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Market Update: Tuesday 3 November 2020 

Bahamas Petroleum (LON:BPC): Comprehensive trading update

Premier Oil (LON:PMO): Chrysaor merger receives required creditor support

Trinity Exploration & Production (AIM:TRIN): Acquisition of seismic and well log data, onshore Trinidad

Independent Oil & Gas (AIM:IOG): Rig contract secured with Noble

 

Energy Prices         

Brent Oil US$39.9/bbl vs US$37.5/bbl yesterday

WTI Oil US$38.1/bbl vs US$36.7bbl yesterday

Natural Gas US$3.18/mmbtu vs US$3.31/mmbtu yesterday

Oil Price News 

Oil prices saw a welcome boost yesterday as top executives of Russia’s oil companies discussed the future of the OPEC+ deal with Russian Energy Minister Alexander Novak, including an option to extend the cuts for three months until March 2021, instead of easing the cuts from January as planned

The OPEC+ group, in which Russia is the leader of the non-OPEC producers, currently plans to taper the 7.7MMbopd collective cut by 2MMbopd beginning in January 2021

However, the second coronavirus wave sweeping across the US and Europe, and already prompting the return of lockdowns in major European economies, is further delaying the global oil demand recovery

In recent weeks, concerns about demand and rising supply from Libya have weighed on oil prices and intensified market speculation that the OPEC+ group may not have a choice but to roll over the current cuts and delay the plans to ease those cuts in January

Russian oil firms have openly criticized the OPEC+ deal in the past because, they argue, it burdens them with production cuts aimed at supporting oil prices, which in turn help US producers to pump more oil.

Russia’s oil firms, however, will not have a final say in Moscow’s options in the OPEC+ deal, as the ideas discussed today will also be discussed at a higher level

Russian President Vladimir Putin will likely have the final say

 

Gas Price News

Natural gas prices moved lower in early trading today as Hurricane Zeta is expected to move westward and potentially could miss the Gulf of Mexico avoiding any natural gas infrastructure

weather is expected to be much colder than normal throughout the west coast and upper mid-west over the next 6-10 days

ISM manufacturing showed an increase in activity which would help buoy natural gas demand

The EIA forecasts that residential natural gas demand will increase during the 2020-2021 winter season

 

Company News

Bahamas Petroleum (LON:BPC): Comprehensive trading update

Share price: 2.5p, Market Cap: £100m

BPC’s latest trading update outlines a substantial increase in field activities, including an additional rig being deployed into the field to further expand workover capability/capacity in Trinidad and Tobago.

Management has confirmed that production declines have been arrested and early signs of sustainable overall production increases.

The Company continues to target a baseline production rate of 500bopd by the end of 2020.

Plans for Enhanced Oil Recovery (EOR) projects were submitted for approval to Trinidad and Tobago regulatory authorities

CO2 injection project production well work programs have been approved and workovers will commence imminently.

The Company’s work program has been defined to appraise the Saffron discovery, including development of the drill plan for Saffron #2 with a target spud date in Q1 2021.

Multiple prospects have been identified across the South West Peninsula (SWP) portfolio that are estimated by management to each have in excess of 10MMbbls of recoverable resource potential (i.e. each equivalent in size to Saffron).

In Suriname the drill plan, work program and environmental studies for the Extended Well Test (EWT) have been submitted for approval to Suriname regulatory authorities.

The target spud date for the first well is currently Q1 2021.

BPC remains on track to deliver a Competent Person's Report in mid-November 2020, covering all the Company's assets in Trinidad and Tobago and Suriname

The Company also remains committed to the commencement of drilling of the Perseverance #1 well in The Bahamas before the end of this year.

Our take: Following the recent merger with Columbus, management has clearly wasted little time in bedding in the wider portfolio with a key focus on growing production. In addition, the Company has defined the drilling program for Saffron #2, with the aim to increase to each of production, cashflow, and the existing resource and reserve base. The merger with Columbus partially de-risked the investment case of BPC in our view, adding production and cash flows to what, in essence, was a binary high-risk exploration Company. Whilst we are sceptical that BPC can meet a five-fold production increase from its existing assets within 18 months, shareholders will take encouragement from an ambitious production-led strategy to compliment considerable exploration upside potential.

 

Premier Oil (LON:PMO): Chrysaor merger receives required creditor support

Share price: 12.5p, Market Cap: £115.4m

As expected, Premier has confirmed that it has received the requisite level of support from each class of its creditors for the proposed merger of the Company and Chrysaor and the reorganisation of Premier's existing finance arrangements with those creditors entering into a binding support letter. 

Under the support letter the creditors have, among other things, irrevocably undertaken to vote in favour of the Court-approved restructuring plans and have agreed to waive Premier's financial covenants until completion of the transaction. 

As such, the merger agreement between Premier, Harbour, funds managed by EIG and Chrysaor has been released from escrow.    

Premier will launch the restructuring plan processes through the issuance of a practice statement letter, immediately after the Prospectus for the Transaction is published, which is currently anticipated by the end of 2020.  

The Transaction is expected to complete by the end of Q1 2021.

Our take: Whilst not unexpected, Premier had some work to do to bring the 43% of creditors entered into the support letter on 6 October to above 75% today. The debt holders clearly enjoy a better deal than PMO’s equity holders, as evidenced by the share price trend from the announcement of the deal. Nevertheless, Premier’s existing shareholders will end up with a stake, albeit modest, in a huge, well financed and highly attractive company which will likely pay a dividend in the longer term.

 

Trinity Exploration & Production (AIM:TRIN): Acquisition of seismic and well log data, onshore Trinidad

Share price: 7.8p, Market Cap: £30m

TRIN has confirmed that the Company has entered into an agreement to acquire a package of seismic and well log data from Heritage Petroleum.

The data package consists of 37km2 of 3D seismic volume (including related processing and reprocessing reports), 2D seismic lines, 3D seismic line extracts/regional lines and well log data for 16 Heritage operated wells.

The seismic data covers the full extent of TRIN’s onshore licence areas, including a 4km buffer zone around the assets.

The Company understands this to be the first time that Heritage has agreed to make 3D seismic data available to an independent lease operator for onshore areas in Trinidad.

TRIN’s onshore licence areas sit within the greater Forest Reserve Field, located in southwest Trinidad.

The Field was discovered in 1914 and has produced over 1.2bnbbls of oil to date with a recovery factor of between 12.5-18%.

Global averages for conventional recovery factors in similar clastic reservoirs average between 25-30% and, as such, there is the potential for a very significant uplift in production and reserves.

The acquired data will enable the Company to develop a modern structural and stratigraphic approach to analysing basin fill and deformation. 

Specifically, the 3D seismic data will enable the Company to build the basin model, stratigraphic framework and the sediment fill history in three dimensions, which is the most critical element to this process.  

This is expected to result in the identification of new subsurface drilling targets which, when coupled to high angle and horizontal drilling and modern completion methods, could result in a step change in reserves and production.

When developed, this new structural and stratigraphic framework will facilitate a potentially transformative shift in exploitation techniques, improving the economics of drilling horizontal wells and, ultimately, making them become standard practice onshore Trinidad where applicable.

In addition, with a better understanding of facies and distribution of the reservoir zones, a much more accurate and focused effort on enhanced oil recovery techniques will be possible, reducing reservoir risk and potentially resulting in a material increase in production and reserves.

Our take: Another positive development for the Company in our view. The comprehensive dataset will significantly enhance TRIN’s ability to exploit the production potential of its onshore portfolio using modern methodologies. We are encouraged by Trinity’s performance in terms of underlying operational progress as the Company adopts new operating practices, along with new technologies and techniques, with a view to growing base production levels which will be key for investors in our view. The Company has successfully implemented a low-cost operation, which will clearly be crucial in the current and likely medium-term backdrop, preserving its bottom line and liquidity position. With the shares currently trading at c.1x adjusted EBITDA, we do continue to see considerable value at current levels.

 

Independent Oil & Gas (AIM:OG): Rig contract secured with Noble

Share price: 12.3p, Market Cap: £58m

IOG has confirmed that it has awarded the rig contract for its Core Project Phase 1 to a subsidiary of Noble Corporation.

This follows a competitive selection process by IOG's drilling and contracting teams, assisted by well management contractor Petrofac, involving extensive technical and commercial evaluation across several drilling contractors.

Noble's Hans Deul jack-up rig has been selected to drill the five Phase 1 production wells, one each of which are planned at the Blythe and Elgood fields and three at the Southwark field.

The fields all lie in 20-30m water depth in the UK Southern North Sea (SNS).

The Hans Deul has a track record of successfully and safely executing wells in the SNS.

The Phase 1 drilling campaign is scheduled to commence in Q1 2021 and, subject to actual well durations over the five wells, is expected to last into Q2 2022, with First Gas scheduled for Q3 2021.

The contract also includes extension options to drill up to two further wells on favourable terms, at IOG's election.

Alongside this, detailed well design is progressing, on track to be completed in early 2021 ahead of the first well being spudded.

The Company has also contracted most of the key services, tangibles and logistics for the Phase 1 drilling campaign and is tendering and negotiating multiple associated contracts.

Our take: Another blue-chip name added to IOG’s services provision and Noble represents a highly experienced drilling contractor and the Noble Hans Deul is both technically and commercially a strong choice, with a safe and successful track record of delivering similar wells. This rig contract is another key step in ensuring efficient execution of Phase 1 of the company’s SNS Core Project, with optionality for further drilling activity on favourable terms. 

 

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 

Grant Barker – 020 3470 0471  

 

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+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 

Sources of commodity prices

 

Oil Brent, WTI

ICE

Natural Gas

NYMEX

 

 

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Recommendations are based on a 12-month time horizon as follows:

 

Buy - Expected return >15%

Hold - Expected return range -15% to +15%

Sell - Expected return < 15%