Malcy’s Blog – RockRose, Trinity, PetroTal, Wentworth Resources, DGO & finally

RockRose Energy: A development drilling update shows that the first test of the two infill wells at West Brae has successfully completed and is delivering in-line with expectations. The second well, spudded yesterday evening. Between them, the two wells are designed to access over 3MMbbls of net 2P reserves and to add net production of 2,500 bopd.

By Malcolm Graham-Wood

The wells form part of a wider programme of 7 wells aimed at enhancing production by over 8,500 boepd this year and next as the company seeks to convert 2C resources to 2P reserves and deliver extended field life. RRE is debt free and has cash of £272.1m or £20.75 per share, £39.5m of the cash is restricted.

I managed to persuade RockRose Executive Chairman, Andrew Austin into the studio and we spent nearly half an hour chatting about the industry, the link is here.

Core Finance interview: Andrew Austin, Executive Chairman of RockRose Energy



Trinity Exploration
Quite rightly Trinity is one of the first out of the traps providing an update to ‘illustrate its financial strength in an environment of lower oil prices’. Of those points that it is keen to promote include no SPT payment if realisations are below $50 in any one calendar quarter and March only needs to be sub $40.20/bbl if required to reach this target.

In addition operating break-even has reduced in recent years and H1 2019 was $26.30 continuing through 2019 and into 2020. Trinity continue to utilise their astonishing relatively low fixed cost base underscoring this industry leading break-even and low oil price resilience. With some help from ORR which reduce with lower oil prices Trinity are in a strong position and in a way looks better down here and they are fiercely competitive against the peer group.

Along with others they have a strong oil price hedge position in place ‘for a large part of 2020’. At these prices HAW and SCADA come into their own and give Trinity a meaningful edge against many of the rest.

PetroTal Corp
A financial and liquidity update this morning from PetroTal who have completed a sensitivity assessment of funds available from operations at varying oil price levels. Bretana’s netback at 15,000 b/d was 55% of the Brent oil price at $65 and decreases to 37% at the Brent oil price of $30/bbl. In some contracts as Brent drops below $50 PetroTal is entitled to negotiate lower fees and tariffs to stabilise netbacks.

PetroTal is debt free and maintains significant investment programme flexibility which is weighted to the last half of the year and will manage payments with a number of its contractors allowing for ongoing operation of the contractors’ crews. At times like this investors need to know that the company is in good hands and the depth of experience of CEO Manolo Zuniga and his board makes me happy that current guidance will be met and profitably so.

Wentworth Resources
Most certainly the easiest management statement to write was the one this morning from Wentworth Resources. Wentworth sells its gas under long-term, fixed price contracts that provide for price escalations based on the US consumer price index. They sell gas under two contracts, one to the TPDC the Tanzanian Petroleum Development Corporation at $3.24 MMscf and one to the Tanzania Electric Supply Company at $5.36/MMscf.

With magnificent simplicity the company states ‘as such, the company is not impacted by fluctuations in global commodity price’, touché. The company has a net cash balance of $14.2m, a ‘comfortable’ ability to pay a dividend which yields 7.2%, what’s not to like….

Diversified Oil & Gas
Results for 2019 announced yesterday (apologies for delay) were as impressive as I was expecting and unfortunate to be announced on one of the worst days in recent history for the oil market, its relatively modest price fall today shows a deal of market respect.

Exit 2019 production of 94.8 MBoepd from long-lived wells was impressive and put the company high on the list of London quoted oilers and giving a 0% decline from the company’s legacy, largely conventional assets primarily due to the success of the Smarter Well Management System. These impressive activities offset natural declines on the legacy assets in the portfolio and have effectively ‘added’ revenue of c. $25m since 2018, generating value for the HG Energy Assets.

The company has reinvested just 6% of hedged adjusted EBITDA as recurring capex generated a c. 25% free cash flow yield. The final dividend was 3.50c per share making 13.92c, a rise of 24% and depending on stock price at the time a yield of some 17%. And, into the bargain these dividends are protected to a large extent by a hedging programme currently valued at c. $61m at the year end.

Margins were 53% which reflects low unit operating costs that are truly astonishing including G&A of just $1.29/ Mcfe in 2019 with an exit rate of $1.18/ Mcfe in the 4Q. To also reduce net debt with monthly payments of $13m in 4Q 2019 as well as the $23m dividend and $5m of buy-backs at a time of 2.3% gearing, still falling. The company is aiming to move to the Premium Segment of the Main Market in the early part of 2020 and ticks many boxes including a strict code of governance including recent non-executive appointments.

So, the company’s business model includes acquiring low cost, long life, low-decline production that must be pretty much be share accretive and to allocate no value to undeveloped resources which give ‘free’upside as prices rise. DGO offer proper well management, aim to optimise production and extend well life whilst the usual reduction in costs, creation of efficiencies and improvement in margins is taken for granted.

All this shows that DGO really does have a unique model combining smart asset acquisitions, very low business costs with both opex and capex that is both scale-able as the DGO business grows. Indeed the payout ratio over the long term is unchanged regardless of size leading to continued high dividends, share buy-backs and paying down debt principal payments. To add to that the company has added midstream assets to the portfolio which has had the effect of optimising transportation, getting better arbitrage opportunities of selling gas to higher priced markets as well as generating 3rd party revenue. Midstream revenue is by its very nature already hedged, there is no cycle and provides valuable extra and growing revenue.

In August 2019, the Company engaged in a comment letter review process with the Conduct Committee of the Financial Reporting Council after a number of questions had been raised to the FRC. The company had been subjected to a lengthy process of aggressive actions by a combination of market operatives, it is pleased to see this today ‘On this basis, the FRC subsequently confirmed it had closed its enquiries with a satisfactory conclusion’ which surely sees off the demands for restatement using different discount rates such as this.

Despite being released on our very own Black Monday, DGO have announced a cracking set of figures showing just how well the model works, I have great confidence going forwards as larger acquisition prospects that are out there and probably got bigger and more tempting by the day.

And finally…
The Cheltenham festival got underway today, the premier jumps meeting worldwide with cracking cards every day.

Malcolm Graham Wood 300x225 - Malcy’s Blog – RockRose, Trinity, PetroTal, Wentworth Resources, DGO & finally

By 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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