WTI $58.58 +53c, Brent $65.05 +33c, Diff -$6.47 -20c, NG $2.23 +10c
As expected it was all about the Fed yesterday, and as is often the case it was the comments that came with the announcement that moved markets. A quarter of a point was what was expected but the words ‘midcycle adjustment’ spooked the markets as they immediately had thoughts that this was a one off cut not part of the furniture going forward. Also the fact that the Fed mentioned trade as a worry came from left field and hence the markets went into free fall, oil is down another 60 odd cents this morning.
Zenith has raised £1,075,000 this morning via units of 1 ordinary share and 1 10c warrant packaged at C$0.04 (£0.025) and are now fully funded for all drilling operations at the Jafarli field. With operations already underway and looking positive things in Azerbaijan have never had a better chance of success.
I wrote briefly about RockRose last week on return to the market post completion of the Marathon deal and the paperwork being completed, with a promise to finalise thoughts this week. Since then I have spoken to the company and had a chance to assess the numbers which continue to look very positive indeed.
The numbers speak for themselves, production and reserves have effectively doubled and if the Marathon assets are like others acquired, will naturally increase with time along with a diminution of decommissioning costs being deferred. The company bought shares back when they couldn’t find any better investments than their own stock and have paid one off dividends in the past. This leads me to believe that although not yet elucidated formally, a dividend policy might be forthcoming as cash will continue to pour off the company.
I am taking off the unrestricted cash of £17 per share (restricted is a short £6 in addition) adding the predicted EBITDA with the Marathon assets and get to a target price in excess of £37.50 per share, if further acquisitions, and I am sure there will be some, are as cheap as the historic ones, that valuation will look conservative. For once RRE won’t be suspended during summer maintenance of the bucket list so they will enter this month.
Diversified Gas & Oil
Another with a couple of stories from last week, worth taking a look at is DGO who put out a trading update to the end of June and another modest acquisition. 1H production was 76 MBoepd net including two months of production from HG Energy 11 which is up 295% 1H on 1H, the company exited the period with production of 90.2 MBoepd. 1H EBITDA hedged was $131m again with a higher exit rate of $144m equivalent. It is worth noting that the Smarter Well Management (SWM) offset natural declines with ∼430 previously non-producing wells brought back into production in the period.
The company has strong liquidity of ∼$335m which includes cash and the revolver and by the end of June G&A expense was a very low $1.12/boe with cash margins of 55%. At the time of the statement the company said that it was fully financed and always looking at further deals and lo and behold another modest acquisition has popped up.
The company has entered into a conditional asset purchase agreement with EdgeMarc Energy Holdings for assets in Ohio for $50m. The sellers are ‘debtors-in-possession’ and the sale will be conducted through a bankruptcy court-supervised process. I recently met with senior management at a meeting at which I was able to invite some private investors, they, like I, were most impressed and I hope to do it again before long.
Another visit last week was to see Eskil Jersing and Katherine Roe, CEO and CFO of Wentworth Resources. It has been a very busy time at WRL with the moving to a London only listing with all that entails as well as the Temba disposal amid the tidying up of the company.
Mnazi Bay is now starting to produce at a higher level, after the reduction in guidance (it is now 60-75 MMscf/d) due to the rainy season competition and a couple of technicals production is increasing again, at the end of June it was over 75 MMscf/d. With significant demand for gas domestically in the shorter and longer term the prospects for MB remain strong. The K1 transmission station was commissioned in May and gives extra capacity for evacuating power from K1 and K2, whilst demand from Dangote is expected to break 20 MMscf/d by Q4 2019. The company have a good relationship with TPDC and its new head and negotiations are ongoing for the full GSA at present.
The company is reducing debt and the last payment is due in January 2020 and the solid revenue from MB has given the board the confidence to pay a maiden dividend this summer. As for potential on the acquisition front I get the impression that one of the best investments is on their own doorstep so when the time is right the company may considering upping their stake at Mnazi Bay by taking out Maurel & Prom and taking over the operatorship, this would be a particularly good use of capital into the bargain.
I know that over the last few months they have looked at a number of potential add ons and even the odd offer but so far nothing has come of an asset or company deal. Wentworth is in good nick, it is paying down debt and making a capital return from its solid producing asset at Mnazi Bay at which its best use of capital may be by increasing its position in the project. Shareholders should keep the faith…
Glorious Goodwood continues with the Lennox Stakes, so far the racing has been of the highest standard as one would expect and the Gosden/Dettori partnership continues to flourish.
The first day of an Ashes series series is always an incredible occasion and today at Edgbaston is no different. England couldnt take the risk of playing a recently injured Anderson and Archer, they went with Anderson who is now having a scan on his injured calf after bowling just four overs. As I write Australia who won the toss and are batting are 112-7.