WTI $41.45 +9c, Brent $43.80 +19c, Diff -$2.35 +10c, NG $3.03 +8c
Oil did rise yesterday but had been a lot higher, I noted at one stage that Brent had touched $45 in the afternoon. The mixed views were plentiful as always the case when the three reporting agencies report and we had both the EIA and Opec come out with reduced demand numbers which you might expect. Hearing the IEA on CNBC this morning they were delighted to be fawned over but not prepared to make any predictions about 2021 and possible vaccines which makes their forecasts even more fragile than usual.
More positive news came from Opec+, it’s Algeria’s turn this time to say that the cartel would be happy to extend cuts ‘if market conditions allow’. Economic news, at least from the UK, helped following stronger data this week and we reported 15.5% growth in the UK economy in the 3rd quarter.
Victoria Oil & Gas
VOG announce the Settlement of litigation with CHL and the termination of the CHL Royalty Agreement this morning, on a long to-do-list for the new CEO and CFO these are meaningful announcements. The former shows an agreement to cease all legal action and the latter to cancel the CHL Royalty Agreement.
The deal brings ‘valuable net revenue income’ to GDC on a monthly basis from December 2020 and avoids significant legal costs as well as giving the management ‘the opportunity to focus on value added activities’. The settlement amount of an aggregate $12.5m can be paid out over ‘many years or sooner without penalty’ which is an impressive settlement by any yardstick.
Well La-108 Remediation and Initial Testing
The company has confirmed that after the well was effectively broken, much work was needed to repair it, problems were compounded by the fact that due to COVID-19 the ability to get spare parts was significantly impaired. Despite that the over-pressured well has been fixed after some three fishing operations, an unambiguously positive result, indeed the company leave it as ‘the full potential of the well is highly likely to exceed the capacity of the plant, which is 20 MMscf/d’.
Commenting today Roy Kelly, CEO of VOG, said:
“The two items addressed in this RNS hopefully demonstrate that the Company is proactively and decisively dealing with intractable legacy issues. Firstly, the settlement of this long-standing legal dispute removes financial uncertainty and ongoing costs which could have run to a final hearing in 2022, with potentially negative consequences. The termination of the CHL Royalty Agreement as part of the Settlement is a considerable benefit to shareholders in terms of future cashflow. Without the distraction of expensive legal proceedings and the considerable drain on management resources, we can now focus on value accretive activities.
Lastly, we are extremely pleased to have safely remediated La-108 and to have tested it at excellent flowrates. The complexity of this project in a deep, high pressure well was exacerbated by the remoteness of our operation meaning lead times for spares or new equipment can be several weeks or months as there are no other upstream onshore operations in the country. This took meticulous planning and execution by the team and its subcontractors. As to the additional gas sales potential this well provides, we maintain a “hopper” of additional gas sales opportunities, including new and existing customers, power and thermal use, and we will now pursue these earnestly”.
I have quoted the CEO’s comments in full in order to try and create the impression of quite how much work is going on and how successful these two separate operations have been. Crystallising and identifying the CHL litigation could on its own have saved VOG which has been borderline terminal in recent months without this work. With regards the well, it is clear that the operations have, despite incredibly difficult conditions also been a game-changer.
The new-ish team has a mantra ‘don’t complain, just deal with it’ which seems to be working and whilst they would themselves admit that there is still much to do this seems to me to be a very real milestone in the recovery of VOG.
Interims from Enteq today and the company say that the North American drilling market is likely to remain subdued for medium term but that markets outside USA are showing increasing demand for Enteq equipment. Also, new technology will greatly expand Enteq’s addressable market and that there is ‘value creation from new technologies as milestones are met’ and that the strong balance sheet enables on-going investment in the company.
Revenue is down to $2.6m from $6.5m, adjusted EBITDA is $0.1m (1.5) and the loss per share is 0.5c (0.4) with the company carrying $8.8m of cash ($10.7m).
Martin Perry, CEO of Enteq Upstream plc, commented:
“2020 has dramatically changed the market for Enteq. The USA land shale drilling market has significantly reduced with on-going over capacity likely. Outside North America, despite the effects of oil price uncertainties and COVID-19, Enteq has succeeded in developing a strong customer base in China and the Middle East with good further opportunities. New technology will drive the efficiency of future drilling in all markets, and Enteq has some exciting product release plans which have the potential to change the scale of our business.
A rapid response to the market challenges through reducing overheads whilst maintaining investment in our new product engineering has given Enteq stability, supported by a secure cash balance”.
In a separate announcement Enteq announce management changes that involve CEO Martin Perry stepping down and becoming Non-Executive Chairman. This is in my view very disappointing news for shareholders who in some cases have been on board ever since the float, the same as I have been following the company.
Whilst I still have significant belief in Enteq for the long term I wish that Martin Perry had decided to stay the course, this would have given investors some idea that founding management were happy to stay the distance.
The 84th Masters started this morning with no azaleas or crowds but with some big hitters who are not always the favourites of the fans. No early reports as the players are off for bad weather as I write.
The dreaded international break is on and in the European Championship qualifying Northern Ireland play Slovakia and Serbia host Scotland. In the friendlies England welcome the RoI and Wales entertain the USA.