WTI $18.84 +$3.78, Brent $25.27 +$2.73, Diff -$6.43 -$1.05 +8c, NG $1.95 +8c
By Malcolm Graham-Wood
That was indeed the month that was, to tenuously keep my thread moving. Although we won’t know until Monday, after the June Brent contract has rolled over, whatever the final numbers it will have been proven to be one of the most amazing months in my 488 in the sector. The fiasco of the May WTI expiry will live with many for a long time as warnings from people like me about ETF’s came home to roost.
Opec+ production cuts officially come into place today and whilst some nations such as Kuwait have already committed it may take some time for the excess on the high seas to be absorbed by the market, but be absorbed they will, it’s just a matter of time. Also today marks the start of the Chinese May 1-5 holiday, much more interesting this year as having put the virus behind them they can enjoy the travel, holidays and shopping with the lowered virus response level behind them. With no inbound quarantine rules and the Forgotten City being reopened again will it be an orgy of hedonism ahead?
A financial and operational update from SAVE this morning and they announce that FY cash collections from their Nigeria assets were $168.8m and from the beginning of their ownership to date in 2020 $96m. They are already seeing significant deleveraging with $40m of the restructured debt paid down by 31/3/20. AIIM acquired a 20% interest in SUGL and Accugas in return for $54m in cash giving an implied combined valuation of $270m of those assets, most impressive.
Average daily gross production increased by 25% during SAVE’s ownership to 19.6 koepd (15.7) which includes a 34% increase in Uquo gas production from 77 MMscfd to 103.8 MMscfd with a peak daily rate of 164 MMscfd. They have also announced a new GSA, the first in five years, with FIPL for their Afam power plant, in addition successful transfers of operatorship of both the Uquo Central Processing Facility and the FUN Manifold crude gathering station, from Frontier Oil Limited to Savannah.
As previously announced and based on the CPR prepared by CGG and published on 11 December 2019, net asset-level free cash flow generation, on a maintenance adjusted take-or-pay basis, by the Nigerian Assets, assessed to be an average of c.$130m p.a. 2020–2023.
In Niger the company issue an updated CPR for those assets by CGG, they give 35 MMstb of gross 2C resources for R3 East discoveries with an additional 90 MMstb of gross unrisked prospective, in best case, with tie-in distance of R3 East facilities. In the CGG report, a subset of 11 prospects and leads from the extensive exploration portfolio comprising 146 prospects and leads are given unrisked prospective best case of 360 MMstb.
Savannah plans to deliver the development of the R3 East and continue to progress with the installation of the EPS within 12 months, market conditions and finance permitting. The R4 area previously relinquished will now be combined with units R1/R2 PSC area the thus retaining the full acreage position previously covered by the R1/R2 PSC and the R3/R4 PSC.
Andrew Knott, CEO is clearly pleased, ‘In Nigeria, we are responsible for the provision of gas supplies to providers of over 10% of the country’s current power generation capacity, a responsibility we take very seriously . In this time of global uncertainty, it has been widely reported in the local press that many companies have struggled to supply gas-for-power in recent months, which has led to significant power outages in country. In stark contrast Savannah … has increased our gas production levels by 34% since completing the acquisition of the Nigerian Assets. We continue to expect to increase production levels further during the course of this year as we add new customers, such as FIPL who we announced earlier this year.’ Overall this is exceptional progress by Savannah and give significant optimism for the future.
A Bina Bawi update from Genel this morning in which they say that they have received ‘extensive documentation’ in Mid April from the KRG following the commercial understanding reached in September 2019. Obviously it needs further negotiation but keeps separately the Jurassic oil development and the deeper Triassic natural gas development with the oil being on the standard terms of the KRI. In the meantime the KRG will not exercise notice of intention to terminate the Bina Bawi PSC.
iog announces today that the OGA has approved the Core Project Phase 1 FDP, a major milestone for the company and partner CalEnergy. The next steps are full contract awards for Phase 1 workstreams -underway since FID- including platform fabricators, pipe-lay, subsea work and well management. Interestingly none of these are affected by the ‘ongoing industry and macroeconomic turbulence’.
The construction activities for two platforms are expected to deliver Southwark and Blythe in 1H 2021 followed by the offshore pipe-lay campaign in H2. The competitive rig tender for the Phase 1 drilling programme is ‘progressing well’ supported by the company’s well management contractor as well completion and design work.
Along with all this, detailed engineering and planning continues on the refurb of the Thames Reception facilities at Bacton with work starting Q2 2020 along with further seismic reprocessing of Vulcan satellites, Goddard and Abbeydale. There is a lot of work going on at iog and todays news means that the substantial team that has been set up will all now have eyes on a very serious prize.
CEO Andrew Hockey was today clearly very pleased to receive this ‘milestone approval’ for a core UK gas project. This is an innovative, low carbon project, re-using previously decommissioned infrastructure to develop otherwise stranded domestic gas. As I see it, in the world of trying to use local, low carbon power with a hub system that can add more low cost production it is hard to beat.
An operational update from IGas this morning, the company considers it prudent, with Brent at $25 per barrel and gas prices at 15p per therm to temporarily shut-in a number of sites during May and June 2020. This reduces production by c. 600 boepd and the company has 50,000 bbls hedged at $53 in May and June representing 90% of expected production.
The flexibility to temporarily shut-in and ability to rapidly restore production once energy prices improve is proof of a well run company and management is prepared to make these decisions when appropriate. This gets even better when by doing so it has an immediate positive impact on cashflow, a smart move this morning by IGas.
With so many results and conference calls in the last two days there are a few companies yet to cover, also I am launching a new offer with Andrew Pancholi of Cycles Analysis next week so if you have missed a favourite company look out on Monday, if I tried to fit in today it wouldn’t be out until tomorrow!
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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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