Malcy’s Blog – Oil price, Predator Oil & Gas & Gulf Marine Solutions

WTI $20.39 +61c, Brent $27.20 +76c, Diff -$6.81 +15c, NG $1.99 +10c

By Malcolm Graham-Wood

Oil price

It’s gone very quiet in crude markets, the rally has been impressive, better judged by Brent which is roughly a 50% bounce from the low than WTI what with the May fiasco that distorted things somewhat. When people look back at charts in years ahead the question will be ‘what happened to WTI then’, the answer will be ETF’s not reading the instructions on the packet. It shouldn’t happen again although, like Banquo’s ghost it will haunt around expiry time for those who had their tails spanked.

For once my gasoline stats aren’t particularly dynamic but in itself that can start to look like a decent indicator. After all the falls, the country-wide gasoline price in the US is now $1.789 per gallon which is marginally up on last week, still down 13.5% m/m and $1.108 y/y. With the USA slowly coming back to life I wouldn’t suggest drivers are likely to do any better, indeed with Memorial Day two weeks on Monday signalling the start of the Driving Season whatever that may mean this year, drivers will probably feel that they will have been cheated out of their cheap gas when they were locked up…

Predator Oil & Gas

Predator is one of the companies that looks most attractive in the oil sector, given current two-fold problems of COVID-19 and the oil price collapse, the company reports finals today looking well set for the future. The loss reported is £1.279m with cash at year end of £0.110m, the company raised £1.5m last year to facilitate the signing of the Guercit P.A.  It is worth listening to the comments of CEO Paul Griffiths with regard to this raise and the need to strike fast in Morocco. ‘The Guercif opportunity could only have been acquired by the Company taking out a Convertible Loan at the time the opportunity became available and before the Rharb Basin drilling programme was successfully completed by another operator and competition for Guercif crystallised. On such difficult business decisions success or failure rests when once in a generation events like COVID-19 strike’.

Since the year-end PRD has signed a rig option with Star Valley Drilling exercised at no cost and has had its EIA which is valid for 5 years ratified by the Ministry for the three locations of the Guercit PA. In Trinidad the company has seen the first injection of CO2 into the Inniss-Trinity field successfully executed and encouraging pressure build up in the injected reservoir recorded. Predator has also since the year end raised £3.56m at 4p via  a placing, has taken measures to ensure that key operational objectives in Trinidad remain achievable even at low commodity prices; corporate costs are minimised; no new onerous liabilities are entered into until financial and equity markets recover; and the current well-capitalised position of the Company is prudently managed.

COVID-19 has had a ‘material impact’ on supply chains, commodity prices and markets and financial performance. Overall in Trinidad the plan is to increase flow rates to their maximum potential, PRD are very confident that the CO2 EOR strategy is working and has the potential to generate positive cash flow at very low oil prices due to the favourable commercial terms negotiated and their fanatical attention to cost-cutting. They are also drill ready in Morocco dependent on COVID-19 restrictions being lifted , working to find a low cost, fast-track solution for early monetisation of a successful gas discovery. In Ireland, progress to offshore LNG regasification is faster than anticipated with their preferred LNG supplier and owner of regasification vessels and they have begun the process of engaging with the Irish regulatory authorities.

CEO Paul Griffiths says ‘the Company is currently well-capitalised to withstand the COVID-19 emergency and to pursue its business growth potential, which now also includes looking at opportunities to lever ourselves into distressed assets where we can add value’. I strongly believe that Predator is uniquely placed to appeal to investors who would like a low carbon, low price oil production business as in Trinidad, like the substantial upside of high margin gas in Morocco with a local market, again low carbon footprint and finally in Ireland which ticks a number of boxes for the longer term. ‘The Company is very well positioned and looking forward to continuing to develop and monetise its potential over the next 12 months’ I couldn’t agree more.

Gulf Marine Solutions

GMS has appeared on the radar screens in recent weeks for a number of reasons. I have watched the company from a distance for a while and was more than happy to have a meeting with Executive Chairman Tim Summers a few weeks ago to update my thoughts.

At the time I was impressed by the operational success which obviously saw almost all the fleet on contract, some on long term deals and that the new management team and senior board appointments was clearly delivering the goods. More importantly, at that time the company was at HoT with the banking syndicate in order to close a transaction which in these market conditions was definitely not trivial.

With the banks ‘holding their nerves’ the deal lays out the shape of banking facilities going forward for GMS and would have been planned for the end of June. Whilst it was clear to me at that time that an equity deal would be necessary to back such financial restructuring in due course it was also clear that the solid shareholder base would be very likely to back such a raise particularly with such operational recovery.

What happened next was unexpected, I had only been looking at GMS for a matter of days before Seafox made a non-binding proposal to the GMS board on 26/4/20. They tabled a possible cash offer for the entire company valued at $0.09 per share. That was followed on 4/5/20 with the usual bidders attack on GMS, blaming COVID-19 for potential  ‘structural adjustment leading to oil price weakness for the foreseeable future’. In a document that seemed to make some heroic assumptions Seafox assumed capex and opex reductions maybe ‘delaying contract awards’ together with ‘possible cancellation or renegotiation of contracts’.

The usual scare tactics are not surprising in M&A nowadays but suggestions that the GMS backlog might fall by over 75% in the next year seemed somewhat drastic and asking why GMS hadnt any published guidance seemed odd in a bid being held under rules that if my memory serves me correctly isn’t allowed. Another feature on this front was the timing, it seemingly being timed to frustrate the banking restructuring, fair enough I suppose.  There is also a threat that without Seafox’s support achieving an equity deal is ‘highly uncertain’ and would be highly dilutive and if failing would ‘severely depress’ returns for GMS’ shareholders. Also a comment that Seafox would not be supportive of any further equity raise by GMS.

With a quick look at the shareholder register showing a number of what might be described as ‘generally friendly’ investors it seems to me that Seafox with its 13.7% has all the work to do on this bid. It is true to say that the new GMS management team have still plenty to do but from what I can see Tim Summers has done pretty well so far and results last week showed them to be in pretty good hands at the moment.

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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