Oil price, SDX Energy, Solo, Hurricane, And finally…
WTI $59.98 -25c, Brent $67.82 -64c, Diff -$7.88 -79c, NG $2.82 n/c
The oil price will have stood still this week, maybe even fallen a bit as the world waits for the outcome of the trade agreement. Whilst this is deemed a negative, the US inventory stats were a decent positive showing a large and unexpected draw in stocks across the board. Finally Venezuela is yet gain seeing further falls in production but now that it is less than 1m b/d it will become less important.
Full year results from SDX this morning and whilst almost all the data was already known they were a very impressive set of numbers. Net revenue was up 37% to $53.7m and more importantly netbacks were up to $41.7m ($28.9m). Cash was down slightly to $17.4m ($25.8m) but that figure is also good given the $44m invested by the company last year. Production was 3,574 boed last year but will double this year with the bringing on of South Disouq where the central processing facility, the 10km pipeline and the four well tie-ins are complete and ready to start production of 50-60 MMscf/d in the middle of this year.
In Morocco business is going extremely well, SDX has picked up three new customers recently and are expecting two more this month, the Peugeot factory should go fully operational in May thus making suppliers, who also take SDX gas keen to deliver. The target of production by the year end of 9-11 MMscf/d may therefore be achieved earlier than expected and with new customers paying towards the top of the $10-11+ range the economics look stunning. More importantly, SDX has announced that it is restarting its drilling programme in Morocco with a 12 well programme in the autumn of which three may be in this year.
The drilling campaign in Morocco, along with a number of exploration and infill wells in Egypt are all funded internally by SDX coming from existing cash balances and free cash flow which is helped by a 36% fall in receivables during the course of the year. With South Disouq coming on-stream in the middle of the year and the Morocco campaign scheduled for 3Q 2019 the stage is set for SDX to flourish and they are plenty cheap enough at the moment so upside progress of a substantial nature should be made.
I managed to catch Paul Welch, CEO at Core Finance for an interview, here is the link.
Solo Oil has released its long-awaited strategy statement this morning and investors should be delighted that the new board has come out with a strong and achievable platform for growth. In the statement the company say that they want to ‘assemble a balanced full life-cycle portfolio comprised of production, development and exploration assets’ to create a sustainable path to growth.
With a mixture of organic and acquisition led growth they have set a production target of 5/- b/d within three years. To do this the board believe that they need to become an operating company, make efficient transactions and have a targeted strategy to deliver shareholder value. To do this they will seek deals that don’t have conventional consideration properties, or ‘non-equity funding partners’ as they call it. To me this strikes as going back to some of the highly successful transactions done by the team in former lives, remembering that Non-Executive Director Jon Fitzpatrick was instrumental in the early deals transacted by RockRose, and if this is so the Solo shareholders are in for a pleasant surprise.
The future of Solo, appears to be based around the dynamics of the European gas market (jurisdictionally safer, supportive pricing and strong demand forecasts) with maybe with some spice from North Africa where other such opportunities exist with low/minimal dilution and a modest cost. Cash flow will be important, Solo still has legacy businesses and whilst today they announce one potential disposal they still have Helium One and of course Ruvuma and Kiliwani which for my sins I still believe can be money-makers. To read the announcement it looks like a lot of deals have already been looked at and whilst a fair few frogs may have been kissed none have yet turned into princes, having said that I wouldn’t put it past this team to have something very nearly oven ready…
As announced by the company this week, the Aoka Mizu has successfully hooked up to the buoy for the Lancaster EPS, marking a substantial step closer to first oil. Commissioning is the final hurdle before oil sales and cash flow.
The company has not provided guidance on how long this process is expected to take, a sensible move given the wide range in timing seen across other projects. Other recent developments on the UK continental shelf could provide a couple of bookends – they could be ‘Catcher short’, at a couple of months, or ‘Kraken long’, at double that. I suspect it will be somewhere between the two. The company has clarified that the 20-22 days referred to by Jay Cresswell in a recent Energy Voice article relates to bringing individual wells onstream and is effectively part of the commissioning process. By definition, commissioning cannot be shorter than this.
The processing on the Aoka Mizu is relatively straightforward given that Lancaster crude is effectively Brent. The vessel has also produced successfully for Nexen in its previous life on the Blackbird and Ettrick fields. However, I understand that Hurricane is taking a gradual approach to start-up in order to maximise reservoir data. This might extend the timing to first oil announcement. Though I suspect the sharp-eyed might spot a flare lighting up the night sky.
The company is aiming for 17/- b/d of production, assuming a long-term uptime rate of 85%, but they have stated that the first 6 months after first oil are likely to achieve lower rates than this, as teething problems are worked through. It could therefore be towards the end of the year that the vessel starts firing on all cylinders but there will be plenty of cash flow and reservoir data generated along the way. This is a facilities related constraint – not a subsurface one.
Finally, it is worth remembering that following the farm-out to Spirit Energy last September, Hurricane is carried on a three-well programme in the Greater Warwick Area. This programme is due to get underway in mid-April as the contracted rig, the Transocean Leader, is sitting in Invergordon having just completed its last assignment for EnQuest. I will be interviewing Dr Trice before he heads out to rig for the first of three wells so we can get an idea of what to expect here and will report back.
Plenty of links this week starting with my Monday Voxmarkets Podcast…
And in case you didnt see it on Tuesday I was at Core Finance for an CEO interview with Steve Bowler of IGas.
It’s the International break and you know what we think about that although to be fair it is the Euro qualifiers. Last night Scotland went to Kazakhstan and lost 3-0 whilst Northern Ireland won 2-0 against Estonia, Tonight England host the Czech Republic and on Sunday Wales take on Slovakia.
Racing tomorrow is at Newbury still not quite recovered after Cheltenham and with the run in to Aintree coming up.