WTI $24.14 -60c, Brent $29.63 -$1.34, Diff -$5.49 -74c, NG $1.83 n/c
Oil drifted yesterday, the restart of economies around the world saw an albeit modest rise in COVID-19 cases with Germany being at the heart, South Korea following and even a small outbreak in Wuhan. Whilst this should cause concern it seems to be offset by the restart of a good deal of manufacturing, production and even retail outlets re-opening.
On the plus side the US economy is showing signs of increasing demand for gasoline, cracks are strengthening and as refiners increase utilisation rates production is up 25% m/m admittedly on very low comparisons but it was 6.7m b/d of product…On that point the US retail gasoline price unsurprisingly rose again last week by 6.2 cents to $1.85 a gallon.
The Baker Hughes rig count was down 34 units overall last week with oil down 33 at 292, a spectacular fall consistent with US oil production which is now fully on target to be down by at least 1.7m b/d by the end of June. This morning oil is better by around 50 cents after the Saudis indicated that Aramco had been instructed to reduce production by another 1m b/d to bring it down to 7.5m b/d next month, this would be a heroic 5m b/d off last months levels.
Diversified Gas & Oil
Results this morning of the fundraising and potential acquisitions, the company has raised gross proceeds of $85.8m/£69.4m from new and existing international investors at 108p per share, a 1.6% discount to last night’s close. Net proceeds are for the funding of two potential acquisitions with an aggregate consideration of $235m should they both complete.
This composes upstream and midstream assets from Carbon Energy Corp for $110m and upstream and downstream assets from EQT Corp for an initial consideration of $125m. Together they add 18 Mboepd (99% gas) representing 20% of 2019 group production and will be immediately accretive to both eps and dividends per share as this deal carries the usual margin enhancement with cash costs of +/- $1/mcfe which is less than DGO is valued at currently.
I expect that DGO’s efficiency will fit these deals with the rest of the portfolio, absorbing the acquired assets and using its efficiency to give profitable upside through its well worked and trusted model. Indeed, for the 10% equity dilution created by the Company’s existing issued share capital increase shareholders receive a more than 20% increase in EBITDA giving significant potential scope for increasing dividends going forward, not bad when at 107p the yield is north of 10%.
Settlement for this fund-raise, coupled with the company’s imminent move to the Main Market of the London Stock Exchange is expected to take place next Monday at 0800 hrs. As an extra bonus investors in the fundraising will also be eligible for the Q4 2019 and Q1 2020 dividends, enhancing the running yield. It is worth noting the comments from CEO Rusty Hutson ‘The completion of this fund-raise, against the challenging economic and industry backdrop, reflects the unique proposition of DGO and the support that we have for our continued growth and value creation ambitions. Our investment story is centered on low-risk cash flow and a commitment to shareholder returns, and our business model ensures we are able to deliver both, even in the current low commodity price environment’.
EME announced this morning that acceptances had been received for 20% of the Open Offer and that they have raised £397,540 at 3.5p. In addition the company received a direct subscription that raised £17,500 which made the overall raise some approximately £825,990 in recent weeks.
Whilst the board believe the price is at the higher end of the range I think I might have expected a few more of them to participate at 3.5p after all Tom Kelly and his colleagues have actively supported all recent raises, some at much higher prices.
This from yesterday where MATD updated the market on the state of the exploitation licence, apparently the Mongolian Government has been successful in containing COVID-19 in country and there is no significant impact on Petro Matad operations and Government Ministries are open and functioning as normal.
The Block XX exploitation licence application is progressing with meetings already held with the industry regulator MRPAM and audit of the Heron Reserve Report successfully completed. Next is the review by the technical department within the Ministry then the Plan of Development is submitted which is well advanced and the company continue to look at ways to expedite the process.
The report yesterday put costs first but the market, whilst not disinterested in money saving are more interested in the status of the Exploitation Licence first and foremost. So yes, cost saving measures are being supplemented by directors, advisors etc have halved the overall cost base of the company. Cash reserves are OK until the end of Q1 2021 or Q2 if further cost savings are made.
All depends for MATD on the successful receiving of the Exploitation licence, surely it will come but hopefully not well into 2021, having said that with crude prices at $25 and $30 there are good reasons for thanking for this hopefully modest delay.