WTI (Sep) $84.40 +$1.48, Brent (Oct) $87.55 +$1.38, Diff -$3.15 -10c
USNG (Sep) $2.95 +18c, UKNG (Sep) 103.45 +25.27p, TTF (Sep) €37.825 +€4.17

Oil price

Watch out for the July US CPI numbers due out later today. The whisper is for +0.2% on the month, annually that’s 3.3%. down from the peak of 9.1%.

Another rise yesterday for crude oil, the inventory stats sort of mirrored the API numbers in that crude built by 5.851m barrels but gasoline and distillates both drew by 2.661m and 1.706m respectively. Even with a run rate of 93.8% product stocks are still probably too low for comfort.

And watch the gas price, both in the US and in Europe it rose yesterday as Australian workers voted to go on strike. With the country accounting for north of 10% of gas sales the tremors will be felt worldwide.

Eco (Atlantic) Oil & Gas

Eco has announce that it has signed a Sale Purchase Agreement pursuant to which its wholly owned subsidiary, Eco Guyana Oil and Gas (Barbados) Limited, will acquire a 60% Operated Interest in Orinduik Block, offshore Guyana, through the acquisition of Tullow Guyana B.V, a wholly owned subsidiary of Tullow Oil Plc in exchange for a combination of upfront cash and contingent consideration.

The Transaction is in line with Eco’s strategy to deliver material value for its stakeholders through early entry and exploring for hydrocarbons in some of the most prolific petroleum basins in the world. Eco, via its wholly owned subsidiary Eco (Atlantic) Guyana Inc, currently holds a 15% working interest in the Orinduik Block. On completion of the Transaction, Eco, as operator and majority interest holder in the Orinduik Block, intends to drive the exploration process and focus on its strategy to attract new partners to join the license and proactively engage in drilling. 

Transaction summary:

·    US$700,000 cash payment upon transfer of TGBV’s 60% Participating Interest and operatorship of the Orinduik licence to Eco Guyana, to be paid to Tullow Overseas Holdings B.V., the parent of TGBV (“TOHBV”) on completion of the Transaction (the “Initial Consideration”).

·    Contingent consideration payable to TOHBV is linked to the success of a series of potential future milestones, as follows:

o  US$4 million in the event of a commercial discovery;

o  US$10 million payment upon the issuance of a production licence from the Government of Guyana; and

o  Royalty payments on future production – 1.75% of the 60% Participating Interest entitlement revenue net of capital expenditure and lifting costs.

·    Transaction and payment of the Initial Consideration is subject to certain market-standard conditions precedent, including customary Government and JV partner approvals.

·    Completion is expected to occur in the second half of 2023.

On closing of the Transaction, the interests of the JV partners in the Orinduik License will be as follows:

·    Eco will hold an aggregate 75% Participating Interest via Eco Guyana and Eco (Atlantic) Guyana Inc., and be Operator of the Block; and 

·    TOQAP Guyana B.V will continue to hold a Participating Interest of 25%.

Gil Holzman, President and Chief Executive Officer of Eco Atlantic, commented: 
“We are delighted to have reached this agreement with Tullow and to be able to begin to unlock the Orinduik Block’s full potential.  Since 2014, we have believed in the potential of this Block, with our initial two wells in 2019 proving two different oil plays.  We will proactively engage in a farm out process for this highly prospective license and begin preparations to drill a well testing the cretaceous, where all light oil discoveries have been made in the adjacent Stabroek Block.”

Colin Kinley, Co-founder and Chief Operating Officer of Eco Atlantic, added: 
“The Orinduik Block sits on the series of continental shelves leading into the basin. This rich and prolific basin is clean sand filled and sealed nicely to trap the massive volumes of oil found thus far. Following ten years of basin evaluation and research, we have a solid and highly experienced team to take over the Operatorship role. We will start by targeting stacked pay opportunities we see in the cretaceous and look forward to continuing our aggressive approach to discovery. We see an opportunity in the multi hundred millions of recoverable range and now is the time to drill our targets.”

This block, or rather the way that Tullow has held up its development for the last ten years drives me mad, it was a long time ago that the original plans were made and it should have been drilled out by now. As it is Eco will now be able to get on with a partnering process not to mention the technical challenges of being the operator. 

With new partners and a decent exploration budget Eco can return to focus on Guyana although now it is fair to say that with its fantastic exposure in southern Africa the Orinduik block is no longer the only asset in the portfolio that could be a ten-bagger for the company.

Petrofac

• Major increase in Group backlog to US$6.6 billion at 30 June 2023 (31 December 2022: US$3.4 billion) with strong order intake in both E&C and Asset Solutions
• Strong operating performance in Asset Solutions and IES, in line with expectations
• E&C first half EBIT loss of US$122 million reflecting the combination of lower levels of activity, onerous contracts with no margin recognition, adverse operating leverage, and US$67 million one-off write downs in contract settlements resulting from measures taken to protect full year cash flows
• Good progress in resolving historical contractual disputes to release working capital in the second half
• As a result of these actions, the free cash outflow of US$225 million in the first half is expected to largely reverse in the second half, maintaining a target of broadly neutral free cash flow for the full year
• Well positioned to continue backlog growth in both E&C and Asset Solutions, with a healthy pipeline scheduled for award in the next 16 months of US$60 billion

Tareq Kawash, Petrofac’s Group Chief Executive, commented:
“Whilst the first half of 2023 reflected the challenges of the legacy contract portfolio, it was also Petrofac’s strongest period for new awards in many years. Thanks to the efforts of our people around the Group, we secured US$4.3 billion of new orders in core markets and in new energies. This high-quality backlog, a growing talented team and a diverse pipeline of future opportunities provides Petrofac with a strong base from which to move forward.

“As I look ahead to the second half, my focus is on continuing to close out the legacy portfolio, improving our financial resilience and strengthening the balance sheet through the commercial settlements and advance payments due in the period, whilst delivering exemplary execution and selectively bidding to grow our high-quality backlog.

“After four months as CEO, I am encouraged by the energy and drive in the business. We have demonstrated the strength of our competitive position with a succession of significant contract wins, providing us with confidence and momentum to deliver further progress in the second half and beyond.”

The backlog of $6.6bn and more importantly the 16 month pipeline of some $60bn is important, partly due to huge effects of the offshore wind contracts and partly as countries such as Algeria and the UAE via ADNOC deliver meaningful awards. 

Closing the dreadful legacy projects helps more than it is worth looking at and with the unlocking of working capital increases customer focus from 2H 23 onwards. So the long line of wind assets which will keep them going for many years adds to the prospects constantly appearing in late life asset management and decommissioning as well as geographical expansion.

The shares have nearly doubled from the low and whilst I went too early on PFC I now remain confident that with a good combination of a big order book combined with substantial pipeline the company should continue to trade up from formerly distressed levels.

E&C nearly tripled its backlog in the first half, securing US$3.4 billion of new awards, in both our core markets, with long-standing clients, and in new energies.

In core markets, Petrofac won two major contracts, a gas compressor station for ADNOC in the UAE, and a petrochemical facility for Sonatrach in Algeria, broadening our portfolio within this sector in partnership with a petrochemicals technical specialist. In new energies, TenneT selected the Petrofac-Hitachi Energy partnership for a multi-year framework agreement covering six projects, worth approximately €13 billion, with the first contract already awarded and valued at over €2 billion, split between the partnership.

E&C financial results for the six months ended 30 June 2023(1)

• US$3.4 billion of new order intake resulting in backlog of US$4.5 billion (31 December 2022: US$1.6 billion)
• Revenue down 32% to US$0.5 billion (H1 2022: US$0.7 billion)
• EBIT loss of US$122 million

The financial performance in the first half reflected low levels of activity on the legacy portfolio of contracts, with the new awards driving the growth in backlog but with minimal impact on other financial metrics in the period. Revenue in the first half reflected the lower levels of activity from the lower opening backlog compared with the prior period. The first half EBIT loss of US$122 million included approximately US$67 million of one-off write-downs on legacy contracts resulting from actions taken by management to protect full year cash flows. E&C results also continue to reflect the impact of onerous contracts with no margin recognition, adverse operating leverage due to low levels of activity and an element of additional cost overruns on legacy contracts.

We remain focused on closing out legacy contracts, with five of the remaining eight contracts expected to be completed(5) during the second half of the year or early in 2024. On the Thai Oil Clean

Fuels contract, good progress is being made on the construction phases of the project. The execution

plan remains in line with the update provided with the 2022 year-end results and operational and commercials discussions with the client are ongoing.

Bidding activity remains high with a total pipeline scheduled for award in the 16-months to December 2024 of approximately US$44 billion, of which US$8 billion is scheduled for award in 2023. Activity on new contracts is moving apace and we continue to build on our existing talent base through active recruitment across the project delivery disciplines.

Asset Solutions delivered a robust financial performance in the first half, with backlog growth resulting from the new order intake of US$0.9 billion in the period. It maintained its core 40% market share in the UK, and a renewal rate of over 80% for operations and maintenance contracts. In line with our strategy to leverage our UK centre of excellence and expand our geographic footprint into higher margin markets, in July, Petrofac was awarded a three-year multi-million pound integrated services contract for an FPSO(7) vessel by CNRI in Ivory Coast, growing our presence in Africa.

Asset Solutions financial results for the six months ended 30 June 2023(1)

• US$2.1 billion in backlog with a book-to-bill of 1.4x in the first half of 2023
• Revenue up by 34% to US$0.7 billion (H1 2022: US$0.5 billion)
• EBIT of US$14 million (H1 2022: US$33 million)

Asset Solutions also delivered revenue growth in the first half, underpinned by the strong order intake in 2022 and the year to date. EBIT margin decreased to 2.1% (H1 2022: 6.5%), in line with expectations, due to contract mix across the service lines, with the completion of historic high margin contracts in the first half of 2022, and a higher contribution of pass-through revenue.

In new energies, we saw increased levels of activity in the first half, as we continued to secure further early-stage awards and strategic alliances with technology providers, including an exclusive partnership with OCI Global to deliver their gasification-based green methanol projects. We remain well positioned over the medium-term to secure engineering, procurement and construction scopes of work, as well as other execution phase project work, as projects reach final investment decision.

IES delivered another period of strong financial performance in the first half, with higher revenue and higher production compared to the prior period.

IES financial results for the six months ended 30 June 2023(1)

• Net production up 16% to 640 thousand barrels of oil (kboe) (H1 2022: 553 kboe)
• Revenue increased 13% to US$63 million (H1 2022: US$56 million)
• EBITDA increased to US$48 million (H1 2022: US$44 million)

In the first half, there was a free cash outflow of US$225 million, which resulted in a net debt of US$584 million at 30 June 2023 (31 December 2022: US$349 million). This movement reflects both the operating loss and a net working capital outflow. The net working capital outflow was principally in the E&C operating segment due to delays in the settlement resolutions required to secure cash collections. Progress on these resolutions was made in the first half however, with corresponding receipts expected during the second half. Alongside cash advances on the new contract wins, we expect that this will result in a broadly neutral free cash flow for the full year. Liquidity(8) was US$253 million at 30 June 2023 (31 December 2022: US$506 million).

In the short term, the Group is reliant on a small number of relatively high value collections in respect of the conclusion of historical contracts, settlements and new awards. The expected timing and realisation of these collections reflect management’s assessment of the most likely outcome. However, the resolution of these matters is not wholly within Petrofac’s control and, consequently, there remains a level of uncertainty which is disclosed within note 2.4 to the interim condensed consolidated financial statements.

The Group’s backlog(6) increased substantially to US$6.6 billion at 30 June 2023 (31 December 2022: US$3.4 billion), reflecting significant order intake in E&C (US$3.4 billion) and in Asset Solutions (US$0.9 billion), with three major EPC project awards in the first half of the year, which also included a six-project €13 billion framework agreement expected to provide an additional five future 2GW HVDC projects, with the first contract awarded in March 2023 and valued at over €2 billion, split between the partnership.

The outlook for new awards in E&C is robust, with a total pipeline scheduled for award by December 2024 of approximately US$44 billion, of which US$8 billion is scheduled for award in 2023. Bidding activity also remains high, with US$6 billion of bids submitted.

E&C has secured revenue of US$0.5 billion for the second half of 2023, approximately a third of which from contracts with no future margin contribution. Due to the small portfolio of active contracts, and an adverse operating leverage, we expect an EBIT loss of approximately 10% in E&C for the full year, before the impact of the US$67 million of write-downs.

Asset Solutions has a strong pipeline of opportunities with US$16 billion scheduled for award by December 2024, of which US$7 billion is scheduled for award in 2023.

Asset Solutions has secured revenue of US$0.7 billion for the second half of 2023. The business is expected to continue to perform well, with revenue growth driven by focused geographic expansion and new order intake in Well Engineering & Decommissioning. We expect EBIT to be second half weighted, with a healthy full year EBIT in 2023, albeit lower than 2022, reflecting the roll-off of certain high margin contracts and a higher proportion of pass-through revenue.

IES is expected to deliver another robust production performance in 2023, with production marginally lower than 2022. At US$85/bbl oil price, EBITDA is expected to be in the range of US$65 million to US$75 million, taking into account hedging.

At Group level, we expect cash flow to be broadly neutral in 2023. In the second half, we expect a positive tailwind from cash advances collected from new E&C awards won in the first half, coupled with an unwind of working capital.

Coro Energy

Coro has announced that the approval of the sale of the Italian portfolio by the Italian regulatory authorities is progressing well and that, to enable continued acceleration of its renewables portfolio, the Company has now signed an Addendum to the Sale and Purchase Agreement as previously announced on the 27 March 2023.

Highlights:

• Zodiac Energy plc has agreed to make a further cash advance of EUR 0.7m within 10 business days which will bring the total advanced to Coro to date to EUR 2.5m. The Additional Advance will enable the company to proceed to procure a met mast in the Philippines to support 12 months of wind data to build the technical and banking case for the 100MW utility scale onshore wind project alongside funding Duyung FEED spend and general working capital.
• Coro has agreed to reduce the sum due at completion by the Additional Advance and an additional EUR 0.14m.
• Although not expected to be required, the longstop date under the SPA has been extended to the 31 December 2023, to allow additional time for regulatory approval by the Italian authorities.
• At completion Coro was previously required to settle the local Italian subsidiary intercompany loan (estimated at EUR 1.86m) which will now be assigned directly to Zodiac.  

As a result, and following receipt of the Euro 0.7m Additional Advance, the final completion payment will be some Euro 1.36m (reduced from the previously announced Euro 2.2m) plus the standard working capital adjustment which is expected to be positive and significant to Coro.

Further to the above, Coro is also due a deferred payment of EUR 2.0m which is to be offset with the assignment of the intercompany loan to Zodiac leaving a balance of EUR 0.14m due as soon as practicable following completion. Any positive working capital adjustment will be settled by Zodiac in cash within ten business days or, as is expected and agreed in the SPA, from the assignment to Coro of 70% of Apennine distributable annual profits until such time as the balance is paid in full. If the balance is not paid in full by 31 December 2027, the remaining balance will be immediately due to Coro by Zodiac irrespective of the distributable profits of Apennine.

The total potential consideration for the transaction is now therefore EUR 7.4m from the previous EUR 7.5m.  

All other terms of the SPA disclosed in the Company’s announcement of 27 March 2023 remain unchanged.

Taking a discount to get the money in early is as old as time and if it makes life easier, or more profitable in the Philippines then I for one think it’s a great idea. Now all they have to do is to get that regulatory approval…

Longboat Energy

Longboat announced on Tuesday the commencement of drilling operations on the Velocette (PL1016) exploration well in Norway (Company 20%).

Velocette is a gas-condensate prospect targeting Cretaceous Nise turbidite sands on the eastern flank of the Utgard High in the Norwegian Sea. The prospect benefits from seismic amplitude anomalies indicative of gas-filled sands and is located within tieback distance from the Equinor operated, producing Aasta Hansteen field (~45 km). 

Velocette is estimated to contain gross unrisked mean resources of 177* mmboe (35* mmboe net to Longboat JAPEX Norge AS) with a geological chance of success of 30%*. A number of follow on opportunities exist within license PL1016 with aggregate gross unrisked mean resources of ~200* mmboe, which would be significantly de-risked by success in the Velocette well. The key risks associated with this prospect are reservoir presence and quality.

The license partnership consists of Longboat JAPEX Norge AS (20%), OMV Norge AS (40% operator) and INPEX Idemitsu Norge AS (40%).

Helge Hammer, Chief Executive of Longboat Energy, commented:
“We are excited to have commenced drilling the Velocette prospect which will be our ninth exploration well. Velocette is a gas weighted opportunity targeting very significant prospective resources. The exploration well also has significant follow-on potential that will be derisked in the case of success.”

This fell through the net on Tuesday but it is a highly important well spud which we have been waiting for for a long time. As above it has huge potential of 177mmboe, net 35mmboe and a COS of 30%. but it is the add-on potential within the license that would be de-risked by any success. 

KeyFacts Energy Industry Directory: Malcy's Blog