Oil price, President, RockRose, Reabold/United, IOG And finally…
WTI $57.26 +30c, Brent $67.12 +5c, Diff -$9.86 -25c, NG $2.72 +2c
Last week WTI was up $1.28 and Brent 87c, the differential is still around ten bucks but the market remains fairly positive. Last night it seemed that President Trump held out a modest olive branch and delayed the rise in tariffs at least until after meeting with the Chinese President.
Elsewhere the news is mainly geo-politics led, in Venezuela after the major disruptions over the aid convoys some commentators are claiming the end is nigh for President Maduro, I will believe that when I see it. In Nigeria, where terrorists have threatened to sabotage oil installations should President Buhari win the vote there is further tension as there is in Libya.
The Baker Hughes rig count showed a fall of four units overall to 1047 and by four in oil as well to 853.
President has announced that it is to raise up to £6.5m at 8p to accelerate the expansion of its programme of work in the Rio Negro Province in Argentina. Primarily intended to fast-track development of its gas assets which account for 19% of reserves but only some 3% of production and with the encouragement of both shareholders and non-shareholders the company has gone ahead with the raise.
After a formidable year in which turnover was up 160% to $47.2m, operating profit was $14.3m, and operating free cash generation of $21.5m, 2018 more than delivered the goods. Year-end production was 3,300 b/d and the guidance for this year is 4,500 (not including gas) and President is targeting a 50% in each of the next three years which is funded from internal cash flow. In order to accelerate growth in the gas assets the company has decided to raise this money in order to bring forward ‘ a number of important developments and ‘believes that the Company’s gas assets have the potential to generate 30% of the enlarged Group production by end 2020’.
Whilst at first the idea of raising more money when the state of the finances is so strong, and with such a powerful programme of investment already announced, this move is one of substantial confidence in the Rio Negro assets purchased last year. With all the free cash flow already allocated and equity holders (and potential buyers) queuing up to back the team at PPC this deal really hits the spot.
The raise is at a very modest discount and with Peter Levine converting debt into equity, reduces debt and cuts interest costs for the company whilst expanding the shareholder base and importantly, improves liquidity. This is indeed ‘turbocharging’ spending and there will be much more to work on for the company, results, based on recent examples should be impressive and the shares should be much higher.
RockRose has this morning announced that it is buying the North Sea and West of Shetland assets of Marathon for $140m, it would not have been long ago that being able to pay this sum ‘from existing resources’ would have been unthinkable and shows just how far RRE has come.
The deal brings operated interests in the Greater Brae area and in the BP operated Foinaven area as well as interests in the SAGE, Brae-Forties and WASPS infrastructure providing tariff income. It adds 35m boe of 2P reserves making RRE up to 70m boe and production of 13/- boe/d which together now makes 24/- boe/d.
It speaks volumes that this is the first time in the acquisition-based company’s history that Chairman Andrew Austin has been prepared to take on the operators role and clearly this speaks volumes for his future plans. Marathon has made a $350m contribution to decommissioning costs but some of that is still some way down the line. With sizeable cash flows the bulking up of RRE can now seriously begin and this looks like a good enough starter pack for such a process.
The bad news for shareholders is that with this being a reverse takeover under the UK listing rules the shares have to be suspended until completion, prospectus or the deal not going ahead, in my view around three months. The good news is that the shares should emerge a fair bit higher on the back of this news, rewarding investors for patience.
Reabold Resources/United Oil & Gas
Reabold and United Oil & Gas have announced that the Colter well, 98/11a-6 ‘unexpectedly remained on the south side of the Colter bounding fault’ but nevertheless encountered oil & gas shows over a 9.4m interval of Sherwood Sandstone reservoir which is estimated as holding around 15 mmbbls of oil.
As a result of this it will be necessary to drill a side track and this time to go to the north of the Colter bounding fault. RBD has agreed to fund Corallian to the tune of £750/- priced at a 30% discount to their next equity raise which proves that it has been incredibly foresighted of the RBD board to have kept a little capital up their sleeves, so to speak.
The side-track should take around two weeks and should be seen as a bit of a bonus as drilling the appraisal would have been another project and whilst probably from onshore means that it has saved time and money overall. Having said that, having missed the target with the first well there are few prizes to be given out if they do it again.
Independent Oil & Gas
IOG has belatedly but probably wisely worked out that it needs to farm-out the Southern North Sea project that they have been working on for so long. By now we should have been waiting for news of the Harvey appraisal well which is now scheduled for ‘mid 2019’ and of course the long-awaited equity funding of the ‘core project’.
Plan B suggests that the farm-out process is under way and that the company have been ‘encouraged by the level of serious interest shown to date’ and of course any success on this front ‘could provide valuable funding optionality via a development carry which would significantly reduce the new capital required for its Core Project’. The company say that they plan to select a preferred partner in 1H 2019 which will then give them the opportunity to choose between an industrial or a capital markets solution for the funding of the project.
IOG has at long last bitten the bullet with regard to the financing and delivery of its core project. I have little doubt that it can move ahead profitably and swiftly but it should never have taken this long, it looks like a helpful dose of reality has recently been injected. 1H may still be slightly on the optimistic side but if there are genuine potential investors out there it now has the best chance it has ever had to get off the ground.
In brief as I’m running very late.. The Noisy Neighbours eventually saw off Chelski but had to do it in a penalty shoot out and not until the Chelski keeper had refused to be substituted, can’t see that happening to, say, Sir Alex Ferguson or any Liverpool boss.. The Red Devils and Liverpool drew 0-0 which put them one point at the top of the table, game on…Spurs lost to Burnley and the Gooners beat the Saints.
Wales did beat England in the rugby who lacked any brain power in the second half and kicked away possession way too much, livens up the rest of the tournament though…France beat Scotland and Ireland did beat Italy but not so easily…
Kempton Park on Saturday was great fun and with Paul Nicholls saddling the winner of the bumper for city chief Jon Gregory despite the horse nearly taking the wrong course all ended up well.
Finally I would like to wish a speedy recovery to John Walmsley, Chairman of Pantheon but with a long and very creditable career in the oil industry. I heard on Friday that he has been very poorly and has been in intensive care since December 29th, out of a coma now and recovering, albeit slowly I wish him all the very best.