WTI (Jan) $74.25 -$2.68, Brent (Feb) $79.35 -$3.33, Diff -$5.10 -65c.
USNG (Jan) $5.46 -11c, UKNG (Jan) 350.0p +5.0p, TTF (Jan) €140.99 +€4.81.
Oil fell as I suggested yesterday on the US services data suggesting that the Fed will keep increasing rates and supporting the greenback. This morning the Covid changes I forecast yesterday and before are confirmed.
The API stats came out after the close and showed a draw of 6.426m bbls, gasoline was a build of 5.93m and distillates added 3.55m. EIA numbers later.
Scirocco has provided a corporate update ahead of the Investor Event that it is hosting later today. The update includes various strategic targets as well as the announcement of an exclusivity agreement for the acquisition of an additional bio-gas plant.
The new Corporate Presentation that is being used for the Investor Event will be made available on the website via the following link:
At the Investor Event, the Board will provide an update on its strategic progress as it seeks to construct a portfolio capable of supporting attractive dividend yield and further growth through re-investment. To date, through the establishment of its Joint Venture with EAG (SCIR 50%), EAG has completed the acquisition of 100% of Greenan Generation Limited (GGL) and its 0.5 MWe Anaerobic Digestion (AD) plant in Northern Ireland. Since completing that acquisition in October 2021, GGL has performed strongly, generating for EAG a 12 month EBITDA estimate to 30 September 2022 of £602,000 (unaudited), after c. £375,000 of costs associated with operating investments and business development.
Since establishing the joint venture, EAG has developed a pipeline of Biogas acquisitions in line with the stated strategy to acquire “bitesize” plants in the value range of £3-4m each. The goal is to acquire individual plants using EAG’s “cookie cutter” approach whereby target assets are acquired as SPVs through a combination of debt and equity, the assets are then optimised through operating techniques and investments to grow profitability and enhance the value of each asset and the portfolio as a whole. A typical SPV is forecast to generate c. £850k EBITDA with enterprise value in the range of £7.5-£8.5m per plant, thereby demonstrating the appealing value proposition of the strategy.
Based on the strategic objectives and current deal flow pipeline being progressed by EAG, it is the intention that EAG will, subject to securing the necessary funding, acquire two plants through 2023 and a further two plants in 2024. Should EAG be successful in converting these opportunities as guided then EAG would create a business generating over £5 million EBITDA per annum with an implied cash on cash multiple of c. 2.5x accruing to EAG investors.
Exclusivity Agreement for target plant
Consistent with the stated strategy, Scirocco is pleased to announce that EAG has entered into an exclusivity agreement to acquire 100% of the share capital in a target SPV which has been delivering consistent operational and financial results over the past 7 years, generating an EBITDA of £567k for its last financial year. It is EAG’s expectation that its plans to optimise performance can increase EBITDA at the plant to £725k in its first year of ownership.
EAG has completed phase 1 of its DD process using its internal resources and, following signing of exclusivity, will move into Phase 2 which includes drafting of the SPA and associated project documents. The acquisition requires £3.8m of acquisition capital as well as approximately £200k in closing costs, and will be debt funded to approximately 70% of the total. Assuming all progresses as planned, including sourcing of the necessary finance, then EAG is targeting a completion date at the end of February 2023. Further updates will be provided as and when appropriate.
Tom Reynolds, Scirocco’s CEO commented:
“We’re pleased to provide investors with a deeper dive into our strategy and the market drivers that support our strategic focus. Our JV with EAG gives Scirocco unique access to a compelling opportunity pipeline that can be converted on highly attractive and value accretive terms. The JV’s initial acquisition of GGL last year demonstrates the low-risk and high-margin profitability of these assets and the value uplift that EAG provides upon completion. In that regard, we are pleased to provide the market with strategic targets that we believe can be comfortably delivered by EAG based on the pipeline being progressed. As detailed in the presentation we provide today, subject to financing being available as expected, the team is confident of building an asset base with enterprise value of up to £100 million by 2027.
In the context of this update, we are also pleased to announce the Exclusivity Agreement that EAG has signed with a target SPV. The team’s extensive internal DD on the target indicates that this SPV benefits from all the factors consistent with EAG’s investment model and represents a compelling opportunity for EAG and Scirocco. While this process is still relatively early stage and formal DD is required, we are hopeful that EAG will progress this opportunity to SPA in the coming months with a view to adding a second plant to the portfolio in Q1’23. In parallel with the DD process, EAG is also progressing funding discussions and is confident that the implied multiples of these targets and the compelling market drivers that support investment into this sector in pursuit of UK’s net-zero targets will ensure the most appropriate form of funding can be secured to complete any subsequent transaction.”
I wrote about Scirocco yesterday and today they provide more meat and potatoes about EAG including a new target SPV and details of forecast enterprise value of £100m by 2027. The details of the presentation which is later today and that I will be attending will be available on the link above.
Europa Oil & Gas
Europa is holding its Annual General Meeting later today. At the AGM, Simon Oddie, CEO of Europa, will make a short presentation detailing the activities of the Company, which will be uploaded onto the Company’s website shortly thereafter, and Brian O’Cathain, Chairman of Europa, will make the following statement:
“The last year was an exceptionally busy period for Europa, positioning it very strongly for the future. Despite the continuing economic volatility, the period delivered good operational results. Our onshore UK Wressle oilfield, which came onstream in January 2021, has continued to outperform expectations, underpinning our production where our total average net rate for the year ending 31 July 2022 was 245 bopd, strengthening both revenues and our balance sheet.
Wressle hit an initial gross production rate in August 2021 of over 500 bopd, exceeding the pre-operations target. Following upgrades to the production facilities, these initial gross flow rates continued to increase, reaching the current rate of 700-750 bopd, or net 210-225 bopd to Europa. We are excited about undertaking further development on the Wressle field with a planned gas monetisation project unlocking further upside potential for oil production rates and gas sales from the field. This could add an additional 50% to oil production rates, further boosting Europa’s revenues.
As well as our onshore operational success at Wressle, we also farmed into the Serenity field offshore UK, taking a 25% interest in the Serenity oil discovery operated by i3 Energy (“i3E”). Although the appraisal well in October 2022 was disappointing and did not encounter oil-bearing sands, together with our partner i3E we are assessing the various development options to bring the field into production.
Via the Memorandum of Understanding that we signed with Causeway Geothermal (NI) Ltd in June 2021, we continue to investigate the potential of the West Firsby field as a geothermal production site, providing a future role for our mature oil fields. The collaboration is exploring the utilisation of existing infrastructure and wells for geothermal applications to deliver clean, reliable, and cheap sources of heat. This would give the potential to convert onshore legacy oilfields into sources of clean and reliable energy as part of our ESG strategy and Europa’s stated desire to participate in the national energy transition.
Within our offshore Ireland acreage, the Inishkea prospect alone has potential to supply the majority of the gas required for the five new gas fired power stations in Ireland, and I am delighted that our application to extend the first phase of the licence to 31 January 2024 has been granted. This will enable us to continue with our technical studies and provide more time to find a project partner for FEL 4/19. The licence contains the large, low risk, Inishkea gas prospect and is a strategic asset that can potentially provide a reliable source of low emission energy for Ireland and play a key role in the transition to renewable green power. Gas from the Corrib field, adjacent to the Inishkea prospect, is one of the lowest carbon-intensity gases in Europe, much lower than long distance pipeline gas from Norway, the UK or the Russian gas previously piped to Europe. Given that Ireland will continue to require gas into the foreseeable future, having recently agreed plans to build new gas-powered electricity plants, it makes sense to keep this potentially valuable source of indigenous gas available. We are therefore delighted that the requested licence extension was granted, which will allow the Company to carry out further technical studies and seek a project partner.
In November 2022, we decided not to extend our Inezgane offshore permit located in the Agadir Basin in Morocco given our lack of success in securing a farm-in in partner.
In terms of the Board, we were delighted to welcome Will Holland as CFO in June 2022. Will brings a wealth of corporate, financial and M&A experience in the upstream sector that will be of crucial importance as we continue to grow the business, and I am enjoying working with him at this very exciting time for the Company.
Looking forward, I believe that we are starting to reap the rewards of delivering on our strategic vision, with strong cash flows from our onshore production, further development opportunities at Wressle and Serenity as well as material upside potential with our exploration assets in Ireland, about which we are very excited. The Board continues to believe that Europa would benefit from holding further appraisal and early development assets and supported by our strong cash flows we will continue to seek opportunities to acquire these types of assets. Our aim remains to engage in potentially high reward activity without putting the Company’s balance sheet at risk.
In terms of the country’s net zero goals, I firmly believe that the hydrocarbons that we produce and new fields that we develop all contribute to supplying the domestic demand of their local regions and as such displace imported hydrocarbons and reduce the emissions associated with hydrocarbon consumption. This strategy to supply local demand will continue to drive our activities as we focus on growing our existing portfolio both organically and via acquisitions to create a more balanced portfolio.
Finally, on behalf of the Board, I would like to thank the management, employees and consultants for their hard work on behalf of our shareholders and stakeholders during the past year. We have achieved a lot and will continue to build on the solid foundations that we now have in place.”
Nothing new here I’m afraid but for the company after the Serenity duster and the long dated nature of the Irish portfolio means that at the moment EOG is all about Wressle which is still an exceptional performer.
I have started to pick up on EOG for this reason and am planning to meet with the company quite soon, rail strikes etc mean that it may not be until the new year but I don’t think it’s going to run away anytime soon.
Yesterday in the World Cup Morocco knocked out Spain on pens and Portugal beat Switzerland 6-1 without any help from the spoilt brat…All quiet now until the QF’s start on Friday.