WTI $33.71 +47c, Brent $35.53 +40c, Diff -$1.82 -32c, NG $1.73 +2c
Oil continues to recover, at present it is up 82% on the month but still 45% down on the year. With the differential between WTI and Brent narrowing to under 2 bucks, which may widen when Brent expires at the weekend, it is fair to say that mid 30’s oil is a fair scenario right now.
This was the weekend that Boris Johnson’s top aide ripped up the rule-book for the UK lockdown, after all who doesn’t take a 50 mile drive to a castle to check if one’s eyesight is up to a longer excursion?
The Baker Hughes rig count on Friday was down 21 overall to 318 units and down 21 in oil as well to 237, as I reported on Friday these are record low levels. With easing of lockdown restrictions around the world the demand picture is looking better and we know that the supply side has also tightened by more than expected. Finally another company, Novavax has started clinical trials for a COVID-19 vaccine in the states so add that to the list.
Diversified Gas & Oil
DGO has announced completion of the EQT acquisition this morning as well as securing a commitment from Munich Re for the term loan financing for the acquisition. The company is continuing to push on with the completion of the acquisition of Carbon Energy Corporation announced on April 8th 2020.
Rusty Hutson Jnr, CEO of DGO summarises the updated position for the company very well indeed… ‘Today’s acquisition builds on the significant momentum we’ve generated this year and continues to validate the large opportunity set of accretive gas and oil producing assets available in this market. As in the past, we now turn our attention to seamlessly integrating the assets into our existing portfolio, eager to capitalise on the embedded upside from the 13 non-producing wells by restoring them to production and further leveraging the scale and geographic density of our operation to reduce costs while also improving production from the other wells.’
I remain full of confidence in DGO as it heads towards completion of CEC and note that the shares have clawed their way back to the placing price, this is the very minimum and in due course the shares will be higher, after all when you start with a 12 yield you have built-in protection…
Gaffney Cline and Associates confirms that it has made a significant resource upgrade for the Mako gas field, 2C recoverable resource estimates are up 79% to 495 Bcf confirming operator estimates. Estimated 3C resources are up 108% on the 2019 audit which is above partner estimates.
With GCA’s confirmation of the latest upgrade, the Mako Gas Field has, on a 2C (contingent) resource basis, been shown to be one of the largest gas fields ever discovered in the West Natuna Basin and is, so the partners believe, currently the largest confirmed undeveloped resource in the surrounding area.
The market has not shared the enthusiasm with these numbers which show that Mako is indeed a class asset and as Coro Chairman James Parsons says ‘We are very encouraged by the resulting net asset value uplift and see very material upside exposure for shareholders as sentiment in the oil / gas sector begins its recovery.’ I’m sure that when i catch up with Tom Kelly he will be as bullish.
I had to reread this announcement several times this morning on the old ‘where’s the catch’ premise. Reabold has bought a 16.665% interest in PEDL 183, which contains the West Newton field from Humber Oil & Gas for £1.4m in cash and 350m consideration shares. This a spectacularly impressive deal and takes RBD up from 39% to 56% of what is surely going to be an asset made in heaven and more importantly their holding remains via a direct holding of 16.665% and and a 39.66% indirect interest via the Company’s 59.48 per cent. shareholding in Rathlin Energy.
This gives Reabold an almost perfect hand in this game, I have always had a higher valuation that most and have repeated that RBD as a trader may have to buy the stakes when they come on to the market too cheaply and wait to be an expensive seller down the road. By having a direct interest as well as that through Rathlin, when the time comes to farm-out they will have the best hand in the house.
Reabold announces that it has secured additional liquidity in the form of a £5 million discretionary equity line cash facility that provides additional flexibility and strength to the Company’s financial position. The discretionary facility is in the form of an Equity Line Agreement for a period of 24 months with Acuitas, whereby Reabold will have the right, at its sole election, but not the obligation, to issue new Ordinary Shares to Acuitas at a subscription price as determined under the ELA for an aggregate amount not exceeding £5 million.
Now I am never happy with these sorts of deals as they rarely come right but on this occasion I dont think that RBD are going to suffer. With a work programme coming up, and that can now happen whereas up ’til now was in some doubt, RBD will be strongly placed to draw down this facility only if it is needed. As the company says, it is prudent to have an added layer of contingency to give additional headroom as and when it might be needed. I do not expect to see this drawn down but if it is it should be for a very short timescale.
West Newton has a proven gas field that is worth way more than the market cap of Reabold (and Union Jack) and accordingly I remain of the view that this deal is an excellent one indeed.
BPC has signed a rig deal with Stena (the previous one with Seadrill was never signed) at highly advantageous rates that mean that drilling can commence on 15th December and run through until February. Not only is this a big saving but in the process of these negotiations other, quite substantial cost savings have been identified. As a result the spending guidance has fallen from $25-30m to $21-25.
Finally there is the small matter of funding which will need to be addressed before December, but the company now has an identified time-frame in which to decide which options would be best for it. Even the possibility that Stena might take an option to participate in this or future wells might be considered.
So, BPC shareholders have a Christmas incentive for drilling and hopefully it is this Christmas….only joking and whilst this is a bit later than hoped for now there seems to be a pretty strong timetable.