretty soon you are talking serious money funnelled into the world economy.
No company announcements today but yesterday I was in town at back to back company meetings so I’m catching up this morning.
An update from PetroTal Corp as it announced its financial and operating results for the six and three months ended June 30, 2021. PTAL outperformed Q2 2021 production guidance by 2% and Q1 2021 production by 21%, delivering 8,839 bopd under constrained production conditions, as previously described in the Company’s July 20, 2021 RNS.
As expected, the company generated a significant increase in revenue of $42.8 million ($53.20/bbl) in Q2 2021 versus $32.4 million ($41.91/bbl) in Q1 2021 and achieved record netback and net operating income in Q2 2021 of $36.88/bbl and $29.7 million, respectively.
Operating and direct transportation costs in Q2 2021 were $10.8 million ($13.45/bbl) as compared to $10.6 million ($13.78/bbl) in Q1 2021, PTAL generated free cash flow, before leverage and working capital adjustments, in Q2 2021 of $2.4 million and in H1 2021 of $11.5 million, a record for the Company.
They have established a strong liquidity position, building total cash quarter over quarter to over $79.5 million as at June 30, 2021 up 5% from March 31, 2021, of which $25.4 million of total cash is restricted. Net income of $11.4 million for the quarter, demonstrating an efficient operating cost structure, attractive capital base, and supportive fiscal terms. This means that all Q2 2021 bond covenants met with substantial headroom. The Company exited Q2 2021 with a 0.41x leverage ratio which included $40.6 million of net debt calculated per the bond indenture.
The continued move to de-risk commodity price exposure brings the total corporate hedge percentage to 44% for the remaining four months of 2021 forecast production, protecting prices of $60/bbl Brent an important and significant improvement in finances.
The necessary modifications to the water disposal system are ongoing. The field can now actively dispose of approximately 80,000 barrels of water per day and 100,000 bwpd when the modifications are completed in September. In addition, they achieved payback on well 7D, approximately 2.5 months post completion another excellent achievement.
Current constrained production is 8,513 bopd (last seven-day average to August 20, 2021). Unrestrained production is expected to be restored in September so revised H2 2021 production guidance as a result of a rescheduled and deferred drilling program stemming initially from the COVID-19 protocol’s impact and from the water disposal well drilling delays.
The 2021 average production range is now guided at 10,000 to 11,000 bopd (from 11,000 – 12,000 bopd). Exit December 2021 production has been slightly revised down to 17,000 – 18,000 bopd (from 18,000 – 19,000 bopd), as the impact of the BN-10H well won’t be incorporated until early next year. Also they successfully drilled BN-8H subsequent to the quarter end which is now being completed, and expected to be on time and under budget.
As a result of this, updated 2021 EBITDA guidance is between $140 – $145 million for 2021, up materially from the original 2021 $90 million budget and making me very happy with my valuation which continues to make the stock look incredibly cheap at current levels. Given the scope for upside and the value created now that export routes are variable I’m very happy with my 50p target price from earlier in the year, if anything despite short term operational matters that looks a touch parsimonious.
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented
“We are pleased to share our strong second quarter results which demonstrate continued operational success and resilience in the face of challenges. Our Q2 2021 results were strong, contributing to record net operating income, netbacks, and free cash flow in Q2 2021 and H1 2021 which we anticipate will continue in H2 2021. Despite the water disposal bottlenecks and drilling delays we slightly outperformed production guidance in Q2 2021. With the booster pump issue now fixed and new pipeline infrastructure being put in place we will be able to utilize full water disposal capacity. Wells BN-8H and 9H, on production in H2 2021, are anticipated to lift PetroTal’s production to record levels. We are also again reminded that our battle with COVID-19 is not to be underestimated, as we experienced some CFP-2 installation delays which, fortunately should not impact the Company’s ability to bring on new oil production in H2 2021. The Company continues to allocate appropriate capital to fighting the COVID-19 pandemic and make health and safety a top priority for all our employees and contractors.”
1H interims from IOG yesterday but I’m sure no one will be looking backwards at them, much more importantly there has been plenty of hard work from the IOG team and solid progress has been made towards first gas which is still on for the next quarter.
Boxes ticked include that the platforms are in, Elgood has been drilled and Blythe is underway. A Gas sales agreement has been signed with Gazprom for the first two years of Elgood and Southwark production, plus Nailsworth and Elland, after a competitive offtake process. More importantly as I have been reporting for some months now the European gas price is more than healthy, the market is still in well over £1/therm territory – more than double what might have been expected for this winter and also extremely strong longer term.
Andrew Hockey, CEO of IOG, said:
“Over 2021 to date we have delivered a series of key Phase 1 progress milestones on the path to First Gas in Q4. To reach this target two years after FID amid a prolonged global pandemic will be a fantastic achievement by the IOG team. I would like to thank my team for their continued hard work and dedication in delivering on our ambition to be a safe, efficient, low-carbon developer and producer of high-value gas, whilst also recognising the support and collaboration of our Joint Venture partner CER, contractors and regulators.
Having installed the Blythe and Southwark platforms and successfully tested the Elgood well at 57.8 mmscf/d gas and 959 bbl/d condensate, the Blythe development well is now progressing to plan, with Southwark to follow. Beyond Phase 1, we are working up the excellent potential to expand our Saturn Banks Pipeline System with further high-return gas hubs. Alongside this, we were very pleased to confirm our very low emissions operating model and commitment to Scope 1 and 2 Net Zero from 2021.”
IOG is in very good nick and is moving towards first gas with everything going well operationally. If all carries on with the gas price then revenues will be well in excess of forecasts and the IOG share price should rise significantly.
Helium One Global
HE1 has completed its current drilling campaign which in itself is somewhat unexpected as at the start it was described as a ‘Three well exploration programme targeting shallow trap structures to a maximum depth of 1200m’. It goes straight to Phase 2 and has £10m with which to play the drilling probably sooner rather than later given the rainy season in November.
Yesterday it announced that ‘Tai-2, which was completed without identifying helium gas, has provided valuable information on shallow trapping potential. The well targeted continuation of a 2.2% helium show identified in a sandstone interval at 70.5m in Tai-1: A high-grade gas show which potentially indicates free gas in the subsurface. Wireline logging of Tai-2 demonstrated continuous clay over this interval, suggesting that the reservoir in Tai-1 pinched out against clay, which provides both vertical and lateral seal’.
Ian Stalker, Non-Executive Chairman, commented:
“Work undertaken so far in 2021 has significantly de-risked the Rukwa Basin by demonstrating a working helium system. Helium One maintains 100% ownership of licences at Rukwa covering approximately 3,500km2 in what must now be considered the world’s premier basin for helium exploration.
“With our maiden exploration campaign clearly demonstrating prospectivity at multiple levels across the basin, the Company can now move rapidly to develop a Phase 2 exploration programme that offers value for money. Using various geophysical techniques, we can quickly and cheaply advance both ‘Shallow’ and ‘Deep’ target types to de-risk our ability] to make a commercial discovery with Phase 2 drilling.
“The Company is well financed to deliver Phase 2 with a focus maintained on cost-effective exploration as we develop Rukwa towards discovery.”
David Minchin, Chief Executive Officer, commented:
“We are excited by the results of the 2021 exploration drilling campaign which, although stopping short of flowing gas to surface, has produced significant information enabling Helium One to define a two-track exploration route to develop Rukwa towards discovery.
“Results from Tai-1 have shown a prolific basin with helium shows identified at multiple levels from near surface to basement. Tai-2 has verified the potential for development of newly identified ‘Shallow’ traps within the Lake Bed Formation, which has the capacity to open a pathway to low cost exploration and development of near surface gas deposits.
“The identification of a 130m thick sealing unit at the top of the Karoo Formation, and presence of untested helium shows within Karoo reservoir, demonstrates potential for ‘Deep’ structural traps within the Karoo Formation. The Top Karoo seal is predicted to be best developed away from the basin margin, encouraging us to focus exploration efforts on improving resolution over already identified Falcon Gravity Gradiometry targets to the north of Tai and Itumbula structures.
I was at the Hunting presentation yesterday and it was a great pleasure to be face to face with the senior management, the CEO came over from Houston which was really appreciated and somewhat more than those track suit soldiers of analysts who felt the need to stay at home. Always up for a nice trip but a journey from Woking or Sevenoaks is too much like hard work…
Interims were in line with market expectations and showed a good picture of the oilfield service industry, in the US with the oil price back at $70 things are to a large extent back to normal but few E&P companies are putting their heads above the parapet. Caution is the watchword but you can rely on DUC’s for so long and confidence is strong enough that Titan and some others are putting up prices, Hunting has telegraphed theirs from 1st September.
Revenue was $244.4m (H2 2020 – $248.3m; H1 2020 – $377.7m) and the Group reports an EBITDA loss of $3.6m for the six months to 30 June 2021, with an EBITDA loss reported in Q1 2021 followed by a small profit in Q2 2021 as trading conditions improved within the US onshore market.
Total cash and bank reported at 30 June 2021 of $105.7m (31 December 2020 – $101.7m) as Hunting’s legendary capital spend discipline remains in place and confidence going forward is shown in the interim dividend of 4.0 cents per share declared in respect of H1 2021 (H1 2020 – 2.0 cents per share). This absorbs cash of approximately $6.5m (H1 2020 – $3.3m), payable to shareholders on 29 October 2021, with a record date of 8 October 2021.
Commenting on the results and outlook, Jim Johnson, Chief Executive, said:
“The Group’s results reported today reflect a similar performance when compared to H2 2020 as the global oil and gas industry slowly emerges from the impact of the COVID-19 pandemic. The market recovery in the US, while slower than anticipated, shows clear signs of growth, which is projected to accelerate as more global economies reopen and travel increases. The recovery within international markets, while still projected to grow in H2 2021 and into 2022, continues to be hampered by spiking COVID-19 infection rates, leading to ongoing caution within our client base.
“Hunting has delivered on a number of strategic objectives in the period alongside our continuing drive for greater operating efficiency. These objectives include our new business investments in Well Data Labs and Cumberland Additive, which will assist the Group in diversifying our core competencies while increasing our overall technical offering to our clients. Management is further encouraged by the outlook for 2022, which is supported by a strengthening order book, as clients plan for new projects and robust commodity prices.
“The Group continues to retain strong capital discipline across all areas of the business, which will see our balance sheet and cash and bank position remaining strong. However, given the overall trading seen in the current quarter and likely EBITDA run rate for the balance of the year, management now anticipates the 2021 full year EBITDA outturn to be c.$10m lower than the 2020 result, given the slower-than-anticipated recovery within our core energy markets.”
I remain confident about Hunting and the industry, indeed the ADR listing is in my view a positive thing as the company need more US shareholders, and analyst coverage, and have the confidence to outperform a more domestic peer group. This won’t worry the UK shareholder base in any way but technically will improve its marketability.
As the US leads the way for Hunting’s natural feeding ground so will the rest of the world return in due course, Asia went more slowly into the downturn but should, along with the Middle East be picking up before long. Jim Johnson and his top quality management and operational team are amongst the best in the industry, I expect Hunting to be leading the way out of the recession with its tight cost structure, strong balance sheet and best in class margins which will increase as prices start to pick up.
Echo has confirmed that following installation of the pipeline required to bring back online the liquids production which was shut in April 2020, the infrastructure has now been successfully commissioned for operation and shut-in wells are being brought online. This follows an upgrade of the electrical infrastructure, which was designed to support the first tranche of production from the Campo Molino and Chorillos oil fields to provide sufficient power to support sustained production from the associated ten wells. These upgrades are also part of the Company’s strategy to control critical infrastructure previously rented from contractors.
To date, the Campo Molino oil field has been brought back online with four of the shut-in wells now back in operation and producing from the Springhill reservoir. This first tranche of restored production will increase the number of active producing oil wells at Santa Cruz Sur to 18.
As of 23 August 2021, the recently reactivated wells have contributed to an almost 50% increase in total liquids production at Santa Cruz Sur compared to the period immediately prior to this (281 bopd gross, 197 bopd net to Echo – during the period 1 -17 August 2021). This represents an increase of 137 bopd gross, 95 bopd net to Echo and work continues to bring the remainder of the first tranche of shut-in production back online.
The production levels from the initial reactivated wells indicate that the shut-in period has not had a detrimental impact on reservoir behaviour in the Campo Molino oil field. Prior to shut-in, the combined gross production from the ten oil wells was approximately 138 bopd gross, 96 bopd net to Echo, approximately the same level now being achieved from the initial four wells, with the associated upgraded infrastructure.
Daily operations across the asset base in Santa Cruz Sur continue with the delivery of produced gas to industrial customers under contract with premium winter pricing being achieved. Production over the period from 1 January 2021 to 23 August 2021 reached an aggregate of 381,243 boe net to Echo, which included 48,211 bbls of oil and condensate and 1,998 mmscf of gas.
Martin Hull, Chief Executive Officer of Echo Energy, commented:
“During Q3 2021 we have continued to make significant operational progress and deliver against our objectives. Successfully increasing our liquids production is an important milestone. There remain further production upsides as we continue through the programme of reopening previously shut-in wells. Increased production combined with the continuing marked upswing in global commodity prices materially increases our cashflows enabling reinvestment to further drive growth. The ongoing production increases have been achieved while maintaining our careful cost management in order to maximise value for shareholders.”
Team GB now have 9 golds in Tokyo and are 2nd in the medal table.
In the cricket England finished with 432 but are finding it much more difficult to take wickets the second time around, as I write they are 102-1.
It’s back to F1 this weekend with Spa in Belgium on the calendar, Max was fastest in Friday practice before crashing the motor.
Racing this weekend is the former Waterford Crystal Mile (Tote) at Goodwood and at Headquarters.
In the Premiership tomorrow sees a couple of big name games, first up at lunchtime is the Gooners visiting the Noisy Neighbours and last is Liverpool v Chelski which is 3rd v 2nd in the table. Also tomorrow sees Villa hosting the Bees, the Seagulls entertain the Toffees, the Saints go to the Magpies, a bit one-sided is the Canaries v the Foxes… and Premiership leaders the happy Hammers host the Eagles. Sunday sees Leeds visiting Burnley, Spurs entertaining the Hornets and Wolves hosting the Red Devils.
With Ronaldo apparently talking to Pep after deciding to leave Juve apparently Sir Alex has stepped in and now the Portuguese maestro is to be seen at Old Trafford…
Enjoy your Bank Holiday weekend although for some oilfield service company analysts it’s a Bank Holiday every day at the moment…YKWYA
The opinions expressed here are those of the author
Malcolm Graham-WoodRead More
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 blog
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