WTI $39.85 -79c, Brent $41.77 -69c, Diff -$1.92 +10c, NG $2.97 -4c

Oil price

Markets, and at the moment that includes crude oil, are acting under the influence of the COVID numbers which are increasing dramatically and with new lockdowns particularly in Europe. So prices are off c.$1 this morning and good news is at a premium, there is no sign from Opec+ that the 2m b/d of increased production due in January 2021 will be paused even though I think it is becoming a given before long.

Wall Street has a huge week of results upcoming, a third of the S&P, 10 of the Dow and more importantly most of the FAANG stocks that have pushed markets up during the summer are due to report.

President Energy

Interims from PPC today in which first half production rose to 2,747 boepd, revenue was $13.7m with adjusted EBITDA of $1.1m, more importantly revenue is continuing to grow in Q3. Free cash flow was $5.9m and debt fell to $11.3m and with the company issuing guidance of 2,800-3,000 boepd for the year. It is well worth noting that  President has not only replaced all its production in the period but has increased its total proven reserves by 67% and its 2P reserves by 42% in Rio Negro, Argentina, since 31 December 2017.

‘Even through the darkest times of the period when both prices and demand plunged to depths not envisaged by any reasonable prior planning scenario, President did not shut in any one of its wells due to inability to have its production off taken. This vindicates the management strategy of focusing on the end market for its products…

In addition to the results PPC has issued a drilling report on the LB-1001 well at the Las Bases field in Rio Negro where net gas pay has been recalculated at an increased 70m over several intervals, an increase of some 32%. Testing was successful, validating pre-drill estimates of 100,000 m3/d (588 boepd) initial gas production and results identified ‘good potential for new workover for the shut in well, LB-1 now to be performed before year end, and a new follow on well to be considered for drilling next year’.

‘Thus, by the end of November, from the above wells, President expects some 175,000 m3/d (1,028 boepd) new gas production to be brought onstream. President’s intention is to build into its gas portfolio the capacity to reduce or increase production flows to reflect seasonal price variations to optimise profitability and cash flows whilst maintaining a base load of income. The deliberately planned increasing of the number of producing wells in the portfolio to provide flexibility and redundancy as well as good reservoir management is therefore integral to this strategy’.

Commenting on today’s announcement, Peter Levine, Chairman said:
“President has, in the first half of 2020, traded through the hardest and most sudden global peacetime crisis in a century. Notwithstanding this, the Group has weathered the turbulence and is in a fit and solid financial and trading shape
“Despite the difficulties, President has delivered a positive adjusted EBITDA and free cash generation from core operations and finance income. The results reflect President’s resilience and resourcefulness, together with the focus on conventional onshore production and its recognition of the importance of securing the end market for its production
“The concentration on our core businesses, margins and the strategic decision taken to pro-actively materially reduce debt in times of sustained lower prices have resulted in a sound financial and trading platform on which sustained growth can be developed. In particular it would be wrong to overlook the organic potential of our producing and exploration portfolio.

The conference call and investor meeting was well subscribed and management addressed all the questions from investors, they pointed out that the period and that following it is pretty impressive despite the ‘year of great darkness’. To their credit they tried to answer the question as to why the shares remain in the doldrums, many observers including myself believe that PPC has done more than enough to have seen a rerating in the shares. To have successfully drilled, worked over, built a 16km pipeline and seen such a respected trader such as Trafigura taking a 16% stake in the company, bodes well for when that rerating comes.

IGas Energy

First it’s geothermal and now hydrogen for the diversification from IGas who are clearly keen to use every part of the portfolio to add value. They have signed an HOT with BayoTech, a hydrogen generation technology company offering hydrogen production solutions through rentals, leases, sales and Gas as a Service to customers worldwide. 

IGas has identified two sites in the South East to use its gas reserves to be reformed into hydrogen for onward resale. Assuming these sites are not currently making gas sales, or at least of any meaningful nature, this can albeit in a very modest nature be of some interest.

Commenting, IGas CEO, Steve Bowler said:

 “I am very pleased to announce our partnership with BayoTech, a leading technologies business in hydrogen generation systems. Preliminary engineering work has confirmed that gas at these sites is suitable for BayoTech’s innovative, modular system.

We look forward to working with BayoTech to be well placed in the growing hydrogen economy which will add value to our existing gas resource through the delivery of cost effective hydrogen.”

These are exciting times for IGas and whilst this is still at a very early stage it is good that companies like IGas are knocking on any door to try and open up potential within a portfolio currently limited to oil and gas of a primarily conventional nature.

Savannah Energy

SAVE has recently produced interim results that for the first time show quite how substantial the benefits from the Nigerian businesses acquired through the Seven Energy deal really are. The earnings growth, and more importantly the strong cash generation delivered by the gas businesses, meant that the company was able to reiterate its core FY 2020 total revenues and equally important cost guidance.

The figures showed H1 cash collections in Nigeria of $82.1m compared to $55.3m in H1 2019 from an all-time Nigerian gas production record of 177 MMscfpd in May. It should be borne in mind that SAVE is currently supplying c.10% of the Nigerian power sector with the capability to increase this figure even more in due course.

Indeed in the interview below CEO Andrew Knott explains that the company is focusing on adding additional power station and industrial companies which can be done at very little incremental cost. Add to this the potential for transporting third party gas through the Accugas pipeline which will add ‘considerable cash flows’ and further enhance profitability.

Having seen this first substantial period announced by the company it is clear that despite the time that it took to close, the Seven Energy transaction is already proving to be a genuine gamechanger for Savannah, expect substantial and extensive profits building in this huge market.

The link to my interview with CEO Andrew Knott is below.

Core Finance CEO interview: Andrew Knott, CEO of Savannah Energy

And finally…

Lewis Hamilton duly won in Portugal and sealed his record breaking 92nd GP victory. Yet again Valterri Bottas saw his teammate lurking up in his mirrors again and before he knew it he was in second place.

In the rugby Ireland duly thrashed Italy leaving next week’s final round in their own hands. The title is all theirs to lose as they go to Paris on Saturday with a 23pt advantage so a win would be enough…

In the Prem it was another very interesting set of results, top of the table Villa lost 0-3 to Leeds, Liverpool stayed up there with a  2-1 win over the Blades, the Toffees fell from grace losing 2-0 at the Saints and the Hammers held the Noisy Neighbours 1-1. The Red Devils and Chelski played out a 0-0 but the Gooners lost 0-1 to the enigmatic Foxes whilst the Cottagers lost again this time to the Eagles and Wolves and the Magpies drew 1-1.

Tonight the Seagulls host the Baggies and Spurs go to Burnley.