WTI $58.54 +2c, Brent $64.85 +23c, Diff -$6.31 +21c, NG $2.00 -7c
By Malcolm Graham-Wood
Oil prices which had been uninspiring during the week picked up a little on Friday and are 50-70 cents up again this morning. The reasons are mixed, trade deals of all sorts were finalised last week and then the Chinese economic data, whilst hardly setting off any fireworks for, were better than expected. Add to that the fact that Libya has ‘gone off’ again with the loss of all its 1.2m b/d production markets are as a rule happier.
This week the good and the great are attending Dav-oh where they will spend achingly huge amounts of other peoples money telling themselves how woke they are and down with the kids. Literally in this case as Greta Thunberg will be taking even more time off school to do the lecturing herself. I approve of Bojo banning all but the Chancellor attending but politicians of all shapes and sizes should also be back at their desks. Companies regularly spend fortunes on sending the C-Suite executives to eat and drink in the snow, maybe they should be at home running the business? Dav-oh is a free-loaders scandal, nothing more, nothing less.
Trinity Exploration and Production
A Q4 19 operating update in which the company grew production, generated free cash flow and ‘protected the business’ from downside risk. The 4th quarter optimised existing production whilst the second half saw 6 new wells being drilled which have gone on to give the company a strong start to 2020.
Production across the board was in line or better than guidance, in the quarter it was up 13% Q/Q to 3,196 bopd (2,816 in 3Q 19) and up 5% Y/Y to 3,007 bopd (2,871). The increase came from 6 new onshore wells drilled in H2 and the usual combination of RCP’s, workovers, reactivations and swabbing which made the ’19 exit rate almost 3,400 bopd, a level in line with expectations and that had been like that almost all December. The 6 wells achieved an an increase of 20% in EUR above pre-drill prognosis (PDP), 47% in estimated Net Oil Sand recovered over PDP and 54% increase in initial production rates over PDP, at 650 bopd vs 421 bopd.
The first High Angle Well (HAW) performed satisfactorily judged by IP of 80 bopd against expectations of 50 bopd, now on a gravel pack and producing 40-50 bopd which should increase to 80 bopd with a well pump. Also better than expected has been the performance of the trial of the Weatherford SCADA system with a meaningful increase in production from the two pilot wells whilst the system is now on six wells with more to come.
Trinity has cash of $13.8m at the end of 2019 up from $10.2m a year earlier, a testament to the company’s incredible cost controls and bear in mind that this includes drilling the six wells in 2H 2019. The company’s hedging strategy mitigates the worst of SPT ‘whilst retaining upside exposure to rising oil prices over the majority of production’. The company remains a very high margin business, by design as cost control is as good as any in the industry and it will remain as the poster boy for break-even costs and thus growth and profitability. Finally, in moving both the Trintes Field area and the TGAL field development forward there is still upside potential at Trinity.
Echo announce that the CLix-1001 well in the Santa Cruz Sur has been drilled to total MD of 2,247m and wireline logging has been completed. Encouraging data means that a decision to move to the next stage to complete and test the well. The target Springhill formation was encountered at 2,124m with a zone of interest comprised of fine-grained sandstones, this unit also coincided with elevated gas shows of 193,000 parts per million (“ppm”) against a background of 20,000 ppm. This is very encouraging indeed but the testing needs to occur before, as the company says, ‘completion of the well test and analyses of the results is needed to conclusively establish the presence of producible gas.
Far has taken the FID for and received final credit approvals for, an underwritten US$300 million senior secured reserve-based lending (“RBL”) facility for the Sangomar Field Development offshore Senegal. This moves into execution phase for Phase 1 of the development as signed last week.
The loan is US$300m of which Macquarie Bank, BNP Paribas and Glencore each take US$100m, it has a 7 year term and is priced at a margin of 7.75% over LIBOR. Far will now conclude documentation, select a preferred provider of junior debt and conclude necessary financing by which time it will have raised over $400m to fund its share of Phase 1 capex including equity of A$146m + the share Purchase Plan.
This all means that Far can book 28 MMbbls of 2P reserves after its long period of hard work offshore Senegal, a truly amazing feat for a company such as Far who were there right at the beginning when Petrosen were their partners. 2020 will be an interesting one with the drill bit as Far will drill the highly prospective acreage in The Gambia in 2H. Next year will include appraisal of Far and SNE discoveries, development drilling at Sangomar, busy times. The shares, which have fallen ahead of this funding, are supported by significant institutions who added at the recent equity raise and are incredibly cheap, with its market share of only A$270m being dwarfed by the size of the prize in Senegal and elsewhere in the portfolio. Also worth looking at New Century Resource for the play…
Trafigura is to initially subscribe for $4m of new shares at 4.04p and a potential further $6m at 4.65p. With Peter Levine converting an initial $1.95m debt into equity at the same price and then again at the second price. Debt will come down by a potential $6m -$15m and the resultant equity holdings will be Trafigura 6.09% and IYA Global 29.99%.
The business at President has been consistently good despite difficulties in Argentina, having said that it made operating profits every month, cash flow has been strong and it has had positive adjusted EBITDA. The market has been unforgiving but if Peter Levine and Trafigura want a big slice of something, people should follow.
An update this morning from Touchstone with regard to its Cascadura-1ST1 well on the Ortoire block onshore Trinidad. This is the initial testing of a recently announced oil discovery and has found, on further testing, significant oil and gas volumes and the well has been suspended due to high pressure. Accordingly, the well has been shut-in awaiting new kit.
President and CEO Paul Baay have said that ‘this is the best possible outcome’ under the Trinidad fiscal regime and whilst I hate to see things justified for tax reasons it may be the case. Having said that I haven’t spoken to the company so can’t call whether it is a let down from the oil discovery or a better overall hydrocarbon find, time will tell.
Confirmation today that Lamprell has been formally awarded 2 jack-up drilling units from ARO. The contract is worth $350m of which 25% is paid upfront so a healthy kick to the Balance Sheet.
England duly finished off the Proteas this morning and go to The Wanderers 2-1 with one to play.
Liverpool beat 2-0, proving that their top place is fully justified and Utd are still the only ones to have taken points from them all season.
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