Today's Oil and Gas Update – Premier Oil, Valeura Energy, Gran Tierra Energy and Tower Resources

Premier Oil: FY20 guidance maintained at 70-75kboepd

Valeura Energy: Q4 results - 22% qoq production increase

Gran Tierra Energy: Capital reduction, focus on low cost barrels

Tower Resources*: Updated CPR, Contingent Resource NPV10 of US$119m at current oil prices

Energy Prices

Brent Oil US$36.3/bbl vs US$34.1/bbl yesterday

WTI Oil US$33.2bbl vs US$31.9bbl yesterday

Natural Gas US$1.89/mmbtu vs US$1.94/mmbtu yesterday

Oil Price News

Despite the expected oversupply slated for next month, oil prices ticked up again this morning

The key question is how long can these artificially low prices last?

Clearly Russia’s goal is to retrieve market share back from US shale producers, whose debt-fuelled growth caused Russia to lose its title as the world’s largest oil producer

With the UAE the latest OPEC member to announce a 1MMbopd increase alongside Saudi Arabia’s additional 3MMbopd uplift, many market commentators are prediction sub-US$30/bbl oil prices in April

Whilst both Saudi and Russia can operationally produce oil at very low breakeven prices, the key issue is the country’s fiscal breakeven given the overreliance on energy production on their respective economies

The IMF estimated that in 2020 oil would need to be priced at US$78.30/bbl for Saudi Arabia to balance its budget. Russia’s breakeven budget point is said to be in the US$40/bbl range.

However, the countries seem willing to absorb the short-to-medium term pain to regain market share from the US

By lowering oil prices, Russia and Saudi Arabia will disrupt the US industry and likely force some companies into bankruptcy, and by extension hurt US lenders

Brent futures are up 0.8% to $36.9/bbl, whilst WTI futures are up 1.4% at US$33.8/bbl

Gas Price News

Natural gas prices moved lower yesterday following a smaller than expected draw in natural gas stockpiles

The EIA reported that working gas in storage was 2,043Bcf representing a net decrease of 48Bcf from the previous week

Expectations were for a 65Bcf draw according to survey provider Estimize

Stocks were 796Bcf higher than last year at this time and 227Bcf above the five-year average of 1,816Bcf

Subsequently gas prices fell 2%, as the dollar surged generating headwinds for commodities priced in US dollars

The weather is expected to be warmer than normal on the east coast of the US for the next 2-weeks and much colder than normal throughout most of the west coast

Company News

Premier Oil: FY20 guidance maintained at 70-75kboepd

Share price: 15.7p, Market Cap: £132.3m

Following the announcement of Premier's FY19 results last week, the Company has provided a further operational update given recent market volatility.

Production to the end of February averaged 76.6kboepd, and the Company has reiterated FY20 guidance of 70-75kboepd before the impact of the proposed UK acquisitions. 

Premier has hedged c.30% of its full year 2020 oil and gas entitlement production at an average oil equivalent price of US$60/bbl. 

This includes 40% of the Company’s oil production for the first half of the year hedged at US$64/bbl.  

Unrestricted cash remains at US$135m and undrawn facilities of c.US$330m.

Premier's 2020 cash flow breakeven price is under US$50/bbl and a $5/bbl move in the oil price point forward is expected to result in a c.UD$50m move in free cash flow on a full year basis. 

This includes the benefits of the hedging programme and is based on capex guidance of US$470m and new operating cost (including leases) guidance of c. US$20/boe.  

As expected, discussions are underway regarding the potential reduction of the Company’s 2020 capex programme.

Initial analysis suggests that at least US$100m of savings and deferrals is achievable with potential for further reductions. 

Our take: The Company’s prudent approach to capital discipline has been evidenced by a material reduction in net debt which will be pleasing for shareholders, notwithstanding the planned capital reduction through the anticipated farm-downs at Sea Lion (Falkland Islands) and Tuna (Indonesia). However free cash flows will come under pressure this year given a lower production guidance and recently fall in commodity prices, although Premier is well capitalised to weather the current ‘lower for longer’ oil price curve in our view.

Valeura Energy: Q4 results - 22% qoq production increase

Share price: 18p, Market Cap: £13.9m

Valeura has issued its Q419 and FY19 results underlining the Company’s strong financial position, with a net working capital surplus of US$37m.

Q419 production averaged 646boepd, comprised of gas produced from the company's ongoing conventional programme. 

This is an increase of 22% over the prior quarter, and a demonstration of how the company's shallow gas work programme of well workovers and recompletions can offset natural declines.

Valeura's shallow gas play provides a reliable stream of production and cash flow in our view. Price realisations were relatively stable throughout 2019, averaging US$7.40/Mcf in Q4 2019.

Revenues increased in Q4 2019 due to a combination of higher production and gas prices and were more than sufficient to cover the operating costs and all of the G&A costs of the company.

Every deep well stimulation to date in the Thrace basin, Turkey, has successfully resulted in gas flowing to surface.

Technical evaluation and reservoir modelling work is ongoing with joint venture partners incorporating all of the new data acquired through the recent drilling and the testing operations.

This work is expected to extend through the next one to two months and will be used to define the forward appraisal programme for the deep play in 2020.

Our take: A strong update from Valeura today with the company demonstrating that its shallow gas strategy can be swiftly converted into material production. Elsewhere, the recent results at Devepinar are on trend with the company’s previous guidance with regards to product characteristics, exhibiting dry gas, and no condensate. Further modelling work is needed to interpret the implications of the comingled test results in our view, which should lead to establishing the next steps to continue the appraisal of the deep gas play.

Gran Tierra Energy: Capital reduction, focus on low cost barrels

Share price: 23p, Market Cap: £69.3m

As a result of current and foreseeable oil price weakness, Gran Tierra has opted to reduce operating activities and its capital program.

The Company will also revise its 2020 capital budget to a maintenance range of US$60-US$80m and will implement reductions in operating costs and G&A.

The Company will also shut-in 1,000-1,500bopd of higher cost production to focus on core, low cost, higher netback production.

While these decisions are expected to result in lower production than originally forecast, Gran Tierra is focused on protecting the Company’s balance sheet and preserving value over the long term.

At current oil prices, over 95% of the Company’s production is generating positive netbacks.

Our take: Like much of the sector Gran Tierra has taken the proactive step in preserving capital and reducing costs. Despite this planned reduction in capital investment, the Company will remain focussed on developing the Acordionero, Costayaco, Cohembi and Moqueta oil fields.

Tower Resources*: Updated CPR, Contingent Resource NPV10 of US$119m at current oil prices

Share price: 0.31p, Market Cap: £3.5m

Tower has released its latest CPR outlining the Company’s contingent and prospective resources across the multiple fault block prospects on the Thali licence, Cameroon, including the existing oil discovery at Njonji in the southern part of the licence.

The licence has been assigned gross mean contingent resources of 18MMbbo across the proven Njonji-1 and Njonji-2 fault blocks (with low/best/high estimates of 5/15/34MMbbls) which are unchanged from the 2018 report.

In addition, the report assigns gross mean prospective resources of 20MMbbo across the Njonji South and Njonji South-West fault blocks (with low/best/high estimates of 5/16/39MMbbls).

Gross mean prospective resources of 111MMbbo of oil across four identified prospects located in the Dissoni South and Idenao areas in the northern part of the Thali licence (with low/best/high estimates of 21/84/237MMbbls.

The NPV10 of the Best Estimate of Contingent Resources is US$119m at current oil prices.

Earlier this month, Tower announced that it signed binding heads of terms in respect of a farm-out to OilLR of a 24.5% working interest in its Thali PSC.

The farm-out covers US$7.5m towards the cost of the NJOM-3 well that Tower is planning to drill on the Thali block.

OilLR will receive a 24.5% working interest in the PSC, subject to an overriding royalty of 10% for Tower on the contractor share of production under the PSC.

The well cost is currently expected to be approximately US$15-16m, of which approximately US$3m has already been spent.

Each party will recover back costs actually funded and recoverable under the PSC, pari passu.

Tower will effectively contribute its non-recoverable costs in consideration of the 10% overriding royalty on the contractor share of production referred to above.

Costs in excess of $15m, and future costs, will be funded pro-rata with respect to working interests.

The heads of terms will terminate automatically on 29 March 2020 in the event that Tower has not received proof of funding in a form acceptable to it from OilLR by that date.

Our take: Tower’s latest CPR underlines the considerable upside potential at the Thali PSC and provides further support in advance of the anticipated farm-out to OilLR. Assuming completion, the partners intend to commence drilling NJOM-3 in June 2020 ahead of first oil next year.

*SP Angel acts as Nominated Advisor and Broker to Tower Resources

Source: Proactive Investors