WTI (Dec) 80.44 -58c, Brent (Jan) $84.63 -39c, Diff -$4.19 +19c
USNG (Dec) $3.49 -11c, UKNG (Dec) 120.5p -1.0p, TTF (Dec) €47.33 +€0.18

Oil price

Oil is taking a back seat at the moment to National Banks, yesterday it was up until late when the Fed announced its decision not to increase rates. Whilst that may appear good it came with two caveats, one being that they reserved the right to increase again if inflation persists and the second being that the US economy, like others is still in danger of recession. 

Today the Bank of England also kept rates unchanged although it is slightly unnerving to see that the vote was 6-3 with three supposedly intelligent MPC members voting to raise rates even more, I hope these goons walk a different way home tonight.

Oil is up around 75 cents today, yesterday’s EIA inventory stats were meaningless, a small build of 773/- barrels of crude, virtually no change in gasoline and a 792/- draw in distillates. 

Finally the results season for the majors has almost finished, Marathon and Valero easily beat the whisper although refining margins are trending down at the moment. Today Shell also impressed the market, just beating the whisper but with more cash and announced more buy-backs to come. No, the market is unconvinced about BP where the temporary CEO says that the future will be on transition to net zero and ‘not Oil & Gas’, not something that Exxon, Chevron, Oxy, Phillips or Shell seem not to agree with. 

Readers know that I have had strong views on the management at BP over the years and the recent debacle has only added to that charade, indeed the slimmed down board of only 13 industry leaders have yet to cover themselves in glory on the recruitment front. Perhaps Chairman Helge Lund should become CEO as he should have done last time. The time for Dudley, Looney and the Bernadettes is surely over…?

San Leon Energy

San Leon has provided the following update on the investment of up to US$187 million into the Company by Tri Ri Asset Management Corp. (“TRAM”).  The investment was announced by the Company on 10 October 2023. As previously announced, TRAM has confirmed that all conditions precedent to its investment have been satisfied and San Leon has accordingly requested draw down of the US$125.0 million convertible secured loan from TRAM. In this respect, TRAM has confirmed to San Leon that funds are in the process of being transferred from TRAM’s bank in North America and San Leon has since received confirmation that payment has been made.  San Leon expects to receive the net proceeds of the Loan shortly. 

As part of the investment, TRAM also agreed to subscribe for 44,991,302 new ordinary shares of €0.01 each in the Company at a price of 30 pence per new Ordinary Share.  It was previously expected by both TRAM and San Leon that the subscription would take place on or before 31 October 2023. TRAM has signed and returned the subscription letter for the Subscription Shares and San Leon understands that TRAM is currently in the process of setting up an account in the UK with its prime broker who will then be responsible for concluding the settlement of the Subscription Shares.   San Leon expects the setting up of TRAM’s account in the UK to conclude shortly, following which San Leon will apply for admission of the Subscription Shares to trading on AIM.

Pending receipt of the funds from TRAM, the US$5.0 million loan from funds managed by Toscafund Asset Management LLP, which was originally announced by San Leon on 8 August 2023, remains outstanding. In this regard, San Leon is in regular correspondence with Toscafund in relation to the likely timing of any repayment and release of the security held by Toscafund, that comprises both a debenture issued by the Company as well as assignments and pledges over all of its group companies’ loan and equity interests in Energy Link Infrastructure (Malta) Limited. In addition, the Company has not yet settled any of its other outstanding creditors.

This is good news from San Leon, obviously the first payment having been received is a major step and the rest of the pieces of the jigsaw will fall into place. This includes TRAM buying a stake in SLE at 30p with further options higher up, and paying off Toscafund and creditors.

But it really is only the start of the next phase for the company, plans to buy a bigger stake in ELI opens up San Leon to the valuable pipeline and infrastructure system from OML18 with concomitant increased profitability.

The combination of all this means that when the shares return from suspension, shortly it seems there is considerable upside from the last time they were traded. I interviewed Oisin Fanning when the deal was announced, in case you didn’t see it I repeat that interview below.

Core Finance CEO Interview: Oisin Fanning, San Leon Energy

Southern Energy

Southern has announced the results of the conditional Fundraising announced on 1 November 2023.

Pursuant to the Fundraising, a total of 26,630,000 new Common Shares  have been conditionally placed with new and existing investors at a price of 15.5 pence or C$0.26 per new Common Share, raising aggregate gross proceeds of US$5.0 million (£4.1 million, C$6.9 million). The net proceeds from the Fundraising will be used alongside existing cash, cash flows and undrawn debt facilities to fund the completion of the up to four drilled and uncompleted (“DUC”) wells at a cost of approximately US$3 million per well.

The Fundraising Shares will consist of 14,863,097 Placing Shares, 11,702,387 Prospectus Shares and 64,516 Subscription Shares conditionally placed at the Placing Price and Prospectus Price as appropriate, representing gross proceeds of US$2.8 million (£2.3 million, C$3.9 million), US$2.2 million (£1.8 million, C$3.0 million), and US$0.01 million (£0.01 million, C$0.02 million), respectively.

The total Fundraising Shares will represent approximately 16.1 per cent. of the Company’s enlarged share capital post-completion of the Fundraising. The Placing Price represents a 16.2 per cent. discount to the closing price on 1 November 2023 on AIM, being the last practicable closing price prior to the announcement of the Fundraising.

Participation by PDMRs  
Certain persons discharging managerial responsibilities (PDMRs) of the Company have participating in the Fundraising via the Subscription and Prospectus Offering, acquiring a total of 746,055 new Common Shares representing gross proceeds of US$0.14 million (£0.12 million, C$0.19 million). The FCA notifications, made in accordance with the requirements of the MAR, are appended below.

Ian Atkinson, President and CEO of Southern, commented:
“I am pleased to announce the successful Fundraising today that will allow us to accelerate the completion of Southern’s four drilled and uncompleted wells in Gwinville in an increasingly positive macro gas price environment. The accelerated completion of the four wells is anticipated to provide significant production growth and cash flow to the business and we look forward to getting to work to bring these wells on to production.”

“I would like to thank all of the shareholders who have continued to support the Company in this Fundraising, and welcome new investors onto the register at what we expect to be an exciting time for the business, supported by the increasing structural imbalance in U.S. natural gas.”

Although the market hasn’t liked this raise it makes a lot of sense to me. When natural gas prices were near $2 they correctly took their feet off the gas pedal and hunkered down a bit. At c.$3.50 it also seems wise to take advantage of current prices to accelerate production via the 4 DUC’s. 

These measures will increase production from 2.8m b/d in 3Q 2023 to 4.7m b/d in 2Q 2024 and with current gas prices and the strip in their favour I think that revenues will pick up sharply. The raise itself also averts the need to raid reserves and creates flexibility. 

I remain very positive on this company and my recent updated Target Price of 150p seems very reasonable. 

KeyFacts Energy Industry Directory: Malcy's Blog