WTI $63.15 +$2.97, Brent $66.58 +$2.91, Diff -$3.43 -6c, NG $2.62 n/c, UKNG 49.7p +0.6p
The oil price rose sharply yesterday after the IEA joined with Opec in publishing in its monthly comments that there is a ‘significant tightening in the oil balance’, something others had spotted before. Indeed Opec itself had spotted it when they last met and announced that they would be increasing production albeit carefully as they could see stock drawdowns getting to the 5 year average again after the last years building.
Oil could see a more than 12m increase in demand on 1H 2020 and with the recent IMF GDP numbers being assimilated by the agencies that looks to me like a belter of a 2nd half. The EIA inventory stats showed a draw of 5.9m barrels of crude with gasoline +309/- and a surprisingly large draw of 2.1m in distillates. Americans are starting to drive again and at this time of the year that means business, a potent cocktail of all these demand ingredients makes for quite a few months, once the news from the virus/vaccine improves who knows what might happen?
Final results for 2020 today from Serica who report group profit before tax of £12.5 million (2019: £108.8 million) impacted by low commodity prices and Bruce caisson shut-in. Average net production was 23,800 boe per day, (2019: 30,000) the reduction reflects 1H caisson repairs and other field maintenance work which perhaps more importantly hiked the operating costs which at $14.12 were higher than 2019 ($12.60), adjusted may even have been down last year.
Cash flow from operations of £44.1 million (2019: £137.1 million) and capital expenditure of £26.6 million (2019: £5.3 million), also the maiden 3 pence per share dividend was paid in July totalling £8.0 million (2019: nil) and with 3.5p to be put to the AGM this year. This gave closing cash and cash equivalents of £89.3 million (2019: £101.8 million) after capital expenditure and dividend payment and with no debt.
The resource base was reinforced as Group production of approx. 8.1 million boe for the year was largely offset by a 12% increase oil and gas reserves, leaving year end reserves of 61.0 million boe (2019: 62.3 million boe), a highly credible performance.
Financially, average 2020 sales price of approx. US$20 per boe (2019: US$30 per boe) due to commodity prices and downtime gave a gross loss of £2.9 million (2019: profit of £85.8 million) and operating loss of £18.7 million (2019: profit of £87.7 million) included £38.5 million (2019: £52.6 million) of non-cash depletion charges.
Realised gains of £12.3 million (2019: £3.9 million) on 2020 gas price hedging offset by unrealised losses of £16.6 million (2019: unrealised gains of £6.7 million) on 2021/2022 hedging, indeed hedging is important and given that Serica take this very seriously they are already hedging out until 2023.
Cash flow from operations of £44.1 million (2019: £137.1 million) was after payment of £21.8 million of BKR cash flow sharing and other liabilities (2019: £57.3 million) along with £26.6 million of capital expenditure (2019: £5.3 million) and £8.0 million of dividends (2019: nil). It should be remembered that the deal done on net cash flow sharing at the time of the purchase means that with expiry at the end of this year Serica gain significantly. Profit after tax was £7.8 million (2019: £64.0 million) after a non-cash deferred tax provision of £4.8 million (2019: £44.8 million).
There are three specific projects to keep an eye on, the R3 intervention well has been a nightmare with a massive ice plug with many fishes stuck above it and rubbish at the bottom. It seems like this was an absolute nightmare with over costs to match but at least the well completed in May. The second is Columbus with the well having spudded on 17th March and finally there is the North Eigg exploration well scheduled for 2022.
As you might expect, Serica with its record in the area is taking ESG very seriously and will have a detailed report out with the Annual Report but even a sneak preview in today’s results show that they are giving it appropriate commitment.
Commenting on the results, Mitch Flegg, Serica’s CEO stated:
“We are reporting solid results after a challenging year and a severe industry downturn. Despite the many obstacles 2020 presented, Serica has continued to strengthen its financial and operational foundations and also to deliver returns to its shareholders. COVID-19 caused disruption to global markets and threatened operations during 2020 but Serica responded rapidly to protect its personnel and ensure continuing supplies of oil and gas into the British market. The impact of a substantial fall in commodity prices during the year plus a 45-day shut-in of BKR production in 1H to repair a damaged caisson on the Bruce platform was mitigated by the flexible structure of the BKR net cash flow sharing arrangements and the Group’s gas price hedging programme. This financial and operational resilience enables the recommendation of an increased dividend of 3.5 pence per share.
The R3 workover is now nearing completion despite a series of technical challenges and periodic severe weather throughout the campaign and the Columbus development well was spudded in mid-March 2021. These projects are expected to boost production during 2H and Q4 respectively and we continue to actively pursue M&A opportunities that can broaden our asset base and add further value for our stakeholders. I look forward to updating shareholders on our progress during the rest of the year.”
Serica with its top quality management team is as usual in a very strong position which to be honest I don’t think the market is in any way appreciating. With its top quality portfolio of 80% gas producing assets it has defensive qualities as well as potential from the three major projects currently on the books.
Gas prices have done well this year and has settled at 50p per therm right now having been higher earlier in the year but more importantly is still twice the price of 2020 and don’t forget that portfolio of hedges going out to 2023. The end of the net cash flow sharing agreement is at the end of the year when BKR boosts the revenue line and SQZ with no debt, substantial cash balances well able to finance all its activities and an increase in the dividend is looking in very good shape.
Wentworth has announced that its CEO Katherine Roe will provide a live investor presentation relating to its Full Year Results for the year ending 31 December 2020 via the Investor Meet Company platform on 21 April 2021 at 12:30pm BST.
The presentation is open to all existing and potential shareholders. Questions can be submitted pre-event via the Investor Meet Company dashboard up until 9am BST on 20 April 2021 or at any time during the live presentation.
I have seen some very positive comments around on WEN recently and think that is a very good opportunity for shareholders to catch up on the story and here from CEO Katherine Roe.
I mentioned Far yesterday as it seemed that ahead of today’s meeting scheduled and likely to rubber stamp the Woodside deal might be interrupted by Remus Horizons who seemed to have reappeared waving a large cheque around.
Having read my piece I was informed this morning from a reliable source that Remus Horizons PPC Ltd (RHPL), the private investment fund regulated by the Guernsey Financial Services Commission (GFSC, reg no. 67754), which yesterday confirmed its intent to make an off-market offer to acquire FAR Ltd, has now apparently been de-registered by the GFSC. I’m no expert but there must be some reason for this and I wonder if that Fund can be used as the bid vehicle under current circumstances, also the recent mass resignations from Remus indicate all is not well there, the Remus parent is still registered but wasn’t the vehicle apparently, maybe it has changed…
As it happens FAR Limited has advised that ‘at the General Meeting of FAR shareholders earlier today a motion to adjourn the meeting until Wednesday, 28 April 2021 in order to give shareholders time to consider the Remus takeover proposal was moved and seconded by shareholders’.
So, yet again the meeting has been postponed amid some uncertainty, the guys at Woodside must be driven to distraction and one couldn’t blame them if they walked away to see whether Remus is built on rock or made of straw….
Last night in the Champions League the Noisy Neighbours came through against Borussia Dortmund and will play PSG in the semi finals. Liverpool drew 0-0 with Real Madrid and went out 1-3 over the two games which means that Chelski get to play Real in the semis.