WTI (June) $72.83 +$1.97, Brent (July) $76.96 +$2.05, Diff -$4.13 +8c.

USNG (June) $2.36 -1c, UKNG (June) 72.30p -1.45p, TTF (June) €31.375 -€0.42. 

Oil price

Oil rallied after talks at the White House on the debt ceiling progressed and Sleepy Joe flew off to the G7 in Japan promising to pay his bills. The inventory numbers were mixed, a bigger build in crude than expected but there was a 2.4m release of the SPR and a build at Cushing too.

The gasoline numbers are worth watching as there was a big draw of 1.38m barrels which with 10 days to go until the Memorial Day Holiday leaves room for concern as that is 5.1% below the 5 year average.

Diversified Energy Company

Diversified has announced its successful completion of the Spring 2023 regularly scheduled semi-annual Borrowing Base Redetermination. The Company received 100% approval from its 14-bank lending syndicate of the facility’s $375 million borrowing base, which is structured as a Sustainability-Linked Loan (“SLL”) and aligned with the Company’s commitment to continuous ESG improvement. As previously announced in its first quarter trading statement, the Company ended the quarter with ~$110 million of liquidity. 

Rusty Hutson, Jr., CEO of Diversified, commented:

“We are grateful for the unanimous approval from our 14 banks of the $375 million Sustainably-Linked Loan borrowing base. Their support reflects confidence in the quality of our assets and our ability to acquire additional high-quality, mature-producing assets. I continue to be proud of our team’s accomplishments and look forward to building on our success in 2023 as we systematically service our amortizing debt to create value for shareholders and optionality for the future. I would like to thank the members of our bank syndicate for their partnership and support of our stewardship strategy.”

Nothing new here but a generally pleasing announcement that all the company’s bankers are 100% supportive of their loan book with regard to DEC. As always DEC have the most sophisticated tools of the trade, in this case Sustainably-Linked borrowing and shareholders can rest assured that their company is well financially structured for future activity. 

Petrofac

  • A Petrofac-led joint venture has been notified of a conditional award by STEP Polymers SPA (100% Sonatrach subsidiary) for a petrochemical engineering, procurement and construction (EPC) contract valued at approximately US$1.5 billion
  • This is a significant downstream project, which will form part of the Arzew Industrial Zone, located west of Algiers, supporting Algeria’s energy strategy
  • The award broadens Petrofac’s portfolio within the petrochemical sector and builds on its 25-year track record in Algeria

Petrofac, leading a joint venture with petrochemical industry specialist, China Huanqiu Contracting & Engineering Corporation (HQC), has received notification of a conditional award by STEP Polymers SPA (100% Sonatrach subsidiary) to execute a significant petrochemical project in Algeria. The total contract value is approximately US$1.5 billion, with Petrofac’s share valued at over US$1 billion.

The plant will be located at the Arzew Industrial Zone, west of Algiers. Covering the design and build of two major integrated processing units, the contract includes the delivery of a new propane dehydrogenation unit and polypropylene production unit, as well as associated utilities and infrastructure for the site. It is expected to produce 550,000 tons of polypropylene per year.

Tareq Kawash, Petrofac’s Group Chief Executive, said:

“We are proud to be supporting our customer to deliver this strategic project. Algeria is a core market for Petrofac and we are committed to supporting the long-term delivery of critical infrastructure as the country plays an increasingly important role as a major energy producer and moves into major petrochemical projects.”

Elie Lahoud, Chief Operating Officer for Petrofac’s Engineering & Construction division, said:

“The award of this major project builds on Petrofac’s 25-year track record of successfully supporting Algeria’s energy industry. As our client responds to the world’s increasing demand for petrochemical products, we are looking forward to developing our breadth of experience in-country, through the safe and timely delivery of this project.”

Petrofac has been active in Algeria since 1997, when it opened its first office in Algiers. The company has since developed some of the country’s most significant oil and gas assets, with an impressive track record in executing projects successfully, underpinned by a commitment to supporting the nationalisation agenda and developing local workforces.

This contract award forms part of the US$1.5 billion of opportunities described by Petrofac as being at preferred bidder stage in its December trading update.

This is a very meaningful contract for Petrofac, who are leading a joint venture with petrochemical industry specialist, HQC, whereby the JV has received notification of a conditional award by STEP Polymers SPA to execute a significant petrochemical project in Algeria. The total contract value is approximately US$1.5 billion, with Petrofac’s share valued at over US$1 billion.

As such, this contract is very welcome news even if it was in the bidding pipeline in December, it is a crucial conversion which has not always been the case in recent years and gives me much more confidence in my bullish view that has been punctured more than once lately. 

There is a long way to go to rebuild confidence internationally and maybe this new board can start to rebuild faith and stability in markets where PFC used to be legendary contractors and ‘part of the family’ in its engineering and procurement operations. As for the share price it has liked recent contract news but will want some more, concrete evidence, I see no reason why it can’t be delivered.

United Oil & Gas

United has provided an update on the conditional sale of the UK Central North Sea Licence P2519 containing the Maria discovery in Block 15/18 to Quattro Energy Limited following the signing of a binding asset purchase agreement on 17th January 2023.

On 17th April 2023, the parties announced that they had agreed a one month extension to the 17th May 2023 of the long stop date in the APA to provide Quattro sufficient time to comply with conditions precedent related to the funding requirement under the APA. In agreeing to this extension, it was expected that this funding process was near completion. Quattro has now informed United that this process has not completed and that they have commenced a new financing process which they estimate will now take a minimum of 2 months to complete.

Following engagement with Quattro and their appointed advisor in Canada, Research Capital Corporation, the Company has agreed to grant a further extension of the long stop date to 31 July to provide sufficient time for Quattro to meet the funding requirement under the APA, and has agreed that a further extension may be required for all conditions precedent to be met to allow completion of the sale, namely regulatory approvals to enable the transfer of funds to United, and the licence assignment to Quattro. The Company will continue to support and facilitate Quattro in its funding process, however, there can be no guarantee that this new process will succeed or that the sale will be completed.

In considering this extension, the Company has reviewed its strategy and various options to deliver shareholder value, including potential alternative purchasers and transaction structures, with particular reference to the capital investment required to progress the licence through its development. Based on this, and in line with United’s strategy to actively manage its portfolio, the Company continues to believe that the sale to Quattro on the current agreed terms remains the best option for United to realise value for its shareholders. A further update will be provided to the market in due course.

Oh dear, not for the first time the Quattro deal is causing grief to UOG who are in between a rock and a hard place on this deal. Whilst the fact that they have not raised the money yet indicates it may be more of a problem than expected, the appointment of a new broker might at least fix the problem. 

With no other place to go UOG haven’t any realistic choice, after all they have already made the choice not to drill Maria themselves, so to speak, and as we have seen, in recent years completing M&A deals in UK waters is amongst the many problems known to the oil industry. 

It is in everybody’s interest for this raise to happen so we should wait until Research Capital Corporation do some heavy lifting and the deal completes….

Egdon Resources/Union Jack/Europa Oil & Gas

Following the announcement of the Petrichor bid for Egdon yesterday I spent some time talking to those key players in the industry with regard to the deal. All involved thought it a good deal pretty much all round, for Egdon shareholders after a long period of share price underperformance they have cash in the skyrocket. 

For others in the UK onshore it is also good news, George Yates is no mug and comes with generations of hydrocarbon experience which will be brought to bear on the Egdon portfolio. With virtually no chance of the fraccing ban being lifted I suspect that George has decided to kick on with developing what is the substantive part of the portfolio and that is Wressle. 

Which is why it is best for the partners of Wressle as I would expect to see the site there as being ripe for investment and drilling in at least one formation could materially increase production in what I believe to be a potentially significant field. 

Finally, I understand that new Europa CEO William Holland is speaking at Proactive Investors tonight, if you are attending you might just get a chance to have a chat with him about the situation…

And finally…

Last night the Noisy Neighbours stamped their form on the Champions League comprehensively beating Real Madrid 4-0 on the night, 5-1 over the two legs.

In the European Plate tonight the Hammers go to AZ Alkmaar carrying a 2-1 victory from the first leg.

And in the Prem the Seagulls visit the Bar Coders as the battle for Champions League places hots up. And in the League 1 play-offs the Owls have it all to do at Hillsborough starting 4 down from the first leg against the Posh.

And it’s Major time again with the US PGA coming from the redesigned Oak Hill Country Club in New York. This is now 7,394 yards with two holes which are par 5’s and each over 600 yards long, the start this morning was delayed by two hours due to a sharp frost on the course.

And the F1 GP at Imola this weekend has already been cancelled due to flooding…