Oil price, Block, Reabold, AAOG, Solo, GKP, And finally…
WTI $60.14 +84c, Brent $68.39 +57c, Diff -$8.25 -27c, NG $2.66 -5c
We start the second quarter having done better than expected so far this year. For the week, month and quarter WTI was up 1.9%, 5.1% and 32.4% whilst Brent was up 2.0%, 3.6% and 30.1% a very decent return by any standards. With a significant increase in NSL over the period the money managers are clearly expecting more of the same and the reporting agencies are as a rule expecting a tighter market in both Q2 and Q3.
The rig count also continues to fall, last week Baker Hughes reported units overall to be down 10 at 1006 and in oil 8 lower at 816 units.
BLOE goes from strength to strength, announcing this morning that its West Rustavi, Republic of Georgia well number 16a has tested at 1,100 b/d ‘significantly in excess of its base case production rate estimated to be 325 b/d. Paul Haywood said to me that it was an ‘outstanding’ result and unsurprisingly the shares are up 70% at the time of writing. I remain convinced of his strategy and am scheduled another catch up with him shortly.
Another well that has come in is the Burnett 2B well at the Monroe Swell field in California where ‘significant oil and gas shows were seen and an estimated 90m of pay was found, again ahead of expectations. Reabold has paid for these two wells and their success triggers the earning of a 50% WI in the licence which produce ‘highly attractive returns’ according to C0-CEO Stephen Williams.
Anglo African Oil & Gas
An update from Friday from AAOG on the TLP-103c well on the Tilapia field where the company had left the bore to stabilise for 45 days, oil has subsequently risen to the surface measuring 43° API and, more importantly, from the Djeno reservoir. This confirms what Schlumberger had already said, that the well had encountered the Djeno reservoir.
The company also announce that SNPC has agreed to pay monthly amounts of $600,000 against their debt of $9.5m and has also reopened discussions regarding the remainder of the debt outstanding. Although the market is somewhat sceptical about funding another well this announcement should go some way to giving confidence in the fact that there is a real discovery in the Djeno and that the company believe that it is commercial.
Last week I was able to have an extensive discussion with members of the new Solo Oil board and senior management. I met with Executive Chairman Alastair Ferguson, NED Tom Reynolds and Doug Rycroft, General Manager Operations and John Daniel Technical Advisor. What became immediately clear was how hard the team is working to deliver deals already and quite how wide a set of skills that between them they hold. The fact that as many as 15-20 different potential deals have already been screened is testament to how quickly they have come out of the blocks and that shareholders can be confident about transaction pace.
Given that they have started to look at so many possible deals it would not surprise me, as I wrote in the blog before I met with them, if one or maybe two are not getting close to closing and thus starting to add value for shareholders. Indeed, whilst they were giving nothing away, I got the distinct impression that they were being quite bold and one might expect to see a relatively substantial deal at some stage. The level of experience of the team is such that there would be no qualms about making a move on an asset that would be designated as an RTO and lead to a suspension of the shares to return as a much bigger player.
The team has clearly looked at late life/mature assets and seen how successful this can be, and over a limited period with creative funding can be highly rewarding. Nowadays decommissioning is not so much the worry it has been in the past and with abandonment costs falling opportunities can contain some ‘pleasant surprises’ that offer excellent value. The board appears to have particular experience in this regard in my view.
We talked at some length about Tanzania and the way to unlock value as it remains without doubt a core asset and one which has significant potential in its own right. In this regard it is obvious that general discussions have taken place with Aminex and given that both ‘new’ Chairmen have a BP background some discussions may well have taken place which seems an eminently wise thing to do. The team is not being idle on this asset and are working hard with its partners to create value, ‘certainly not taking their eye off the ball’ so to speak. My feeling with regard to this is that the management want to make a success of it but would be equally as happy if the work on the rest of the portfolio on its own merit downsized the scale of Tanzania as a proportion of the whole.
There is clearly a lot going on already from the management team at Solo and the key phrase in their mission statement is probably ‘achieving near-term commercial outcomes to generate value for our shareholders’. They have an strong view that they want shareholders to have confidence in the board and they will reward that confidence. For what its worth I think that this management team is pound for pound one of the most experienced and smart technically and operationally in the sector and it would be a considerable surprise it it did not deliver. Financially they aim to have a self-funding balance sheet, capital efficiency to make good quality transactions with well defined upside and with sparing use of internal funds. If it delivers the ‘full cycle production, development and modest exploration vehicle’ it is intent on then I will not be surprised.
Gulf Keystone Petroleum
Last week I also attended the GKP Capital Markets event in which CEO Jón Ferrier, CFO Sami Zouari and COO Stuart Catterall gave presentations. Whilst the numbers for 2018 were excellent with record numbers in terms production, ahead of guidance, of cash flow and cost reductions, the focus was very much on the future.
Initially the target for the Shaikan Field Development Plan is for production of 55,000 bopd, this has been submitted to the MNR but not accepted so far due to flaring assurances/gas re-injection. It is intended to upgrade facilities in 2019 and well capacity in Q1 2019 with an estimated gross capex of $200-$230m. This cost also begins the foundations for the 75,000 bopd expansion and rises to $400-$450m with additional costs and longer term, gas re-injection.
Initially for the Jurassic it is intended in due course after a pilot to take the light oil from the Triassic that will enhance the blend and increase production to 85,000 bopd. Finally, phase 2 would take the project to 110,000 bopd by expanding the Triassic and with a Cretaceous pilot.
GKP also announced a first dividend policy with a target of $25m per financial year, this year they will also pay a supplemental dividend of $25m making $50m in total. I haven’t met with GKP for a while but it certainly seems that confidence is high indicated by the dividend and substantial investment plans for Shaikan.
The big game in the Prem went down to the wire and Liverpool beat Spurs 2-1 at the death. The Noisy Neighbours saw off the Cottagers whilst the Red Devils hung on to beat the Hornets 2-1. Chelski came from 1-0 down to win 1-2 although the linesman who gave the goal should be at Specsavers this morning and never run the line again…The Gooners host the Magpies tonight.
And the Wally with the brolly has been fired as manager of QPR today…
After the practice and quali it looked all over like Ferrari’s day in Bahrain but seeing a 1-2 for Mercedes came as quite a shock. With Leclerc having a power problem lucky to get 3rd and Vettel spinning which no one likes to see the Prancing Horse failed on the day…