Oil price, Empyrean, Sundry-BG-Conoco-IOG-Parkmead- And finally…
WTI $48.52 -27c, Brent $53.31 -7c, Diff $4.79 +20c, NG $2.77 -10c
A very quiet day in the oil markets with traders telling me that there were few influences which meant that prices moved a bit with a drift at the end. Even supposedly bullish comments from the Opec Secretary General in Moscow were unable to boost prices. In fact his statement that increased demand would provide support for the oil price even with potential supply from Iran was rather dismissed by the market as over optimistic.
I have been watching Empyrean from a distance for a while and encouraged by a number of readers and the IR firm I took the opportunity to meet with CEO Tom Kelly whilst he was in London this week. Empyrean is a profitable, at these prices, oil and gas company whose primary asset is a 3% interest in the Sugarloaf AMI in the Eagle Ford, Texas shale play. Sugarloaf is operated by Marathon and EME has current net daily production of 1,216 boe from its 729 net acres with 231 wells producing in a development capable of 1,000 wells. The resource base is substantial with the most recent figures showing a 63% increase in 1P to 5.78 MMboe with NPV 10 of $43.8m and a 94% increase in 2P to 12.64 MMboe and NPV 10 of $121.7m. The primary reason for such a meaningful increase is down to the successful appraisal of the Austin Chalk which has meant that it has moved from contingent resource status to reserve status. With the Lower Eagle Ford shale and the Austin Chalk formation significantly increasing reserves it is likely that this will be added to in due course by the Upper Eagle Ford which could be another significant upside to the reserve/resource base. It is worth noting that the upgrade for the Austin Chalk is massively value added as the metrics are improved for next to no cost, very little infrastructure and no exploration wells are needed as the operator already has this in place.
Financially EME is sound, it has up to a $50m loan from Macquarie Bank in place which although has warrants attached might make it dearer than other debt it makes it a lot cheaper than any equity raise at these levels, it has strong cash flow and with costs falling dramatically profitability remains intact at current oil prices. Indeed with such a good quality asset that delivers robust project economics and with scope for upside into the bargain the outlook is seemingly attractive.
So my initial view of the value of EME has to be positive, as with a market cap of only £13m and 1P of 5.78 MMboe and 2P of 12.64 MMboe it is clearly money in the bank. Indeed with a possible reserve update to June 30th giving further headroom on debt and the potential of upside in the Upper Eagle Ford further down the road then surely the shares are hugely undervalued. I often talk about bigger companies being able to buy reserves on the street more cheaply than they can drill for them and this is a classic example, even Marathon must have the slide rule out at some stage.
BG Group had interim results this morning and EBITDA of $1.37bn was down 48% but clearly the market assumes that the Shell bid will go through, as I do. Production in Brazil and Australia has doubled and the former is now over 150/- b/d.
Conoco also had results yesterday and disappointed the market coming in with a loss of 15 cents against the whisper of plus 6.
The IOG saga continues with an announcement today that the equity issue due to be finalised today with the debt in two months looks likely to be delayed and both fundings will now be completed in mid-August, the debt side coming in more quickly.
Parkmead has announced that it has received three new licences in the 28th round with two in the West of Shetlands and one in the southern North Sea.
The test match at Edgbaston has only been going on for only two days and at one stage yesterday looked like tickets for today would be redundant. Still not done and dusted…
Its the Charity Shield or whatever it is now called on Sunday and will be only a warm-up game for Chelski and the Gooners. Last night saw the Saints win 3-0 against Vitesse Arnhem while the Hammers made life difficult by surrendering a 2-0 lead to draw 2-2 and having one player and the manager sent off. Aberdeen lost 2-1 away at Kairat Almaty but would hope to win back at home.