Malcy’s Blog – Oil price, San Leon Energy, Hunting, Serica Energy, Lamprell & finally

WTI ( August) $105.76 -$4.02, Brent (Sept) $114.81 -$1.45, Diff -$9.05 +$2.57*= expiry

Author @mgrahamwood

USNG (August) $5.43 -$1.07*, UKNG 249.75p -0.25p, TTF (August) €147.0 +€3.50

Oil price

It was a peculiar day in the oil market yesterday but no surprise to be honest. A combination of an Opec meeting albeit one nobody thought would surprise, the month and quarter end with its associated window dressing, the expiry of the August Brent contract* and of course the long Independence Day weekend beckoning. Opec stuck to the 648/- b/d number with no indication of what they might do in September and analysis of the EIA inventory stats showed a draw in crude after a high refinery ute number as they prepared for the weekend’s gasoline consumption.

The second * is to take a look at the US natural gas price which fell some 17% as a result of the Freeport LNG shutdown. Not that you didn’t know that already but a combination of the on-site regulators saying that the operation was ‘unsafe’ and utilities taking advantage to buy in much of the contracted gas headed for Freeport to stockpile, as the heatwave over there is creating a great deal of power demand for air conditioning.

San Leon Energy

Further to the Company’s announcement on 3 May 2022, San Leon, the independent oil and gas production, development and exploration company focused on Nigeria, provides the following update in respect of its potential follow-on investment in the Oza oil field in Nigeria.

San Leon’s announcement of 3 May 2022 noted that the Company had an option until 30 June 2022 to provide a further loan of US$2.5 million to Decklar Resources Limited, in order to increase its shareholding in Decklar from 11% to 15% (or otherwise accept the pro rata reduction in its shareholding in Decklar to 11%).

San Leon is in discussions with Decklar in respect of potentially extending the Option Period. The Company will release further announcements as and when appropriate.

This has become a regular feature of this highly complicated transaction and whilst not convenient these extensions have become a necessary part of the process. I remain convinced that patience will be rewarded and the company will make substantial returns to shareholders. 

Hunting

Hunting yesterday issued a pre-close trading update, ahead of its Half Year Results to be issued on Thursday 25 August 2022.
Highlights
 H1 2022 trading has been in line with management expectations, with H2 performance continuing to
indicate a further strengthening in revenue run-rate and a return to bottom-line profitability for the full year. Q3/Q4 2022 EBITDA run-rate likely to increase c.20% from the Q2 result.
 Gross margins across most operating segments increasing as activity levels improve.
 Sales order books reporting strong increases throughout the period. Group position as at 31 May 2022 c.$313m compared to c.$215m as at 31 December 2021.
 Hunting Titan operating segment benefiting from increasing US onshore rig count and has maintained a leading market share within the US during the period.
 North America operating segment reporting good increases to revenue run-rate and profitability,
particularly from Q2 2022 onwards.
 Balance sheet remains strong with total cash and bank of c.$76m as at 17 June 2022, with working capital increasing to align with forward revenue profile. Total liquidity, including cash and availability under the Asset Based Lending facility, now totalling $196m.

Trading Statement

Group EBITDA in H1 2022 is expected to be in the range of $16m-$18m, before any adjusting items. EBITDA in Q2 is likely to report an improvement relative to Q1 2022, following the slow start to the year in January and February due to the impact of COVID-19 on operations. In the period, supply chain issues for electronic components and material delivery for high-nickel content alloys impacted the Advanced Manufacturing group and the Hunting Titan business on a more limited basis. The Q3 and Q4 2022 EBITDA run rate is also likely to improve c.20% from the Q2 result, as trading conditions continue to show signs of increased momentum for the remainder of the year.
Hunting retains a strong balance sheet with net assets of c.$855m as at 31 May 2022 and total cash and bank of c.$76m on 17 June 2022. The reduction in the total cash and bank position reflects working capital outflows related to firm sales orders received, in addition to the 2021 Final Dividend, which was paid in May 2022.
Trading within the Hunting Titan operating segment steadily improved throughout the reporting period as the US onshore rig count increased. The business reports a strengthening in gross margin for the period, as activity levels increase, coupled with price increases implemented on certain product lines, in addition to clients adopting new perforating technologies. Reflecting the stronger onshore market environment, Titan is investing in additional production capacity at its Mexico facility to meet demand across North America. Further, the business has introduced a H-3 perforating system to clients, which includes orienting technology, making for a more efficient well completion procedure.
The North America operating segment continues to report improving results, with material increases being reported in the sales order books for the Premium Connections, US Manufacturing and Subsea business units and the Advanced Manufacturing group. Of note is the increase in non-oil and gas orders within the Hunting Dearborn business, which reports that c.85% of its forward orders relate to aviation, defence and space related sales. The Subsea Spring business unit reported a strong run in new orders for its titanium and steel stress joints, and during the period was awarded an order to support the Yellowtail offshore project in Guyana.
Hunting’s EMEA operating segment reports stronger activity levels supported by a key OCTG contract for South America, which will see the Group’s Netherlands facility at full capacity for the remainder of the year. In addition, the segment’s well testing business unit reports a strong order book, supported by clients in the Middle East. The Organic Oil Recovery technology saw good traction with potential customers in the period, with a number of sales orders being received for either full field treatments or new pilot tests.
The Group’s Asia Pacific operating segment has reported challenging market conditions for the majority of H1 2022, as the recurring impact of COVID-19 led to supply chain volatility in China, which impacted shipping.
Following the partial reopening of the port in Shanghai in May 2022, activity levels should increase during H2 2022, which will lead to stronger trading results. Progress within the joint venture with Jindal SAW in India continued during the period, with the start-up date for the new threading facility remaining on track for H1 2023.
During the period, the Group’s Singapore facilities were consolidated into a single operating site in the Tuas port region, which will further improve operational efficiencies.

Jim Johnson, Chief Executive of Hunting, commented:

“Results in May 2022 confirm the Group’s return to bottom-line profitability, with further improvements anticipated during the remainder of the year. Clients continue to steadily increase drill spend, supported by the strong commodity price environment, indicating a further improvement in trading momentum in H2 2022, despite the macro-economic and supply chain constraints seen for certain components.
“Our strong liquidity position also provides optionality to pursue new growth opportunities in both our traditional and non-oil and gas markets. Hunting’s core competencies are increasingly being utilised in new markets, led by our Advanced Manufacturing group.
“As previously indicated, the Group’s financial performance continued to strengthen during H1 2022, which is reflected in our sales order books and improving segmental performance. Gross margins across most operating segments also continue to improve as activity levels increase. While Hunting is seeing inflationary pressures on some raw material costs, the Company implemented price increases within a number of product lines, along with pass through costs on an order-by-order basis.
“With energy security and consumer pricing for fuel now at the top of most political agendas, the outlook for the global oil and gas industry is now extremely positive, with many commentators forecasting a strong multiyear upcycle. Given Hunting’s unique service offering in facilitating onshore and offshore activity, the Company remains well placed to benefit from this outlook.”

This is a highly confident statement and Hunting is clearly in very good shape going forward. It is therefore a shame that the shares fell after the comments at the start of the trading statement indicated that after the early part of the year was mixed.

 A rogue number or two by analysts had held consensus up which were trimmed yesterday but ironically with such a good second half expected those numbers will be justified, some more rigorous expectation management probably needs to be done.  After a consensus reset Hunting is moving into the second half humming with a tail wind and after the fall yesterday the shares are fantastic value.

Serica Energy

Serica yesterday announced  presentations by both the Chairman, Tony Craven Walker, and the Chief Executive, Mitch Flegg.  Copies of the presentations are available on the Company website www.serica-energy.com under Investors/Presentations.

The presentations highlight the following points:

  • 2022 production guidance remains unchanged at 26,000 – 30,000 boe/d net to Serica
  • Cash and deposits stood at £246 million on 31 May 2022 with a further £150 million lodged as security – combined total: £396 million
  • In view of continuing strong profitability and cash generation during 1H 2022, it is planned to commence the payment of interim dividends. The level will be announced with the Interim results in September and is currently expected to be 6p per share to reflect the strength of Serica’s year-to-date performance whilst leaving scope for a material final dividend
  • The UK Government’s new Energy Profits Levy (“EPL”) introduces a 25% levy on profits arising on or after 26 May 2022. Serica’s profit prior to that date is unaffected. Legislation will include a sunset clause effective at the end of December 2025 should the Levy not be retired earlier
  • The EPL introduces significant investment incentives designed to encourage the reinvestment of profits such that each £1 invested by Serica can lead to an overall tax saving of up to 91.25 pence
  • Tony Craven Walker, currently Executive Chairman, becomes Non-Executive Chairman from 1 July

Chairman, Tony Craven Walker, commented:

“In the light of the Russian invasion of Ukraine, the need to maintain offshore supplies of domestic oil and gas to complement a build-up of new technologies and investment in renewables is of strategic importance to the UK. Given that, a stable and supportive fiscal environment that provides encouragement for British companies such as Serica with the proven expertise and capability to play a leading part in delivering those supplies is more important than ever.  It is therefore unfortunate that the sudden and arbitrary imposition of the EPL will undermine this stability when it is most needed, not least given the highly volatile swings we have seen recently in the gas market which further complicate planning processes.

Notwithstanding this, our growing cash balance with no current borrowings places us in a strong position to re-invest for future growth. We have the strength to achieve that whilst also having a progressive dividend policy.  It is the Board’s intention therefore to introduce an interim dividend at the level of 6p/share at the time of the Interim results in September to complement the final dividend which would follow the publication of the Company’s full year accounts”.

Mitch Flegg, Chief Executive, commented:

“I am pleased that Serica has continued to make good progress with strong results. Our established strategy of investing in our portfolio to enhance production and create greater value means that Serica is able to take near-term advantage of the investment incentives included within the EPL which are designed to encourage companies to continue to reinvest profits. Our 2022 Capital Expenditure programme will qualify to benefit from these incentives and we shall be looking to extend this programme. Serica has a strong balance sheet with significant cash, no borrowings and is a current taxpayer which gives us the leverage and resources to do so.

We are in the process of identifying and accelerating capital investment programmes for subsequent years to increase production and add reserves whilst reducing carbon emissions. Whilst we shall continue to lobby for an early termination of the EPL I believe Serica remains very well positioned to continue to deliver on its strategy and build value for its shareholders.”

Two very confident AGM statements that endorse the view that Serica is amongst the best companies in the sector with absolutely top quality management. Unchanged guidance, cash with lodged cash of £396m at the end of May and with news of an interim dividend of 6p come September. At these prices SQZ is a gift…

Lamprell

Request for temporary suspension of listing of Ordinary Shares pending finalisation of results for the year ended 31 December 2021

Further to the announcement on 24 June 2022, the Company has concluded that the additional time that it needed to finalise its audited financial statements for the year ended 31 December 2021  means that it was not be possible for the Company to publish the FY21 Results by 30 June 2022. 

As 30 June 2022 was the last date permitted for publication of the FY21 Results under the Financial Conduct Authority’s  Disclosure Guidance and Transparency Rules and the FCA’s Listing Rules, following consultation with the FCA, the Company requested that the listing of the Company’s ordinary shares of 5 pence each be temporarily suspended. Temporary suspension took effect from 7.30 a.m. on 1 July 2022.

The Company intends to request a restoration of the listing of its Ordinary Shares on publication of the FY21 Results. The Group continues to work closely with its auditors to ensure that the FY21 Results are published as soon as possible. This is expected to be before the end of Q3 2022.

Swiftly followed by this statement

Response to speculation on Lamprell PLC 

In response to recent rumour and speculation, Sami Al Angari, who is the beneficial owner of c.19.19% of the issued share capital of Lamprell, confirms that he and Al Gihaz Holding Company, of which he is the CEO, are in the very early stages of evaluating a possible transaction that may involve an offer to acquire the issued and to be issued share capital of Lamprell, alongside a financing package to support the repayment of Lamprell’s existing debt facilities and other working capital requirements.

As of today, no approach or discussions have taken place with the Board of Lamprell regarding a potential offer for the Company. A further announcement will be made as and when appropriate.

This announcement does not amount to a firm intention to make an offer under Rule 2.7 of the Code and there can be no certainty that any offer for Lamprell will be made.

This announcement has been made without the consent of Lamprell.

I repeat my comments from earlier, what a mess, heads should roll. 

And finally…

This is probably one of the most exciting weekends of sport on the calendar so here goes…

Cricket fans will be all eyes on the one-off test match against India at Edgbaston, carried over from last year as sickness gave the Indians Brummie tummy…England won the toss this morning and inserted India who are 53-2 when rain stopped play.

If rugby is your game then tomorrow you don’t want to be far away from the Sky remote control. The All Blacks start the day at 8.05 am against Ireland which should be a belter. Next up is Australia hosting Eddie Jones’ England which kicks off at 10.55 am. After a few tinnies and a snooze Welsh fans will be ready for their game against South Africa at 4.05pm and if you are still up at 8.10 pm you are Scottish and ready to watch your boys against the Pumas. Phew!

For racing fans it is the Coral Eclipse stakes which is notable for in the old days when it was the first time the 3 and 4 year old horses met. Now it is notable as John Gosden has jocked off Frankie from Lord North after his Ascot debacle.

Next up is Wimbledon, normally only on the Saturday of the middle week to allow the players to rest but now available to watch on Sunday to reach  ‘broader and more diverse audiences’ or to you and me, make shed loads more money for the All England Club…

And in the absence of anything else Sunday would be kept clear for the F1 British Grand Prix at Silverstone where like Edgbaston it’s raining in first practice.

And I don’t normally mention the Tour de (Drugs) France due to its historic problems but I do know that it has many followers amongst my mates and others. It starts today in Copenhagen, yup Wonderful, Wonderful Copenhagen, not in France…

And of course to all the Shermans out there you have a wonderful Independence Day weekend.

The opinions expressed here are those of the author

Author @mgrahamwood

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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