WTI $53.54 -34c, Brent $56.56 -24c, Diff -$3.02 +10c, NG $3.19 +2c
Yesterday was another up and down day, Brent traded above $57 for some of the time helped by comments from the Russian Oil Minister saying that they were cutting over and above their pact number whilst the Donald poked Iran. On the negative side, Buzzard returned after its unscheduled downtime and Brazil noted higher than expected production.
Victoria Oil & Gas
VOG was one of the first stocks that went into this year’s bucket list and today’s 4Q operational update shows just why. The company note increasing gas production, the 4th quarter was 7.64 mmscf/d against 7.14 for the comparable quarter whilst gas sales were up 4.5%. For the year, Logbaba gas sales were up 24% to 3,566 mmscf (2.868) and both Logbaba wells are progressing well albeit with some challenges. To combat the high pressure/high temperature wells, the company is using state of the art kit including Managed Pressure Drilling and Downhole Deployment Valves, the latter for the first time in sub-Saharan Africa. These additions to the well should ensure that they are of higher quality and reduce failure risk although they will add modestly to the cost of the wells.
We knew that 15km of pipe had been laid in the Bonaberi extension and this now gets to the key Western Extension hub and three new customers took gas in Q4 with more to come especially with the dry season upon us. The financials record Q4 revenue of$4.6m, $15.8m of cash, net $1.3m and undrawn credit lines of $16m. With the drilling programme going well and what seems like huge demand from customers old and new at the other end of the pipeline prospects for VOG and the shares are hugely undervalued.
So, at last the deal is done and subject to any last minute problems Prems have a deal with their lenders. Total existing facilities of $3.9bn remain and undrawn capacity is preserved. Maturity dates are aligned to May 2021 with covenants amended, net debt to EBITDA will be 7.5x to end ’17, 5x to end ’18 and 3x in ’19.With interest cover ratio reducing to 1.85x before increasing to 3x in ’19, covenant net debt has to be less than $2.95bn by the end of ’18. Unsurprisingly there are ‘enhanced terms for lenders’ or they would have to return to the house of God although how they can sleep at night nobody knows…
The company appear to be free to ‘selectively seek to invest in unsanctioned projects’ such as Tolmount and Sea Lion but the lenders have annual approval of Prems capex and exploration budgets and ‘final sanction’ of ‘significant new projects’. Add to that ‘certain approval rights’ in terms of acquisitions and disposals and you are not entirely in possession of what is closest to you..However, when all is said and done it could have been so much worse and is a valuable lesson all round. With very strong operational performance at the moment, especially with Catcher on the horizon Premier should be able to cope at all levels. The two key assets are Tolmount and Sea Lion, both consumers of cash and both up for farm-out which should now be a key priority as the latter should be responsible for the company’s medium term growth and it should be remembered is a world class asset…
Sound Energy-Took us up the Gherkin
Sound Energy takes looking after its shareholders very seriously and last night the London Gherkin was the venue for the strategy presentation by the board, including a very welcome speech by Marco Fumagalli of cornerstone shareholders Continental. Over 260 people attended and many queued up outside on the wait list whilst 2,000 people dialed in on the live feed such is the retail interest in the company. CEO James Parsons and the other speakers didnt disappoint with descriptions of the ‘end game’ and ‘golden tickets’ explaining the corporate strategy and solid, detailed analyses of the current programme. Luca Madeddu gave an overview of Morocco and Brian Mitchenor talked of 260 TCF of gas of which much had sadly gone but plenty remained while Leonardo Spicci also talked about the forthcoming spud at Badile in Milan.
Sound has an interesting upcoming programme, including the TE-8 well to hopefully start to confirm the characteristics of Tendrara, the Sidi Moktar prospect also in Morocco and of course the Badile exploration well in Italy. By the end of the year there should be a full CPR to enable an FID and FDP on Tendrara, as well as undoubtedly many other plans, as for presentations wherever next, Wembley Stadium?
Diversified Gas & Oil
DGO has appeared on the bourse this morning having raised £39.7m at 65p through Mirabaud. I met with the CEO and other board members yesterday to get an idea of this what this company does. Confusingly they dont consider themselves to be a gas or oil company, more a buyer of long term assets in their core areas of Ohio, West Virginia and Pennsylvania and even more confusingly intend to pay a dividend with a yield of around 5%. At present pretty much all of the asset base is proven reserves although at some stage the temptation will be to have a go at what could be a treasure trove of probable and possible resources. Having said that there is a list of up to a ‘magnificent seven’ acquisitions on the cards so they will remain busy.
The company has raised $50m to pay down debt, repurchase bonds and for working capital as above. The raise which is highly credible, is made easier by this company being more of a low risk and solid value asset base play which happens to have a progressive dividend policy based on its reserve base. DGO is worth keeping on the radar screen as it may pleasantly surprise.
Another big weekend in sport and this is a truly awesome display, for those of us who follow the oval ball the 6 Nations Championship is the holy grail and tomorrow sees Scotland v Ireland and England v France and on Sunday Wales go to Rome to play Italy.
Another oval ball will be on display in Houston Texas as the Super Bowl will be fought out between the Patriots and the Falcons in what might be a close fought match. My ticket definitely got lost in the post and to think all those visits to Houston!
In the Prem this week’s monster match is the visit of the Gooners to Stamford Bridge, a win for Chelski might just see off everyone else as well. The Noisy Neighbours have picked up form and host resurgent Swans, the HubCap Stealers go to Hull City Tigers and the Red Devils are at the Foxes.
Finally it’s Davis Cup time again and team GB travel to Ottawa without Muzza hoping that recent good single form will do the trick against Canada.
EG Nadhan, to share his thoughts on the oil and gas industry. Time has changed! We have to radically change how companies manage their operations to be competitive, profitable, and ultimately in business.