WTI $39.08 -69c, Brent $42.01 -65c, Diff -$2.93 +4c, NG $2.55 -4c

Oil price

Oil continues to be under serious pressure after the market assimilates the Aramco news about cutting prices due to lower demand from Asia. Equity markets are also under pressure and whilst it is only profit taking so far the Nasdaq Exchange is leading markets down. How good are Baillie Gifford looking right now?

Premier Oil

With a crucial few weeks for the company coming up I was very fortunate to be able to have an extensive interview this morning with CEO Tony Durrant. In a candid, open and honest discussion he explained just how well the company is doing at the operating level and how the refinancing will affect both equity and bondholders.

I remain genuinely of the belief that once this is completed we will have a company with c. 100/- boepd from a number of hubs around the world delivering meaningful fcf and justifying faith from shareholders. I understand that there is an imminent call but would be a huge supporter from these levels if I was a holder or even considering it.

Core Finance CEO interview: Tony Durrant of Premier Oil

United Oil & Gas

At the end of last week I had, after a long wait, a chance to have an extended chat with Brian Larkin, CEO of UOG. With a number of genuine reasons not to chat to me I was able to catch up with him and see what’s been occurring in recent months which is plenty.

UOG is a rare beast in that it is a multinational, full cycle E&P business. This has been achieved by dedication and a realisation that you need a decent amount of the ‘P’ primarily in order to avoid the regular dilution caused by having to regularly return to markets for funding.

UOG has been busy, in recent months it has bought the Egypt production from Rockhopper for cash and shares, since placed back in the market. It has raised money in the market albeit at quite a discount but has also been backed by a prepayment deal with BP and executed a sensible hedging deal against the offtake in Egypt. In addition it has taken Tullow’s stake in the Jamaica acreage and into the bargain was awarded two blocks in the OGA’s 32nd licensing round last week.

Egypt gives UOG key production of some 3,000 b/d and with costs here of $6.50/bbl is attractive and with 3 mmboe nwi of 2P reserves as well as a bonus of ‘significant development and exploration upside’ of 6.5 mmboe of net prospective resources. Egypt is low cost to run, has already delivered against its purchase price and wells here are fully funded.

In Italy UOG is still on track for first gas at Selva in H1 2021 with 0.4 mmboe of net 2P reserves and 3.5 mmboe net contingent and prospective resources. Being at the very centre of Italy’s Covid-19 outbreak has left little chance to work on the licence which is a good thing as there isn’t much left to do so when circumstances permit it will be ready to go for first gas.

In the UK the company has the Zeta prospect which I am reliably informed is like the company’s Crown asset which bodes well. They are working this up and may well ‘do a Crown’ by potentially divesting the assets by getting it drill-ready and farm-out when economically most viable. Just to add some spice and value, the company were recently awarded blocks 15/18e and 15/19c in the 32nd round which are adjacent to the aforementioned Zeta prospect.

UOG also has acreage in the Wessex Basin but has ‘outgrown’ it and whilst they are very good assets were bought from First Oil for £1 so don’t owe them anything and will be divested.

Finally in Jamaica the company has recently taken advantage of Tullow’s withdrawal from assets worldwide and UOG now own a 100% operated interest and an 18 month licence extension. The UOG management, being ex-Tullow know the licence better than anyone, including Tullow, having come from there.

There is evidence of a working petroleum system being present including the high-graded Colibri prospect estimated to hold 229 MMstb of unrisked mean prospective resources. (ERCE) Jamaica is indeed ‘transformational especially now they own 100% but the company has got some-modest- work to be done but should be completed soon at a relatively low cost.

After that the data room will re-open, probably in 6-9 months so early in the new year but it is a large, operated offshore position and with well costs having fallen from c.$40 to c. $20-30 looks attractive and not to be forgotten are the 15 more targets after Colibri. The company has had ‘many’ enquiries and will engage where appropriate.

United looks to be an interesting, across the board, full cycle E&P company, recently funded by equity of £4.8m and the important BP structure worth $8m. This means that as per Mr Larkin’s wishes they won’t need to come back to the market again any time soon. The company makes money at $20/pb and has a good hedging policy against its 3,000 boed of production.

Those numbers should give a value of something decently in excess of 12p a share, taking some of the unrisked upside I can get to the company broker’s 17p valuation and with a following wind longer term certainly justifies serious consideration in value energy portfolios.

And finally…

At 6pm England take on Australia in the final T20 game already dormy 2-0 up and without Buttler and possibly Morgan in which case Moen Ali is the Skipper.