Market Update: Thursday 2 April 2020 

TransGlobe Energy: Cost measures in place to preserve cash position

Volga Gas*: Production remains stable, cash flow healthy

United Oil & Gas: Production in Egypt increases, capex deferred

Energy Prices         

Brent Oil US$27.3/bbl vs US$22.7/bbl yesterday         

WTI Oil US$22.3/bbl vs US$20.8bbl yesterday

Natural Gas US$1.61/mmbtu vs US$1.64/mmbtu yesterday

Oil Price News

Crude oil futures rose 10% today after US President Donald Trump said he expected Saudi Arabia and Russia to reach a deal soon to end their oil price war and Russian President Vladimir Putin called for a solution to “challenging” oil markets

Brent futures rose 11.36%, or US$2.81, to US$27.55 whilst WTI futures increased 10.0% or US$2.03, at US$22.34.

The US confirmed that recent discussions with the leaders of both Russia and Saudi Arabia have taken place and believed the two countries would make a deal to end their price war within a “few days” - lowering production and bringing prices back up

Trump also said he has invited US oil executives to the White House to discuss ways to help the industry “ravaged” by slumping energy demand during the coronavirus outbreak and a price war between Saudi Arabia and Russia

Saudi Arabia supports co-operation between oil producers to stabilise the market but Russia’s opposition to a proposal last month to deepen supply cuts has caused market turmoil

Gas Price News

Natural gas prices moved lower yesterday ahead of today’s inventory report from the Department of Energy

Expectations are for a 4Bcf draw according to survey provider Estimize

This follows last week’s 29Bcf draw which was larger than expected

The weather is expected to be warmer than normal in the US for the next 6-10 and 8-14 days according to the National Oceanic Atmospheric Administration

Demand declined driven by reduced power generation in the latest week

Company News

TransGlobe Energy (TGL): Cost measures in place to preserve cash position

Share price: 37.5p, Market Cap: £27m

TransGlobe has provided its latest 1Q20 financial, operations and corporate update today outlining a strong cash position and confirmation of the material reduction in the Company’s FY20 capex programme.

The Company has confirmed that business continuity plans have been activated across its locations in response to COVID-19 with no health and safety impacts or disruption to production.

The previously announced 80% reduction in the Company’s 2020 capex program has been fully implemented in addition to monthly G&A costs across the business by c.35% through headcount reduction, universal salary rollbacks and reducing all discretionary expenditures

The Company currently holds cash of US$26.7m and negotiations continue with the Egyptian government to amend, extend and consolidate the Company's Eastern Desert concession agreements.

Encouragingly, production guidance for 2020 remains unchanged at an average of 13,300 to 14,300boepd. Production averaged 14,965boepd in 1Q20 to date (January 15,188boepd, February 15,169boepd and March to date 14,551boepd) versus 15,345boepd in 4Q19.

A 452Mbbls cargo of Gharib blend crude was lifted in mid-March with proceeds (inclusive of hedging gains) of US$14.6m anticipated in April.

In addition, the Company sold 758.5Mbbls to EGPC in 1Q20 for net proceeds of US$37.3m.

Our take: In the current climate, TansGlobe continues to adopt a prudent approach to capital discipline. Egyptian production remains stable, whilst capex has reduced significantly preserving the Company’s remaining cash reserves. We would expect production levels to tail off as 2020 progresses due to limited investment but the Company to remain cash flow positive at current commodity curves.

Volga Gas*: Production remains stable, cash flow healthy

Share price: 20.0p, Market Cap: 16m

Volga’s latest monthly production report confirms March 2020 average production of 4,070boepd, a 3% decline on February 2020.

The Company’s gas plant unit was working without disruption during the month.

As at 31 March, Volga held cash balances of US$ 12.3m, and has no debt on its balance sheet.

The Company has also highlighted that the ongoing oil price correction has had a significant impact on local oil/condensate pricing, in addition to the devaluation with the Russian Ruble (RUR).

Gas prices are fixed in RUR but still impacted with local currency devaluation against USD (official Central Bank of Russia exchange rate at the end of March - 77.7325 RUR vs 61.9057 RUR as of 1 January 2020).

As such, the Company’s USD values have declined against those reported at the start of 2020.

Our take: Volga remains cash flow positive at an operational level at current oil prices, assuming no extensive disruptions, and given its strong balance sheet coupled with its ability to delay or cancel capital investment projects as necessary, the Company remains well positioned for the anticipated upturn in global markets.

*SP Angel acts as Nominated Advisor and Broker to Volga Gas

United Oil & Gas (UOG): Production in Egypt increases, capex deferred

Share price: 1.4p, Market Cap: £9m

UOG has announced the commencement of gas production at the Al Jahraa Field in the Company's 22%-owned Abu Sennan concession, onshore Egypt, and measures taken in response to the COVID-19 pandemic and ongoing oil-price volatility. 

Production of gas and elimination of flaring increases gross production in Egypt to c.8,400boepd (c.1,850boepd net) - more than doubling the production compared to 12 months ago.

All Egyptian production, including new gas supply, has positive operational cashflow, even at current low market prices

This is due to low operating costs at Abu Sennan of c.US$6.5/bbl providing solid operating margins even at low price levels.

The Company's pre-payment facility with BP provides downside price protection by effectively hedging 6,600bbls of oil per month at US$60/bbl for the next 30 months

c.20% of United's net production is gas which is sold under a fixed contract that is relatively insensitive to oil-price changes 

Drilling operations are continuing at the El Salmiyah 5 infill well within the El Salmiyah field

Given current market uncertainty, UOG has deferred all Italian capex which will serve to improve cash flows and moves expected first gas slightly to H1 2021

In addition, deferral of Egyptian capex reduces UOG’s 2020 infill campaign from 4 to 2 wells, significantly reducing gross 2020 Capex estimates. 

Our take: A solid update from UOG today, the Company is sufficiently hedged against medium term oil price volatility, whilst regional gas prices are holding up in Egypt. Low operating costs and a short-term deferral of some capex commitments will also preserve the Company’s cash position whilst still benefiting from a stable and growing production base.

Source: proactiveinvestors.co.uk