WTI $25.29 -49c, Brent $29.19 -79c, Diff -$3.90 -30c, NG $1.62 -10c

Oil price

Mixed market views yesterday but overall the outlook looks reasonably good. The Opec report shows that after the 1Q and 2Q nightmare a  more positive view of the second half. They see significant growth in 2H with increases in demand of around 13m b/d and set against very low Opec+ production a market improving.

An EIA draw surprised most and at Cushing as well, indeed the gasoline draw showed demand is really starting to pick up. With WTI outperforming Brent in recent days the market is clearly and correctly working out that the June contract expiry won’t mirror that of May especially as the ETF’s cloud no longer substantially overhangs the market.

Genel Energy

A trading and operations update from Genel this morning, the shares have been one of the better performers after the initial oil shock and today the company seem strongly placed to continue that. With net cash of $106m at the end of April ($93m end Dec 19) and capex of  $45m in the first four months with point forward expected to be cut significantly.

Production in 1Q averaged 34,170 bopd, in line with guidance which will decline to reduced investment ‘appropriate for external environment’ and so for the time being guidance has been removed. Capex is down by c.50% to around $100m, half to be spent on the Tawke and Taq Taq PSC’s, $30m on Sarta and c.$10m on Qara Dagh.

Opex is down 10% on the $40m guidance with G&A down another 20% at $15m leaving operating costs expected to be at c.$3 p/b in 2020, that is serious protection when you have $106m of cash and investors clearly agree.  Bill Higgs, CEO of Genel explains it well, ‘despite the impact of COVID-19 creating a challenging environment for our industry, Genel’s resilient business model and robust financial position, with over $100 million in net cash and an asset cashflow break-even of $30/bbl, leaves us well placed to withstand the consequences of the pandemic as we continue to deliver our strategy. We have cut our cloth appropriately against this backdrop and halved our capital expenditure for 2020, protecting our balance sheet while still progressing Sarta, and positioning us to take advantage of growth opportunities as the landscape improves.’

Echo Energy

Echo has announced a successful amendment to the company’s EUR 5.0m 8% secured convertible debt facility with Lombard Odier A.M. The company now won’t have to make the March 31st quarterly payment and the default has been removed with no further payment due until 31/3/2021.

Payments expected to be made this year will now be calculated at the end of the year when the interest will be calculated and payable on a quarterly basis. As part of the agreement the company needs the EUR 20.0m 8% note to be approved on 22 May 2020. Accordingly ‘The Amendment is a further important step in the successful restructuring of the Company’s debts and provides a waiver of default for any non-payment of interest previously due under the Loan.’ Accordingly the Company will have completed the restructuring of all of the Company’s existing debt to defer all cash interest payments during 2020 which is an important step forward and Echo has an exciting operational time upcoming on which to concentrate.

Pharos Energy

A recent trading and operations update by Pharos Energy showed WI 1Q production of 11,589 boepd with Egypt contributing 5,596 (with an April average of 6,396 and a peak of 7,009) and Vietnam 5,993 boepd. Revenue in Q1 was $35m before a $5.8m hedge with a further $6.3m hedge in April. For the remaining eight months of the year c.52% of forecast production, hedged at an average price of c.$53/bbl is in place.

Pharos had cash opex of under $12 with cash balances of $54.5m and net debt of c.$41.7m and has withdrawn the 2020 dividend due to current uncertainty in the macro environment. Like other it is having a serious go at costs, some 25% in the cost base is expected and the company has re-issued its 2020 production guidance as follows. Egypt, taking account of capex deferral programme now updated to 5,000- 6,000 bopd and Vietnam  remains unchanged at 5,500-6,500 boepd net.

I’m sure that Pharos is in good nick and having visited the Egypt operations relatively recently I think that work being done there now will offer good opportunities down the line.  President and CEO Ed Story comments ‘Earlier in the year in response to low oil prices, we took prompt action and cut capital expenditure by deferring some of our largely discretionary investments in Egypt. We are working closely with our partners to achieve cost reductions across the business and are managing our portfolio to ensure we remain robust in this challenging period.  We firmly believe demand for oil and gas will continue to be an important component of the global energy mix over many future decades and we are positioning ourselves to survive the low oil price environment for the medium to long term for the benefit of all our stakeholders.’

Trinity Exploration

FY 2019 results from Trinity yesterday but given the historic nature of them I think that it is wiser to concentrate on the outlook the company, there is an exceptional and full presentation worth looking at. Trinity has a strong balance sheet and excellent hedging position providing some protection, 46% of 1st 6 months of 2019 exit production and 28% of 2nd 6 months is reasonably comfortable.

The 2019 break-even number was  $26.40 and with the 2021 target of $20.50 Trinity has a resilient look about it even in these conditions. Like others in the sector the company is deferring discretionary capex, maintaining liquidity and keeping cash for quick payback projects.

Trinity has no debt, thanking its perspicacity in restructuring when it did and year end cash of $13.8m, $14.2m at end of Q1. This according to the company is ‘sufficient to go through to H1 2021 in a protracted period of low realisations’. Production in 2019 was 3,007 bopd (2,871), aided by 6 wells, by Q1 it had grown to 3,291 +9% y/y without any wells and whilst the rest of this year will be dependent on drilling guidance has been conservatively set at 3,100-3,300 bopd.

The company’s continued use of the SCADA trials digitising their their oil fields, shows enhanced operational resilience and there is plenty of upside, at the moment there are 284 active wells (216) with hundreds more available. The shut-in wells can be brought on extremely cheaply with Trinity’s use of automation and that digitising technology. That the company are so confident about riding out the storm and ‘Ultimate aspiration is 30,000 bopd(NOT 3,000 bopd!)’ shows such confidence and bearing in mind that the board has a great deal of skin in the game (22%) proves that investors are in for an exciting ride.