Malcy’s Blog – Oil price, Sound Energy, Kistos, Hurricane Energy, EDR & finally

WTI $92.07 -$3.39, Brent $93.26 -$3.20, Diff -$1.21 +19c, NG $4.31 +11c, UKNG 156.93p -29.07p

By Malcolm Graham-Wood

Oil price

The oil price fell three bucks on the news yesterday that Russian troops were withdrawing from The Ukraine pretty much as estimated it would. Today it is up a dollar fifty as NATO say that the troops left but the kit is still there…

After hours the API inventory stats showed more draws in both crude and products, lets see what the EIA numbers are this afternoon.

Sound Energy

Sound has announced the issue to Italfluid Geoenergy S.r.l. (the ‘Contractor”) of “Notice to Proceed” in respect of the project contract  for the Tendrara Concession mLNG Facilities Onshore, Kingdom of Morocco, between the Group and the Contractor (the “Project Contract”).

The Notice to Proceed has been issued to the Contractor by Sound Energy’s wholly owned subsidiary, Sound Energy Morocco East Limited  and, following an initial payment of US$5 million (on behalf of the Tendrara Concession JV) to the Contractor (the “Initial Payment”), will oblige the Contractor to execute the works set out in accordance with the Project Contract for the provision of a gas processing and liquification facility in relation to the Phase 1 development of the Tendrara Concession.

Following the issue of the Notice to Proceed, the Company has also notified Afriquia Gaz S.A. (“Afriquia”) that pursuant to the Loan Note Subscription Agreement (“LNSA”) entered into between the Company and Afriquia on 29 December 2021, all necessary undertakings and agreements have been completed and that the Project Contract is now in full force and effect. As a result, the LNSA is now in full force and effect and the Group intends to immediately draw down a proportion of the funds available under the LNSA to meet the Initial Payment.

Graham Lyon, Sound Energy’s Executive Chairman, commented:

“We are delighted to have issued the Notice to Proceed to Italfluid and to have satisfied all conditions to give effectiveness to both the Project Contract and LNSA, which means that following receipt of the Initial Payment by Italfluid, the execution phase of our fully funded Phase 1 micro LNG development of the Tendrara Concession will be underway. This is a key milestone for the Company and we look forward to working with our strategic partners, Italfluid and Afriquia Gaz, together with our joint venture partner, ONHYM, in developing the project and delivering gas to the Moroccan market in around 2 years.”

This is incredibly good news from Sound and a real credit to Executive Chairman Graham Lyon, COO Mohammed Seghiri and team, who would have thought that Tendrara would come to fruition and in such good time. It is also good news for Morocco which should not be taken for granted as they are gas short and this will be seen as a pathway for energy transition and along with other UK companies Sound are increasingly respected by ONHYM.  

Sound shares should now shed the baggage and with an exciting future in front of them in a  number of areas and could see significant growth that has only just started at around 2p. Plenty more to come from Sound now that this project has finally, and profitably got under way. 

Kistos

Following a number of comments from both institutional and retail shareholders, Kistos seeks to provide further clarification on the RNS released at 7.00am on Tuesday 15th February 2022.

·    Kistos’ Remuneration Committee has taken independent advice from PWC on the intention to establish a VCP and the potential terms.

·    Since the start of the proposed VCP measurement period on 21st May 2021, Kistos substantively has been in a closed period due to:

The  drilling campaign that commenced in July 2021 and concluded earlier this month.

Interim results, which were released on 14th September 2021.

Negotiations relating to  the acquisition of a 20% interest in the Greater Laggan Area from Total Energies as announced on 31st January 2022.

·    No awards under any share linked plan can be made during a closed period.

·    While there is an intention to establish a VCP, no grants have been made to date and the Company and its advisers continue to discuss the terms of potential awards with major investors.

·    It is the Company’s intention to purchase shares in the market where possible to satisfy awards when they vest and to minimise any dilution arising from the plan.

Any questions or feedback from shareholders should be sent to [email protected] (Andrew tells me he will reply to all, sorry mate!)

Yesterday I wrote a flash blog as I was in town in meetings and to be honest I saw nothing that merited any outcry from shareholders and didnt include Kistos in the note. There was no mention of the closed period which goes a long way to explaining why this hadn’t been done before and thus came somewhat out of the blue.

In addition, as Andrew Austin said in a recent interview with me (below) he was only just getting the team from Rockrose back together. As I understand it the plan is weighted towards being proportionate with salary to add to fairness for other senior executives who have joined since the start. 

In addition to the point about what I would call skin in the game Andrew Austen has announced that yesterday he bought 150,000 shares at 327p worth some £491/- and takes his stake to 17.25% of the company. This should give some comfort to those who have been suggesting that the VCP is to benefit himself specifically. Indeed, with this purchase he has 14.3m shares worth some £50m, and at the vesting price of 484p would become some £70m, I would suspect that as was the case before his sights are set somewhat higher than this. 

The shares have fallen about a pound recently reflecting some concerns people not accustomed to AA vehicles but in my view way off the mark. The recent acquisition is in my view a lot better than the market thinks and is massively cash generating and no way in the price. Those who have seen what has been done before should do what the CEO has done and get the cheque book out, the upside from here is going to be substantial. 

Core Finance CEO Interview: Andrew Austin, Kistos Plc

Hurricane Energy

Hurricane Energy plc, the UK based oil and gas company, provides an update on Lancaster field operations and net free cash balances as of 31 January 2022.

Lancaster Field Operations Update

The following table details production volumes, water cut and minimum flowing bottom hole pressure for the 205/21a-6 (“P6”) well during January 2022.

January 2022 Lancaster Field Data

P6

P7z(1)

Oil produced during the month (Mbbls)

299

Average oil rate (bopd)

9,639

Water produced during the month (Mbbls)

196

Average water cut(2)

40%

Well gauge pressure (psia)(3)

1,595

1.       The 205/21a-7z (“P7z”) well was not on production during January 2022

2.       Expressed as total water produced divided by total fluid (oil and water) production

3.       Pressure reported is the monthly minimum from well downhole gauge

As of 14 February 2022, Lancaster was producing c.9,500 bopd from the P6 well alone with an associated water cut of c.41%.

The 27th cargo of Lancaster oil, totalling approximately 530 Mbbls, was lifted on 25 January 2022. This cargo was priced by reference to the average of the first five days of January’s Dated Brent quotes, being $81.4/bbl. The next cargo is anticipated to be lifted in late March 2022.

Financial Update

As anticipated, and in line with previous announcements, the Regulator has now formally requested that the Company lodge additional funds as decommissioning security. The Company remains in discussions with the Regulator as to the exact amount and timing of placing of these funds into trust which are currently expected to be up to £5.7 million ($7.7 million), later in Q1 2022.  This will increase the amount of funds placed into trust, and which are therefore classified as restricted cash, from £28 million to £33.7 million.

During January, the Company received $3.2 million of cash rebates relating to R&D tax claims in respect of the 2019 tax year. An additional c.$1.3 million claim in respect of the 2020 tax year is still under review by HMRC but is anticipated to be received later in Q1 2022.

As of 31 January 2022, the Company had net free cash(4) of $85 million ($77.3 million after taking into account the above mentioned planned increase in restricted cash) compared to the last reported balance of $50 million as of 31 December 2021. $78.5 million of Convertible Bonds remain outstanding and due July 2022.

The Company believes that net free cash provides a useful measure of liquidity after settling all its immediate creditors and accruals and recovering amounts due and accrued from joint operation activities, outstanding amounts from crude oil sales and after settling any other financial trade payables or receivables. It should be noted that the net free cash is calculated as at the balance sheet date and does not take into account future liabilities that the Company is already committed to but have not yet been accrued. As such, not all of the net free cash would be available for repayment of the remaining outstanding Convertible Bonds at their maturity in July 2022.

These figures should be considered whilst you think that only seven months ago bondholders were being told that they would be out of pocket to the tune of over $100m. Indeed if it wasn’t for Crystal Amber and friends, and the blog the equity holders would have had over 90% stripped from them. 

Hurricane is on the mend and with production and reasonable oil prices, has scope down the road that the market has yet to dream about, surely at 5.66p it offers really exciting value.

EDR

Yesterday I managed to sit down and chat with Ed Bowen, CEO of ERD a fast-moving oilfield services company, unquoted right now but is well known and highly respected in the industry and you will hear more about this company.

Core Finance CEO Interview: Ed Bowen, EDR

And finally…

Last night in the Champions League the Noisy Neighbours went to Sporting Lisbon and won 0-5, tonight Liverpool are at Inter Milan.

In the Prem the Red Devils recovered their winning ways and beat the Seagulls 2-0 with both the misfiring Portuguese players finding the net.

At the Winter Olympics with four days to go my guilt knows no length, Adele is still leading team GB 3-0

The opinions expressed here are those of the author

Malcolm Graham-Wood

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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