WTI $59.77 +44c, Brent $63.16 +42c, Diff -$3.39 -2c, NG $2.52 +6c, UKNG 48.0p -0.7p
Oil is quiet, stuck right in the middle of the current trading range with nothing obvious likely to change the current state of affairs. The vaccine and economic growth vs the still major worldwide number of Covid cases jury is still out, at least quite how long will the world take to get back to normal levels of oil demand is up for discussion.
Add to that it appears that the Opec+ leadership have also taken some of the beta out of the process by their statement last week suggesting that they will effectively sit on the price and release 350/- b/d in May and June and 441/- b/d in July plus a wind-down of the Saudi position where necessary means that 2H is going to be crucial.
Finally, yet again we have a mixed set of inventory stats, the EIA reported a decent crude draw of 3.5m barrels but with refinery runs of 84% and a modest product demand, that led to gasoline stock increases of 4m b’s and distillates build of 1.5m b’s.
Diversified Gas & Oil
The company announces that its key lending group led by KeyBank Association, reaffirmed the existing $425 million borrowing base of the Company’s senior secured credit facility with no changes to pricing, covenants or other material terms after completing the Credit Facility’s semi-annual redetermination.
Rusty Hutson, Jr., CEO of the Company commented,
“Once again, our portfolio of stable-producing wells with long-life reserves complemented by robust hedges and value-enhancing midstream assets garnered a unanimous reaffirmation of our current borrowing base. Ever mindful of the challenging pandemic and related volatility, I would like to thank our sixteen-member bank group for their support of our differentiated business strategy through lending and other services that support our hedging and financing activities. The reaffirmation solidifies our liquidity as we continue to evaluate opportunities to create stakeholder value by enlarging our portfolio of producing and midstream assets over which we can deploy our Smarter Asset Management programmes.”
The bank group clearly know a good thing when they see one and DGO is without doubt, a good thing. To have reaffirmed the existing borrowing base is indeed showing faith in the top quality management of DGO and given them the licence to get stuck in to the opportunities which are presenting themselves.
It is good to know that Rusty and his team are adopting a highly selective stance in doing deals but I’m sure that it won’t be long before something comes along and I am hoping that it is something like that that takes the share price back up to 130p and higher where it should be.
Following yesterday’s blog I had a number of enquiries about why I had not commented on the news. The answer is that there is no news, the summary CPR was ‘broadly consistent’ with the estimates provided by the company back in September 2020 and the update on stakeholder engagement rang a few bells with me.
‘The Company continues to engage with an ad hoc group of its convertible noteholders over the Company’s forward work programme, strategy, financing and balance sheet recapitalisation. It should be noted that there is a risk of significant dilution to existing shareholders from a possible restructuring and/or partial equitisation of the convertible bonds and of potentially limited or no value being returned to shareholders.
If no agreement can be reached with the Company’s stakeholders on additional development activity at Lancaster, the field could continue to produce from the P6 well before reaching its economic limit, the timing of which would depend on oil prices, actual production levels delivered and the level of cost savings achievable. The field may then be decommissioned, with potentially limited or no value returned to shareholders’.
Antony Maris, Chief Executive Officer of Hurricane, commented:
“The summary of the CPR published today is broadly consistent with the estimates for Lancaster and Lincoln which we presented in September 2020. We are continuing to work on a financial plan and are engaging with our key stakeholders to allow us to take the business forward and provide us with the best chance of targeting these reserves and resources.”
As far as I can see nothing changes in either the estimates of West Shetland assets nor the potential risk that remains with the company now that the driving forces behind the company are no longer on the premises…
A big few days for sport as today marks the beginning of the Aintree Festival which culminates with the Grand National on Saturday. For almost the last time this jumping season it is chance to see the finest steeplechasing talent on show.
Also starting today until Sunday is the Masters at Augusta National which is only five months since the last one which was postponed from its regular April slot.
Last night in the Champions League Chelski put one foot in the semi finals with a 0-2 away win at Porto.
Tonight it’s back to the Boropa Cup with the Gooners hosting Slavia Prague and the Red Devils at Granada.
And how exciting, it’s the first day of the County cricket Championship, often as this weekend a time for snow and record numbers of sweaters being worn.
As you say above – with the driving forces behind the company no longer on the premises – following the disappointment around the Lancaster well operation and the less than convincing initial drills on Warwick, was it determined who was responsible for the departure of Trice et al? Was it merely a falling on sword act or was there pressure from major shareholders – if so who? The appointment latterly of Maris seemed a shrewd move given his basement filed experience but now everything seems to be focused on 2022 convertible bond maturity. Presumably this could only be paid down with further new financing as cash reserves come nowhere near the value of the bond or the bondholder converts to equity with consequential dilution of existing shareholders – but difficult to see at this point in time why such new equity in a business with uncertain long term viability would be appealing to the bondholder.
Thank you Peter, having watched this process from the very start it seems to me that there is no likelihood whatsoever that he would have fallen on his sword, in my view. A long term, complicated project which seemed to be on target for significant success went up in smoke in short order, at today’s oil price this could and should have been a success despite complicated financing requirements. People will have to make up their own minds as to why that has not been the case…
Malcy, the CPR of 2017 estimated potentially huge reserves in the fields operated by Hurricane. The latest CPR reflects the massively downgraded reserves announced by the BoD in Sep 2020, by in excess of 90% downgrade. How on earth can this be? Unless the first CPR was a part of a scam which I very much doubt, how could both reports be so completely misaligned? Presumably both reports were compiled by highly qualified analysts, officially licensed to provide material upon which company evaluations are assigned, using the same data and metrics (ok, the early production system has produced more info). I, and presumably many others are still trying to understand how
a) The two are so out of whack and
b) How can we believe that the second report is any more accurate than the first one.
Well I tend to agree with you especially as CPR’s are notoriously difficult to get and usually undervalue assets, at least that is what management always say! This one is particularly difficult because of the nature of the rocks, ie it being fractured basement.
The answer is that i dont understand, i don’t think that the first was overstated so the management who recently presented the data for the second time must have downplayed things somewhat.
One day things will come out, I know that I have historically backed Robert Trice and his expertise in fractured basements so it will not surprise you to know that I was more than upset when he was removed by a board who knew way less than him. This was after his COO had just died and CFO been fired.
The board should be very careful as to what they wish for and there were some shareholders who could and should have been more supportive.
Well there you go, some random thoughts, i havent answered your question i think but hope it helps if only a small amount.