WTI $72.91 -$1.14, Brent $74.68 -$1.50, Diff -$1.77 -36c, NG $3.62 +12c, UKNG 80.1p +0.78p

Oil price

Imagine the scene, traders are getting the weekly briefing from the BSD. Guys, we are approaching the end of the month, quarter and half year end and the book is looking full of profit. Tuesday sees the Opec Technical Committee meeting in preparation for the full half yearly meeting of Opec+ which happens on Thursday, 1st July, into our next accounting period. So we get the picture, this is no time for too much bravery, let’s book those profits and head for the hills, yes guys with Independence Day on Sunday it’s a long weekend with a holiday on Monday, another excuse for keeping a flat book…

As for Opec their comments have been fairly straightforward, they will be looking forward with interest to August and beyond. The 2.1m b/d increase if continued in August would leave the market quite short so the discussion will be about how much the increase should be. They think that the market will be at least 1.5m b/d short in August and as much as 2.2m b/d in the 4Q overall so to put it bluntly they have the market by the scruff of the neck to put it politely. The market expects an addition of between 500/- and 1m b/d on Thursday/Friday anything outside those numbers will see the price move accordingly and the US traders won’t be open on Monday…

US retail gasoline prices today and with the demand that we have seen in the weekly refining figures the cost of a gallon creeps relentlessly higher. This week the average figure is $3.091 which is up 3.1c w/w, +6.4c m/m and 91.7c y/y.

Challenger Energy Group

A June 21 trading and corporate update from CEG today, annual accounts have been delayed by Covid and as such the company has been granted permission to produce them behind time.

Production and drilling operations have been maintained despite almost continuous COVID-19 related restrictions on the movement and availability of staff and contractors. Diligent compliance with all in-country mandates has been maintained, along with additional Company procedures to ensure the health and welfare of all staff.

For the 5 months (post acquisition of Columbus Energy Resources plc) to 31 December 2020 aggregate gross production from the Company’s five producing assets in Trinidad was 64,088 bbls, generating gross revenues of $2.3m. For the period Jan 2021 to May 2021, aggregate gross production from the Company’s five producing assets in Trinidad was 64,319 bbls, generating gross revenues of $3.3m.

As advised by the Company on 24 June 2021, the Company expects to complete drilling and logging of the Saffron-2 well in Trinidad on or about 30 June 2021, and to thereafter commence a production test of the well in mid-July 2021, ‘further announcements will be made in due course’.

The Company has progressed all major workstreams necessary to commence drilling an initial well at the Weg Naar Zee project in Suriname. Due to ongoing adverse COVID-19 circumstances in Suriname, the operational expectation is that commencement of drilling will be in late August / early September.

The Company has achieved STOW (Safe To Work) accreditation in its main centre of operation in Trinidad, and remains on track to produce its first comprehensive ESG strategy during 2021.

On the corporate front the major elements of the Company’s ‘reset’ program, which commenced in April 2021, have been completed, including name change, share consolidation, board and management transition, and capital raising.

As at 31 May 2021, the Company had unrestricted cash and cash equivalent holdings of $10.7 million, cost saving initiatives implemented across the Company have thus far given rise to an overall saving of approx. 15% against recurring Group overhead on an annualised basis; additional cost savings initiatives will continue to be implemented over the coming months with a view to achieving the stated savings target of 20% – 30%.

The company say that a number of drilling and services contractor creditor discussions remain to be finalised and for payments to be agreed and scheduled – further updates will be made in due course.

The Company is actively working on securing various additional sources of funding, in particular debt and hybrid-debt facilities, for both development of the Company’s assets and working capital purposes. At the same time, the Company is evaluating various growth and transactional opportunities – further announcements will be made as appropriate.

Eytan Uliel, Chief Executive Officer, commented:

 In April we laid out a plan to ‘reset’ this Company, focussed around the core strategic objective of growing production and cashflow. I can report that we are making solid progress against this goal. Operationally, we will shortly complete and production test the Saffron-2 well in Trinidad, we are looking toward commencing drilling in Suriname as soon as circumstances allow, and we are maintaining production from existing fields.

Corporately, we are tightly managing our finances, implementing cost reduction initiatives, and looking to define the future shape of the Company – including taking tangible steps towards introducing less dilutive debt funding sources into our overall funding mix. Much remains to be done, and the next six months will be a busy time for Challenger Energy. We will keep shareholders regularly informed as to our progress.

 Genel Energy

Genel has announced that payments have been received from the Kurdistan Regional Government (‘KRG’) relating to oil sales during April 2021. Genel’s share of those payments is as follows:

Tawke $11.7m, Tawke override $7.8m, Taq Taq $1.9m, Sarta * $2.2m, Receivable recovery $2.8m making a total of $26.3m.

Genel has also received both outstanding payments relating to March’s invoices. The Company received $3.1 million under the recovery mechanism, and the Tawke override payment of $8.2 million. Taken together with the payments announced on 26 May 2021, Genel received a total of $31.1 million relating to oil sales during March 2021.

Following the receipt of these payments, Genel is now owed $145 million from the KRG for oil sales from November 2019 to February 2020 and the suspended override from March to December 2020.

*Genel is awaiting confirmation from the operator, Chevron, that payment has been received. The Company expects this shortly, and will not announce the payment separately

San Leon Energy

San Leon has announced its audited final results for the year ended 31 December 2020.

Cash and cash equivalents as at 31 December 2020 of $18.5 million (includes $6.8 million restricted and held in escrow for the Oza transaction) (31 December 2019: $36.7 million). Cash and cash equivalents as at 18 June 2021 were $14.8 million (includes Oza escrow of $6.8 million).

In the past 18 months $47.3 million, of which $46.5 million relates to 2020 (31 December 2019: $43.2 million) in principal and interest payments has been received under the MLPL Loan Notes. $5.8 million has so far been paid of the US$10.0 million due under the MLPL Loan Notes in September 2020, leaving US$4.2 million still outstanding.

A share repurchase programme of US$2.0 million of Company’s shares was completed between October 2019 and January 2020 and a special dividend of US$33.3 million was declared in May 2020, giving a dividend yield of approximately 30% as at the date of dividend announcement.

 As for operations going forward shareholders can expect the commissioning of the ELI pipeline, the expected close out of the Oza transaction and management are continuing to position the Company for further transactions.

Oisin Fanning, CEO of San Leon, Commented:

“The period under review has been one of considerable uncertainty globally. Despite this, San Leon has continued to deliver its strategy. 2020 saw operational progress at OML 18 in preparation for its next stage of development, tempered by the macroeconomic environment. On a corporate level, we are very pleased to have been able to return just over $33 million to shareholders while also building and diversifying our portfolio with the Oza and ELI transactions, respectively. Our underlying strategy remains unchanged to deliver sustainable value to our shareholders.”

All of the above confirms my views that San Leon are delivering a strategy that will not only build the value of the company but that through a policy of distribution will provide not only income but capital growth. Often misunderstood but the numbers speak for themselves at SLE and I’m very happy to keep this hybrid on the Bucket List.

Hunting

Jim Johnson, Chief Executive of Hunting, commented:

 “With the oil price firmly above $70 per barrel, along with the production discipline seen within the OPEC group and the improving global economic outlook, management expect a gradual improvement in hydrocarbon demand in the short to medium term. In the period, the Group has moved from a negative EBITDA result in Q1 2021 to a positive EBITDA result in Q2 2021, driven by an improving market in the US onshore. While there has been an increasing onshore rig count across North America, operators continue to demonstrate strong capital discipline which has led to drilling expenditures remaining subdued throughout H1 2021. Given the stronger oil price environment, we believe that as client cash flows improve capital expenditures will also increase, leading to robust demand for the Group’s products and services supported by a significantly improved outlook for the industry for 2022 and beyond.

 “Pricing within the oilfield services sector was deflationary in H1 2021 across all product lines, as too many goods and services pursued an industry hampered by persistently low rig counts. However, at current oil prices management anticipate an improvement in margins and pricing, supported by increased input prices, improving demand and a tighter labour market, especially in North America.

 “Within Hunting Titan and the Group’s US onshore-focused business units the trading environment has strengthened through the second quarter, with revenue increasing as the onshore rig count improved. Hunting’s EMEA and Asia Pacific operating segments continue to experience challenging trading conditions given the ongoing impact of COVID-19, with OPEC production constraints also continuing to depress drilling activity across the Middle East, further exacerbating the recovery within these segments.

 “In February 2021 the Group provided financing to Well Data Labs (WDL), which has enabled the Group to start a number of product development programmes that aligns WDL’s software platform with Hunting Titan’s technology and product offering. This investment opens up new technology opportunities that are increasingly being demanded across the energy industry.

 “Cost cutting measures continue to be implemented to align with the short to medium term trading environment for each business unit. At the end of June 2021, the headcount was c.1,900 reflecting new hires within Hunting Titan as production increased, being offset by reductions within the Group’s North America and Asia Pacific segments.

 “Overall, Hunting Titan and the Group’s onshore businesses have traded ahead of expectations in the period, however, this has been more than offset by a lower performance from Hunting’s offshore and international businesses. We expect to see an improvement in trading in H2 2021, but we now anticipate that the Group’s projected 2021 EBITDA result will be below previous expectations, but ahead of the 2020 full year result of $26.1m, with this EBITDA shortfall moving into 2022.”

With such a lengthy CEO statement from the excellent Jim Johnson I can hardly add anything to his words that describe beautifully the state of the market and Hunting’s position in it. Despite the rig count only slowly adding in recent months Hunting are excellently placed within that area which will surely grow in due course. Hunting remains my investment of choice in the Oilfield Services sector and will continue to justify that.

Lamprell

If Lamprell had been run by the board of Hurricane they would have gone to the High Court to have it closed down by now but thank goodness it isn’t although this morning would have had friends of Lamprell pulling their hair out by now. The statement was a game of two halves as they say and it starts quite well.

The company report the current trading and financial position as at 31 May 2021,  trading is in line with current expectations, with EBITDA broadly breakeven. Net cash at USD 78.1 million, restricted cash at USD 59.5 million, available cash is therefore USD 18.6 million.

The bid pipeline is USD 6.5 billion; with current bidding activities now exceeding pre-pandemic levels and the backlog is currently at USD 454.5 million. The company adds, ‘Growing bid pipeline of which USD 1.1 billion across our addressable markets scheduled for award in 2021 but subject to final investment decision (FID) in 2022; renewables step change growth to continue strengthening the pipeline, requiring further investment to realise improved margins’. Existing backlog supports further year on year revenue growth with approximately USD 470 million currently secured in backlog for 2021.

The ‘Lamprell Reimagined’ strategy progressing as anticipated, need to move to the next phase is to provide each of the business units with a differentiated footing for growth. 

Whilst that part of the statement is good enough and the overall strategy seems to me good enough in the IMI work and of course setting its stall out in renewables there followed a bombshell that the market did not like.

‘The Group faces a challenging period of severe liquidity constraints until new funding is identified. Preserving liquidity remains a key focus – and creditor payments are being deferred to maintain liquidity’.

Amongst the hard-hitting comments the statement continues, to ‘fulfil its near-term working capital needs and to then meet its medium term strategic objectives, the Group must complete a new funding arrangement of USD 120-150 million by the end of Q3, either through a combination of debt and equity, or equity for the full amount. As previously announced, the Group is in negotiations with certain relationship banks to secure working capital facilities of up to USD 90 million, backed by export credit agency support. These discussions are in advanced stages of negotiation and are ongoing. While approval is expected, there can be no certainty of the Bank facilities being concluded.

To satisfy the remaining funding requirement, the Board plans to initiate a process in the short term to raise equity funding. The timing and quantum of the equity raise is dependent upon market conditions and the outcome of the Group’s negotiations with the Banks.  If the Group is unsuccessful in concluding the facility with the Banks, the Group will be obliged to raise capital through equity in the amount of USD 120-150 million in order for it to meet its ongoing liabilities.  Until funding is secured, the Group is actively managing its liquidity position by deferring creditor payments.

‘Should the Group be unable to secure the capital raise, either through the project-related debt and/or equity, there is significant risk that the Group will be unable to meet its contractual obligations as they arise/fall due:

In such circumstances, a material uncertainty exists in respect of the Company’s going concern position. The key assumptions made in reaching the going concern conclusion include that refinancing will be secured by the Group by the end of Q3. Should this not crystallise, significant cost cutting and restructuring measures will be required to maintain liquidity.

This is scary stuff and maybe the 28% fall in the shares was an appropriate reaction but maybe not. I have a feeling that whilst the company are indeed obliged to spell out the exact position the raise could be a more straightforward proposition than it seems.

The company spells out that they have discussed the potential equity raise with the major shareholder and he has expressed his intention to participate at a level to be determined and remains very supportive of the management team and Lamprell reimagined strategy which is a  good start. 

Also I was on the conference call and presentation and to be fair I have a great deal of confidence in the management team who presented well and operationally I think that the company are well placed. Put simply the Lamprell Reimagined strategy should be the basis for more work across the board and properly financed should be highly profitable.

In wind there are realistic chances of $6bn plus worth of upcoming projects and Lamps are confident of success here. In US renewables it seems like there are three projects under bidding and the company are building on their  experience in serial renewables fabrication to expand market share and product offerings across fixed and floating wind sector which is the right place to be.

The CEO’s favoured digital strategy processing, as demand for digitisation is growing across the energy industry: Key partnerships concluded with Injazat/G42 and with Akselos to progress the digital strategy – creating value through on-site efficiency solutions in Lamprell’s ongoing operations and via new revenue-generating prospects for clients across the industry.

The goal to create a standalone digital business with ability to offer distinct commercial solutions to the energy and other industrial sales and marketing efforts have commenced with target clients.

Finally the IMI jackup contracts worth $350m with Saudi Aramco are making for a ‘stronger presence’ there and is also an area I have always thought would be the making of the long term success of Lamprell.

I have to say that over the years following Lamprell has never been easy, probably as it makes your average cyclical business look positively boring. Todays plethora of announcements and news will make for another bumpy few months but I have no hesitation in sticking with the company now, its no Bucket List stock but the management is good enough to pull it through.

Gulf Keystone Petroleum

Gulf Keystone confirms that a gross payment of $35.1 million ($27.4 million net to GKP) has been received from the Kurdistan Regional Government (“KRG”).

The payment includes gross $27.0 million ($21.1 million net) for Shaikan crude oil sales during April 2021. It also includes gross $4.2 million ($3.3 million net) for the March 2021 arrears payment and gross $3.9 million ($3.0 million net) for the April 2021 arrears payment, calculated based on the KRG’s proposed amendment to arrears repayment terms as announced on 13 May 2021. The Company continues to engage with the KRG on this proposal.

Following receipt of the arrears payments, the current outstanding balance is $58.9 million net to GKP.

SDX Energy

Yesterday SDX announced the successful completion of the initial three well phase of its 2021 drilling campaign in Morocco, which will comprise up to a total of five wells over the year. This first phase of the Morocco drilling campaign consisted of three appraisal/development wells in SDX’s operated Gharb Basin acreage in Morocco.

The first well, OYF-3, which spud on 30 April 2021, reached its TD at 1,183 metres MD on 11 May 2021. The main Guebbas reservoir target was thicker than expected and encountered a 5.2 metre net gas sand. The well also encountered a 1.7 metre net gas sand in a secondary zone that OYF-3 will also produce from.

The second well, KSR-17, was spud on 13 May 2021 and reached its TD at 1,848 metres MD on 27 May 2021. In the main Hoot reservoir, the well encountered a 5.3 metre net gas sand which was slightly thinner than expected, but with very good reservoir properties.

Both OYF-3 and KSR-17 have been tested, connected, and are now producing into SDX infrastructure. Post-drill P50 reserves are estimated at a combined gross 0.81bcf recoverable which is in line with predrill estimates.

Finally, the third well of the campaign, KSR-18, was spud on 30 May 2021 and reached its TD of 1,905 metres MD on 14 June 2021. Both prognosed targets were successfully encountered, with the shallower Mid Guebbas target comprising of a 3.8 metre net gas sand and the main Hoot target encountering a 13.9 metre net gas sand. As expected, the main Hoot had been slightly depleted by production from a nearby well, however the well is still expected to contribute incremental volumes and deliverability from this extensive compartment. Further to these zones, a third 5.5 metre net gas sand was encountered at the Base Guebbas and will contribute to production in the future when the Hoot has been depleted.  KSR-18 will be tested in the coming weeks to refine volumetrics but based upon logging results, the Company expects that this too will be close to its pre-drill P50 EUR estimate of gross 0.75bcf. The second phase of the Moroccan drilling campaign is expected to commence in September/October 2021.

Mark Reid, CEO of SDX, commented:

 “I am pleased to announce that the Company has successfully drilled the first three wells of its 2021 drilling activities which will total up to eleven wells across our portfolio of assets. The OYF-3, KSR-17 and KSR-18 wells in Morocco were all commercial successes, and OYF-3 and KSR-17 are already connected and producing into our infrastructure. We expect KSR-18 to be tested and connected in the next two weeks. The gross 1.5-1.6bcf reserves added by these wells is in line with pre-drill P50 estimates and it is anticipated that this will enable us to continue to deliver gas to our customers in line with their contractual requirements. We will now commence the preparations to drill up to two additional wells in Morocco later in the year.

 In Egypt we are expecting to commence the drilling of the IY-2 step out development well at South Disouq in the coming days, and our planning for the potentially transformational HA-1X exploration well is significantly progressed, with spud expected in Q3 2021. This gross 139bcf prospective target, which has a 33% chance of success, has the potential to significantly transform the resource profile of the Company.  Finally, with the four well campaign in West Gharib also expected to start soon, I look forward to updating the market in the coming months on what is looking to be a very busy and exciting period of activity.”

Today they announced the commencement of the South Disouq drilling campaign, which will comprise two wells over the next few months. The upcoming drilling campaign will consist of one step-out development well and one exploration well in the Company’s operated South Disouq (SDX: 55%WI) acreage in Egypt.

Mark Reid, CEO of SDX, commented:

 “After our previous highly successful campaigns at South Disouq where we have achieved five discoveries from seven wells drilled, I am excited to announce the commencement of our next phase of drilling. The IY-2 step-out development well was successfully spud and we anticipate that, upon completion, it will be rapidly tied into our existing infrastructure and begin production in Q3 2021. In addition, the planning for the potentially transformational HA-1X exploration well on our Hanut prospect continues, with spud expected in mid Q3 2021. This gross 139bcf prospective target, which has a 33% chance of success, has the potential to significantly transform the resource profile of the Company and we look forward to updating the market further as the well progresses.”

And finally…

Last night’s footy was most entertaining, 14 goals plus pens in the France game with them eventually losing on spot kicks to the Swiss. Spain eventually overcame Croatia after a couple of shocks.

Tonight it is Sweden v the Ukraine and before that, nuff said…

In the first ODI Sri Lanka only scored 186 but England as I write are making heavy weather at 80-4.

Many thanks to John Spinks for catching me out on this one, I will indeed be following the Lions Tour, herewith his comments.

‘Surprised that you didn’t comment on the Lions v Japan at Murrayfield on Saturday. A cracking game with the Lions putting 4 tries over and the Sakuras stealing one back in the second half. Japan were overpowered but not overawed by the Lions and put up an excellent defence with some sparkling attacking play. However the Lions were too strong and came in winners at 28 – 10’.