Mid-Week oil and gas update

Oil & Gas Daily Flow

Non-Independent Research; Marketing & Sales Commentary - MiFID II exempt information – see disclaimer below

Market Update: Wednesday 25 March 2020

Bahamas Petroleum: Perseverance #1 well delayed until October 2020

IGas Energy: Production remains in line with guidance

Serinus Energy: FY19 results underline a transformational year for Serinus

Mosman Oil & Gas*: Production levels maintained, Amadeus project on hold

Energy Prices

Brent Oil US$27.4/bbl vs US$28.5/bbl yesterday

WTI Oil US$24.5/bbl vs US$24.9bbl yesterday

Natural Gas US$1.71/mmbtu vs US$1.61/mmbtu yesterday

Oil Price News

Oil prices extended gains today, rising alongside broader financial markets as the US is expected to approve a massive aid package to stem the economic impact of COVID-19

US senators and Trump administration officials have reached an agreement on the US$2tn stimulus bill which is expected to be passed through the Congress later today

Still, demand for oil products, especially jet fuel, is falling worldwide as more governments announce nationwide lockdowns to curb the spread of COVID-19, tempering material oil price gains

Yesterday the API has reported that US crude inventories fell by 1.2MMbbls in the week to 20 March to 451.4MMbbls, compared with consensus for a build of 2.8MMbls

Gasoline and distillate stocks also fell last week

Global energy companies cut FY20 spending

International benchmark prices have more than halved since the start of the year, falling to below US$30/bbl

In response, the broad majority of listed companies have cut forward spending budgets:

BP – will reduce capital and operational spending, which was about c.US$15bn last year

CHEVRON - will trim spending and lower oil output in the near term. 2020 organic capital expenditure guidance had been US$20bn

DNO – will cut its FY20 budget by 30% or US$300m and lower its dividend for the first half of the year

ENERGEAN - cut its investments by US$155m in Greece and Israel and could reduce its budget for Egypt by another US$140m if needed

ENI - cancelled share buyback of €400m until Brent is at least US$60/bbl

ENQUEST - cutting operating costs by 30% to US$375m and investment will be lowered by US$80m to US$150m

EQUINOR - suspended its ongoing US$5bn share buyback programme

EXXONMOBIL – TBC but confirmed significant cuts to spending. It had previously budgeted US$30bn to US$33bn for projects in FY20

GENEL -reduce investments to US$60m this year, but expected the number to be US$100m

KOSMOS ENERGY - dividend suspended, will reduce FY20 capex by 30%

OIL SEARCH - cutting FY20 investment by 38% and capital spending by 44%

PREMIER OIL - identified at least US$100m in potential savings on its FY20 capital spending plans

SAUDI ARAMCO – will cut capital spending for FY20 to between US$25bn - US$30bn, compared with US$32.8bn in FY19

ROYAL DUTCH SHELL – cut FY20 capex by US$5bn and suspended the next tranche of its share buyback plan

TOTAL - cut capex by 20% and find additional cost savings of around US$400m this year

TULLOW OIL – cut capex by US$350m this year and reduce exploration spending by 50%

WINTERSHALL – 20% cut in capex to at least US$1.3bn

Gas Price News

Natural gas prices are trading up this morning after short-sellers covered positions following the announcement of more monetary stimulus from the US Federal Reserve and as they await Congress’ decision on new fiscal stimulus

Warmer weather next week should allow utilities to inject gas into storage for the first time this year

Data provider Refinitiv projected gas demand in the US, including exports, would slide from an average of 105.4Bcf/d this week to 100.1Bcf/d next week

That compares with Refinitiv’s forecast on Friday of 104.7Bcf/d this week and 103.4Bcf/d next week

Company News

Bahamas Petroleum: Perseverance #1 well delayed until October 2020

Share price: 1.3p, Market Cap: £29m

As a result of the impact of the spread of COVID-19, BPC has pushed the spud of the Perseverance #1 exploration well (slated for May/June 2020) to October 2020 onwards.

The impact of the virus, both globally and in The Bahamas, also constitutes a force majeure event under the terms of the Company's licences; the Company has notified the Government of The Bahamas of such, which is expected to result in a corresponding extension to the current term of the licences.

Key elements of the Company's finance package have been rescheduled and BPC remains in a strong cash position and in the coming months will be seeking to redefine operational plans and major contractor arrangements consistent with the revised work programme timetable.

Despite very difficult market conditions, the Company’s farm-in process continues.

Our take: As expected in light of recent unprecedented events, we are not surprised this long awaited well has been delayed. It does however provide the Company with more time to secure a suitable farm-in partner which is its preferred route to reduce risk and financial exposure. If successful, Perseverance #1 would be transformational for BPC targeting recoverable prospective resources of 0.7 - 1.4Bnbbo.

IGas Energy: Production remains in line with guidance

Share price: 21.9p, Market Cap: £27m

In line with the broad majority of the market, IGas has provided a trading update in light of the impact of COVID-19.

Current operations remain on track and production is currently within the guidance range given in the trading statement of 6 February 2020 of 2,250-2,450boepd, notwithstanding the current, rapidly changing macro environment.

Operating costs in sterling terms are also in line. The Company benefits when the dollar is stronger, and at an exchange rate of $1.2/£1, operating costs to average c.US$27.5/boe for the year.

As at 1 March 2020, has hedged a total of 340,000bbls for the remainder of 2020 at an average rate of US$53.77/bbl.

The Company’s cash balance at the end of February 2020 was £8.1m and net debt was £5.2m, which is sufficient to see them through this current period of uncertainty given its hedging profile.

Given the fall in oil prices IGas has reviewed its capital expenditure programme for the year and reduced it principally to maintenance capex, abandonment and capital for projects already in execution which in aggregate is anticipated to be c.£6m in 2020.

Our take: As expected, a subdued update from IGas today. Recent travel restrictions imposed by the UK government will clearly impact the Company’s operational outlook, and indeed the demand for oil and gas. Nevertheless, IGas remains in a stable financial position to weather the medium-term macro impact in our view.

Serinus Energy: FY19 results underline a transformational year for Serinus

Share price: 9.0p, Market Cap: £21.0m

A strong set of figures reported by Serinus today with the Company’s FY19 results showing gross revenues of US$24.4m (FY18: US$8.7m), including US$15.2m (FY18: US$nil) from Romania and US$9.2m (2018 - US$8.7m) from Tunisia.

Capital expenditures in the year were US$4.9m (FY18: US$10.8m) predominantly for the Moftinu gas facility, and preliminary work related to the M-1004 well that was subsequently drilled in 2020.

Funds from operations increased by 602% for the year to US$8.1m (FY18: US$1.2m), largely due to the Romanian field coming online during the year.

As previously announced, Serinus fully repaid its US$5.4m EBRD Senior loan during the year.

The Company’s FY19 realised oil price averaged US$61.67/bbl (FY18: US$66.96/bbl), a decrease of 8%, whilst its released gas price averaged US$7.27 (FY18: US$11.69, inclusive of a one-time gain), a decrease of 30%.

Production costs reduced by 42% to US$13.78/boe in 2019 from US$23.57 in 2018.

FY19 was a strong year of operational progress for the Company which included the construction of the Moftinu gas plant in Romania and bringing the Moftinu gas field on production in April 2019.

Serinus reopened the Chouech and Ech Chouech fields in Tunisia in the second half of the year, bringing four wells onto production at Chouech, and one well onto production at the Ech Chouech field.

Production for the year averaged 1,389boepd (FY18: 352boepd), comprised of 961boepd (FY18: nil) from Romania and 428boepd (FY18: 352boepd) from Tunisia.

Serinus exited December 2019 with a production rate of 2,089boepd, with a December average of 2,175boepd (Romania 1,491boepd and Tunisia 684boepd).

Our take: FY19 was clearly a transformational year for Serinus, consolidating its Romanian acreage position, and generating material revenues and cash flows from the Moftinu gas facility despite subdued commodity pricing. In terms of outlook, operations in Romania and Tunisia are so far unaffected by COVID-19 and Serinus continues to produce at pre-virus rates. It is also worth noting that Moftinu 1004 continues to flow at commercial rates and provides additional gas production to the Moftinu Gas Plant, against the backdrop of very attractive fiscal terms in Romania. Additional near-term low-risk exploration potential has been identified in areas immediately adjacent to the Moftinu development, which share the same reservoir, trap, seal and charge characteristics as Moftinu, and a 12 month extension to the exploration phase will allow further breathing space to exploit this potentially prolific acreage.

Mosman Oil & Gas*: Production levels maintained, Amadeus project on hold

Share price: 0.04p, Market Cap: £451k

Mosman has provided the market with an update on the Company’s operations in which it maintains a strong production story against the backdrop of unprecedented market conditions.

In January 2020, gross sales from Stanley were 6,225bbls, and in February 2020, gross sales were 6,125bbls.

As announced on 12 March 2020, Mosman has received notice that the operator at the Stanley project has deferred the drilling of the proposed Stanley-4 well.

This will remain under review with a decision anticipated in the next few months.

If the well is not drilled by 20 June 2020, then the operator intends, and will be obliged to return to Mosman, the money Mosman has paid, less costs already incurred.

A workover has just been completed at Stanley-2 and an initial strong increase in oil flow was observed, and the well will be returned to production this week

The workover rig is now in the process of setting up at Stanley-1 to facilitate a workover at that well, with the objective of increasing production.

At Greater Stanley (MSMN 20% WI), the plan remains to increase production by workovers on the existing producing wells.

The first workover may occur in the coming months at a gross cost estimated to be US$30k-US$40k.

At the Arkoma project, operations were shut in due to work required on the water injection well. The operator has recently advised the injection well is back in operation and production has now resumed. The objective is to work to make the operation break even at current oil prices. Mosman has not contributed significant additional cash to the Arkoma project for some time and does not anticipate the need to do so going forward.

The Welch Project has comparatively high operating costs with requirements for electricity to power the rigs and water injection pump, chemicals and field operations and supervision.

Spending on periodic maintenance will only be considered based on the oil price. Current production is not significantly different from the previously reported 6 months production but may decline if periodic maintenance is deferred.

The Welch and Arkoma projects remain for sale but will only be sold if a suitable price is achieved.

In Australia, in light of the COVID-19 upheaval, all access permissions to permits in the Northern Territory have been withdrawn, and therefore brings to a halt all ground based work, and due diligence of potential partners.

Each month Mosman has been incurring modest operational and overhead costs on this project.

Mosman has current debt free cash reserves of c.A$300k and has pre-paid its share of Stanley-4 drilling costs (c.A$90k) and current assets include oil inventories, receivables, and shares in Norseman Capital and confirms that creditors are being met within normal business timeframes.

Our take: Despite current macro-events, Mosman benefits from a very supportive management team with Directors continuing to receive shares in lieu of fees in order to preserve cash resources. The halt to operations in Australia will come as a disappointment for shareholders, however the Company’s US business remains stable with planned workovers to underpin Mosman’s forward production profile.

*SP Angel acts as Nominated Advisor and Broker to Mosman Oil & Gas

Research – Oil & Gas

Sam Wahab - 0203 470 0473

sam.wahab@spangel.co.uk

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535

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