WTI $56.02 +14 c, Brent $63.39 +21c, Diff -$7.37 +7c, NG $2.24 +2c
The week is ending on a whimper with markets up modestly yesterday and again today, this morning WTI is up 22c and Brent 6c. Internationally, Super Mario was unimpressive yesterday although he is only the warm-up act for the Fed next week however much he likes to think he moves markets.
The Saudi’s have confirmed their worst kept secret that they are to increase capacity in the E/W pipeline from 5m b/d to 7m b/d but that ain’t happening in this particular dispute. Elsewhere my politico’s tell me that key departmental decision makers in the Boris Government with regard to oil and gas in the UK are generally supportive of the industry and his ‘can-do’ attitude should also help.
Independent Oil & Gas
IOG has announced the farm-out of 50% of the company’s SNS assets to CalEnergy Resources (CER) for £40m in cash, up to £125m of development carry of 80% of IOG’s 50% core project costs and an option to farm-into Harvey post the upcoming appraisal well. There are some curious features which primarily include the fact that IOG will pay CER a royalty of 20.2% of its net revenue from the phase 1 fields only, up to a cap of £91m over field life which strikes me as pretty high.
In order to fund its own share of phase 1 costs and without the ability to raise such money via equity, IOG are going to tap the Euro-denominated debt market by the issuing of a senior secured bond of £70m, it already has a detailed term sheet with ABG for this process. It appears from the statement, and I havent heard from the company this morning yet, that the LOG debt has to be repaid or restructured before this further debt can be taken on. TBC
So, on completion, IOG will repay the non-convertible debt of £16.6m, as for the £22m of convertible debt this will either be repaid, converted into a maximum of 29.9% (it would be much more) of equity or converted into L/T unsecured debt at the same price…If they paid it all off it would use up £38.6m of the £40m being paid by CalEnergy so it will probably be a mixture of the rest but a minimum of £16.6m plus dilution and of course a lump of unsecured into the bargain.
This is a real curates egg of a farm-out, at first glance it looks good and puts IOG into the position it wants to be in, ie developing its core project with cash and a substantial carry to deliver the project. But the payout from net revenue of 20.2% and the formidable task of repaying and restructuring the LOG debt along with the equity dilution that it brings takes some of the gloss of it. After a big rise first thing IOG shares have settled at 19.5p, just shy of what I seem to remember was the indicated bid some time ago….
The market is properly confused by the announcement by Block this morning in particular with regard to the production from West Rustavi field. With people expecting much more, the announcement of 360 boe/d with a water cut of 25% even if that contains mainly drilling fluids, is clearly considered disappointing. I have put in a call but as yet heard nothing back, probably in the field so nothing to worry about.
Block are going to drill the horizontal side-track of the 38Z well this summer which should be good news, something this share desperately needs as I notice some of the recent gloss is beginning to rub off. Social media can be unforgiving especially if it looks like they feel that they have been misreading the runes…
Range has announced that it has terminated negotiations with the pre-school educational business in China it was hoping to buy but that the debt restructuring negotiations with LandOcean continue. The shares will return from suspension and one assumes that the restructuring of the oil and gas businesses promised at the time of suspension are continuing.
I would imagine that the process within Trinidad is continuing therefore the long-awaited consolidation of assets should be imminent, that’s assuming any of the other island companies are interested. As for the service part of the business it has a pretty smart inventory of rigs which should find a home somewhere in the region.
It really is difficult to see where Range will end up, with its Chinese investors, management and debt I suppose the natural guess is to look east…
Yesterday President announced that it has signed a good new offtake agreement with Trafigura who will take ‘certain’ of its production from the Rio Negro Province and has agreed the make an advance to President on commercial terms.
As a result President has paid off a good deal of high interest debt ahead of expectations. Another smart bit of work by the company which virtually went unnoticed by the market…
The ‘Hangover’ test between England B and Ireland continues today and the visitors only have to score 182 runs for a memorable victory.
A fantastic card at Ascot tomorrow includes the famous King George VI and Queen Elizabeth Stakes with a line-up including Enable, Crystal Ocean and Anthony van Dyck.
In F1 it is the German GP at Hockenheim and in first practice the Ferrari’s are holding the top two places.