WTI $59.24 +22c, Brent $64.34 +9c, Diff -$5.10 -13c, NG $2.26 +3c
Its quiet at the moment, the trade talks deadline is Sunday but there is precedent for last minute changes and deals. The UK election isn’t making much of a difference to the oil price but sterling is pricing in a Bojo win by a few seats overall, less than that would shake out the cable.
The Nigerian CPR from CGG and a Nigeria operational and trading update this morning which show what very high quality assets that have been bought and with incredibly robust numbers. The CPR confirms gross and net 2P reserves of 99.6 mmboe and 71m mmboe respectively and 2C gross and net resources of 98 mmboe and 58.6 mmboe. The Nigeria assets have a gross NPV 10 of $1.2bn gross, $957m net to SAVP.
Net free cash flow generation by the Nigerian assets assessed by CGG are as an average of $130m p.a. (20-23) with gross 2019 ytd production of 17.3 kboepd up 33% y/y. 2019 guidance for cash collection from the Nigerian assets is c.$190m leading to a $40m reduction in debt 2019/2018 in total third-party debt outstanding at the Nigerian Assets and a forecast YE’19 cash position within the Nigerian Assets of a minimum of US$15m. Finally, forecast 2020 capital expenditure at the Nigerian Assets of c.$41.5m proves the cash flow more than covers expenditure where production costs have been cut sharply.
There is no doubt that, although taking longer to complete the paperwork, SAVP have got a gem of an acquisition here making it a ‘proper company’ with substantial cash flows from a high quality asset base. As CEO Andrew Knott says ‘We continue to view these assets as a strong platform from which we will deliver further growth. In this regard, we continue to make good progress in relation to the supply of gas to potential new customers, and are investing in additional well stock to ensure anticipated future production levels are capable of being met. I look forward to providing further updates on this in the near-term.’
Make no mistake this is a very reassuring update, the CPR numbers are very much in line with expectations and the confirmation of the excellent cash flow generation puts paid to any lingering concerns in the market about the performance of the Nigerian assets. Accordingly I remain convinced that my 75p a share target for SAVP is easily achievable, indeed a starting point for what is a very good company indeed.
RRE has announced that the Noble Houston Colbert jack-up rig is preparing to drill the first of two planned infill development wells on West Brae where RockRose (40% WI) is operator. The wells are designed to access 2P reserves of over 8 MMbbl (gross) and to support the Brae complex output by up to 6,000 b/d (gross). The first well, WPGZ is expected to come onstream before the end of Q1 2020 and the second, WPOZ is anticipated in 2Q 2020.
These wells mark the start of a significant period of development activity for RockRose as they are set to participate in at least seven wells before the end of next year. These will include a four well drilling campaign at the Shell operated Arran gas/condensate field starting in Q1 2020. The company will also drill the first of two infill wells as part of the Blake Life extension project (RRE 30.8%) which will be drilled in 2H 2020.
The importance of these wells should not be underestimated, they will drive production growth over the next two years and further investment is anticipated in 2021 and 2022. RockRose Chairman Andrew Austen said in the statement “This will add significant production and value to the Company, as we continue to deliver on our strategy; growing production and generating surplus cashflow that can be reinvested to maximise returns for shareholders”.
It is clear that all is going very well indeed at RockRose, these wells which over the next three years will add organic growth to its programme and hence profitable production to add to acquired assets. On that front it is inconceivable that AA will not be back in the market before long, he has no lack of ambition and judging by the $1.2bn he is thought to have put on the table for Siccar Point there is no lack of firepower either. At 1705p the shares are trading at around the level of unrestricted cash which makes the company astoundingly cheap on any metric you can possibly come up with and it is only ‘when’ the shares rerate significantly not ‘if’.
Both Chelski and Liverpool got through last night, tonight the Noisy Neighbours are at Dinamo Zagreb and Spurs are at Bayern Munich.