WTI (Feb)* $73.94 +3c, Brent (Feb) $79.23 +$1.28, Diff -$5.29 -19c
USNG (Jan) $2.49 -1c, UKNG (Jan) 84.91p -3.09p, TTF (Jan) €33.825 -€0.135
*WTI January contract expiry

Oil price

Oil is surprisingly chirpy and is up again today, WTI for January expired ok and Brent is back to $80. The API stats were not very good and with more builds the EIA numbers lately will be interesting. 

Reabold Resources

Reabold has provided an update on LNEnergy Limited. Reabold holds a 26.1% equity interest in LNEnergy, whose primary asset is an exclusive option over a 90% interest in the Colle Santo gas field onshore Italy.

LNEnergy reported that on 20 December 2023 it filed the Environmental Impact Study for the new small-scale liquefied natural gas (LNG) development plan at the Colle Santo gas field with the Ministry of Environment and Energy Security. This is a further step towards achieving the granting of a production concession at Colle Santo. 

The study was performed on behalf of LNEnergy by its technical partner Italfluid-Cosmep, and various subsidiary companies of Italfluid-Cosmep, along with several independent technical specialists.

As part of LNEnergy’s process to reach full project sanction, the Company will focus in the coming weeks on its concurrent effort to secure approval to carry out a long-term test and monitoring of the field. As part of the long-term test programme, the recently formed Scientific Technical Committee, headed by the Engineering and Geology Department of the University of Chieti-Pescara, will preside as a qualified independent third party public institution to verify data collection.

The Colle Santo gas field is a highly material gas resource with an estimated 65Bcf of 2P reserves[1], with two production wells already drilled and flow-tested, making the field development ready. LNEnergy believes that the field has the potential to generate an estimated €11-12m of gross post-tax free cash flow per annum.

Stephen Williams, Co-CEO of Reabold, commented:
“LNEnergy continues to progress the approval process for both the long-term test programme and full field development. This will unlock the considerable value and gas resources available at the Colle Santo gas field. There is a strong technical team driving the processes forward and we are very pleased with the progress made since our initial investment in May 2023. Colle Santo is an important project for Italy, and for Reabold, and we look forward to keeping shareholders up to date with future developments.”

Reabold has said that it has high hopes for Colle Santo and today’s news that they are heading into a period of long-term testing and monitoring of the field is welcome news and it carries with it a qualified independent third party public institution to verify the data collection. 

With strong Government support and a solid value proposition to back up the field economics it is good to see the project moving forward at such speed, I’m happy to see that only months from initial investment there are really promising signs of progress.

1 RPS estimate, September 2022

Angus Energy

Angus has announced a non-binding Heads of Terms agreed for £20 million and a Global Refinance Appointment of Subsurface and Wells Lead

• £20m debt facility agreed with Trafigura PTE Ltd to refinance all existing debt and fund additional capex projects to raise production at Saltfleetby Field
• 5 year amortising term with one year repayment grace period and reduced cash sweep for accelerated repayment
• Interest margin over SONIA of 8% compared to 12% on existing senior debt and 15% on bridge facility
• All existing senior and bridge debt to be repaid
• Medium-term capex needs fulfilled
• Trafigura to act as Offtaker
• Existing hedge contract to be replaced with a fixed price offtake
• Work on gas storage feasibility to be accelerated with funds from the new facility and revised subsurface mapping

Further to the Company’s announcement of 14 July 2023 and subsequently, Angus is pleased to confirm that it has now entered into detailed, non-binding, heads of terms (“Heads of Terms”) for a GBP20 million senior secured debt facility (the “Refinance Facility”) with Trafigura and has received indicative approval from the lenders under the Company’s existing senior secured loan facility to proceed. The Company has now to agree definitive documentation after which it will proceed to completion and drawdown. Trafigura has provided an expected closing date during the course of January 2024.

The Refinance Facility will be used to repay existing senior and bridge debt (presently c. £5 million and £6.7 million respectively) and reduce the deferred consideration due to Forum Energy (presently c. £5 million) as well as to initiate expenditure on a fourth well at Saltfleetby to be completed by Q1 2025. 

As part of closing of the Refinance Facility, Trafigura will work with the Company’s existing hedge provider to organise an orderly transfer of the existing hedge obligations which run until June 2025. A dynamic rolling gas price protection programme has been agreed which will provide protection at least until the scheduled maturity date of the Refinance Facility. The offtake arrangement with Trafigura will be substantially in line with the existing gas sales agreement; physical fixed price contracts will be entered into on part of the production to cover the existing hedge position until June 2025 and for risk management beyond that.

The headline term of the Refinance Facility is 5 years with even quarterly amortisation payments after an initial repayment holiday of 12 months.  Additionally, there is a cash sweep whereby 50% of Angus’ revenues (after deducting all group wide costs, including financing charges) are to be applied each quarter to redeem the loan. To the extent that sweep repayments are made, the even quarterly amortisation payments will be adjusted.

The Refinance Facility has been arranged by Aleph Commodities Limited (“Aleph”).  Total arrangement fees to Aleph and Trafigura for the new facility are subject to final agreement. Final terms will be confirmed in an announcement of the definitive agreement and will be dealt with in accordance with AIM Rule 13 as appropriate at that time. Similarly, the revised arrangement with Forum Energy will be dealt with in accordance with AIM Rule 13 as appropriate at that time.

The Heads of Terms also include standard terms on change of control, covenants and events of default.

Detailed terms will be released on completion of documentation which is expected to conclude early in the New Year. 

New Appointment

The Company is pleased to announce that Ross Pearson, former Technical Director of Star Energy plc (formerly IGAS plc) is joining the Company as the lead on all wells and subsurface activity. An options package of 25,000,000 options at 0.67p has been agreed with vesting dates being subject to contract milestones.

A very smart move by Angus who in one swoop sign a new £20m debt facility with Trafigura over 5 years with a reasonable rate of 8% over SONIA, way lower than before and an offtake agreement. This pays off the debt and gives capex support for the foreseeable future, sweet as they say…

Rockhopper Exploration

Rockhopper  announces its entry into a funded participation agreement with a  regulated specialist fund with over $4bn in investments under management that has experience in investing in legal assets to monetise its ICSID Award, in relation to the arbitration against the Republic of Italy relating to the Ombrina Mare oil field. The Award was previously announced on 24 August 2022.

Key terms of the Agreement

• Rockhopper to retain legal and beneficial ownership of the Award
• Under the terms of the Agreement, the Specialist Fund will make cash payments to Rockhopper in up to three tranches:

Tranche 1 – Rockhopper will retain approximately €15 million of an upfront payment of €45million on completion. As previously disclosed, Rockhopper entered into a litigation funding agreement in 2017 under which all costs relating to the Arbitration from commencement to the rendering of the Award were paid on its behalf by a separate specialist arbitration funder (the “Original Arbitration Funder”). That agreement entitles the Original Arbitration Funder to a proportion of any proceeds from the Award or any monetisation of the Award. Rockhopper has entered into an agreement with the Original Arbitration Funder to pay €26 million of the Tranche 1 proceeds to discharge all of its liabilities under the agreement with the Original Arbitration Funder. In addition, Rockhopper is due to pay certain success fees to its legal representatives. After making these payments, Rockhopper will retain approximately €15million of the Tranche 1 payment and 100 per cent of all Tranche 2 and 3 payments. 

Tranche 2 – Additional contingent payment of €65 million upon a successful annulment outcome. Should the Award be partially annulled and the quantum reduced as a result, then Tranche 2 will be reduced such that the amounts under Tranche 1 and Tranche 2 shall be adjusted downward on a pro-rata basis. For example, if the quantum of the Award is reduced by 20%, then the amounts under Tranche 1 and Tranche 2 shall be reduced by 20%. For the avoidance of doubt, the amounts under Tranche 1 and Tranche 2 shall not reduce below €45m in any circumstance.

Tranche 3 – Potential payment of 20% on recovery of amounts in excess of 200% of the Specialist Fund’s total investment including costs.

• Tax will also be payable on Rockhopper’s share of the proceeds from the monetisation of the Award. These calculations are complex and are unlikely to be resolved for some months but Rockhopper currently estimates that the approximate effective tax rate of between 10-15% is likely.

The Specialist Fund will cover all costs related to the Arbitration from the date of this announcement.

Benefits of the agreement

• Materially strengthens Rockhopper’s balance sheet with no dilution to shareholders
• De-risks the Award process while maintaining potentially significant upside
• Removes future costs associated with the Award
• Accelerates monetisation when compared to Rockhopper challenging the annulment itself and seeking to enforce against the Republic of Italy, which could take several years
• Allows Rockhopper to focus on its core opportunity in the Falkland Islands

Proceeds from the monetisation will be used by Rockhopper for both working capital, general corporate purposes and towards Rockhopper’s equity funding requirements in relation to developing the Sea Lion oil field.

Under the terms of the previously announced arrangements with the Falkland Islands Government, it remains the case that Rockhopper is prevented from making distributions, including any form of dividend or share buyback.

Precedent Conditions

Approval will be required from the Falkland Islands Government to the transaction.  A further announcement will be made on completion.  Should completion not occur by 30.6.24. either side has the right to termination. In the case of non-completion Rockhopper will use proceeds of the Award to provide compensation to the Specialist Funder based on their legal fees incurred.

Samuel Moody, Chief Executive of Rockhopper, commented:
“We are delighted to be able to announce this transaction which provides near-term certainty for Rockhopper and de-risks our exposure to the annulment process, while maintaining potentially significant upside exposure both to a successful annulment outcome and eventual recovery.   

In the meantime, work continues refining the phasing of the Sea Lion development in the Falklands and we will make further updates to the market as appropriate. We are hopeful that this new funding will largely or entirely fulfil our equity requirements for Sea Lion which will only become clear once the project and financing have been finalised.“

Simon Thomson, Non-Executive Chairman, commented:
“We are aware of a number of international arbitration awards against the Government of Italy where payment remains outstanding.  Given this background, and the circumstances of our own dispute, we are therefore pleased to have entered into this agreement, allowing us to secure material value now and remain exposed to future upside in the hands of experienced professional litigators. We look forward to redeploying this capital in Sea Lion which continues to offer significant value for shareholders.”

This looks to be a smart deal and I’m not surprised to see Rockhopper monetising the OM award awarded to them against the Italian Government that could go on for a very long time. A potential three payments with various costs to be subtracted such as the taxman.

Given that RKH will soon be facing bills for Sea Lion, getting money in now is very wise and waiting for a settlement might have left them ironically trying to raise money with this settlement overhanging so a smart move by all concerned.

Overall then, if Rockhopper win annulment which they should, they will get some €80m plus a profit share on recovery which should be enough for Sea Lion as it is costed at the moment and also of no little interest, be about the same as their market cap-in cash…

Petrofac

Petrofac issues the following pre-close trading update for the year ending 31 December 2023.

FINANCIAL AND STRATEGIC UPDATE:

• Second contract award under the six-project, US$14 billion, multi-year Framework Agreement with TenneT announced today. Petrofac’s portion of the second contract valued at approximately US$1.4 billion.
• Performance guarantee secured for the first contract awarded under the Framework Agreement with TenneT. Performance guarantee terms agreed for the first ADNOC Habshan contract – expected to be issued by year end. Active discussions ongoing to secure guarantees required for other new contracts.
• Net debt(1) expected to be modestly higher than at the interim results, with positive free cash flow generation by the business in the second half offset by an increase in collateral required for guarantees.
• Near-term focus remains on strengthening the balance sheet with ongoing review of strategic and financial options.

OPERATIONAL PERFORMANCE:

• Asset Solutions and IES underlying performance in line with guidance, before a one-off bad debt provision in Asset Solutions of approximately US$12 million.
• Expect a full year EBIT loss in E&C of approximately US$215 million, including US$110 million one-off write downs in contract settlements to protect cash flows.
• Good progress in reaching contractual settlements in the second half, with approximately US$180 million collected year-to-date.
• Completion of remaining legacy E&C contracts progressing in line with guidance.
• Thai Oil Clean Fuels project progress remains on track, with negotiations ongoing to recover additional committed costs.

BACKLOG AND OUTLOOK:

• Exceptional new order intake(2) across both E&C and Asset Solutions, totalling approximately US$6.8 billion in the year-to-date, with Group backlog(3) expected to be approximately US$8.0 billion at the end of the year.
• Robust business outlook underpinned by strong backlog and a healthy Group pipeline scheduled for award in the next 18 months of US$62 billion, including the remaining projects in the TenneT multi-platform Framework Agreement.

Tareq Kawash, Petrofac’s Group Chief Executive, commented:
“Our focus on rebuilding the backlog and unwinding historic working capital has resulted in tangible progress against our organic plan to strengthen the Group’s financial position.

“To further accelerate progress, my near-term priority, and that of our Board and leadership, remains on improving liquidity and materially strengthening the Group’s balance sheet, to deliver on our long-term potential.

“We are completing contracts in the legacy portfolio as planned, we continue to deliver well in the initial phases of the contracts awarded in 2023, and, as a result of excellent order intake, we enter 2024 with a high-quality backlog in both traditional and renewable energy of approximately US$8 billion. This provides us with good revenue visibility and demonstrates the continued confidence customers have in Petrofac’s delivery.”

Todays trading update and order book review contains mixed messages. The good news is that the order book is nicely stuffed before Christmas and the TenneT $1.4bn announcement is part of some $8bn of Group orders. 

But as the CEO says, there is much to be done operationally which includes crucial rebuilding of the balance sheet and sorting out an increase in collateral required for guarantees.

The shares have picked up a bit recently and as is often the case this much shorted stock has seen a dash for covering those exposed positions, however whilst the outlook remains very bright there is plenty of work to be done by the board and that part time director recently brought in to rescue the situation…

FINANCIAL AND STRATEGIC UPDATE

The Group has made good progress on its near-term priorities, since its announcement on 4 December 2023. Today, we announced that the Group has secured the performance guarantee for the first contract awarded under its Framework Agreement with TenneT, which was also supplemented with the second contract award under the agreement. The Group remains in active discussion with credit providers and its clients to secure the guarantees required for other new contracts in its portfolio.

Cash flow and net debt(1)

The Group has continued to advance contractual settlements, collecting approximately US$180 million in the year to date. As referenced in the business update on 4 December 2023, due to the delays in securing guarantees, the Group no longer expects to collect advance payments on new contracts before the year-end.

Measures taken by management resulted in positive free cash flow in the second half, even in the absence of advance payment receipts, albeit this was offset by an increase of over US$100 million in collateral for guarantees. As a result, net debt at year-end is expected to be modestly higher than at the interim results (30 June 2023: US$584 million).

The Group has continued to maintain liquidity above its financial covenant.

Review of strategic and financial options

On 4 December 2023, the Group announced that Aidan de Brunner had joined the Company as a Non-Executive Director to drive engagement with finance providers, investors and other stakeholders in an active review of strategic and financial options with the objective of materially strengthening the Company’s balance sheet, securing bank guarantees and improving short-term liquidity. Further announcements will be made as appropriate.

GROUP TRADING

The Group continues to perform well for its clients. Management expects to report Group revenue of approximately US$2.5 billion, in line with guidance. Full-year business performance EBIT loss is expected to be approximately US$180 million. This includes approximately US$110 million one-off write-downs in contract settlements to protect cash flows and a one-off bad debt provision of approximately US$12 million for a client going into administration in the Asset Solutions business unit.

DIVISIONAL HIGHLIGHTS

Engineering & Construction (E&C)
The financial performance in E&C reflected the low opening backlog and the maturity of its legacy contract portfolio. Full year E&C revenues are expected to be around US$1.0 billion, with a full year EBIT loss of approximately US$215 million, including approximately US$110 of one-off write-downs on legacy contracts to protect and accelerate cash flows.

Following E&C’s strongest order intake in many years, it has good visibility of future revenue and profit growth. Guidance will be provided with the Group’s annual results, as usual.

Operationally, the initial phases of the new contracts secured in 2023 are progressing well. We previously guided that five of the remaining eight legacy contracts were expected to be completed or substantially completed(4) during 2023 or early 2024. Progress remains on track, with two reaching that milestone in 2023 and the remaining three expected to follow in early 2024.

With respect to the Thai Oil Clean Fuels project, good progress continues to be made on the construction phases and we are achieving our interim milestones. Negotiations are ongoing with our client and partners in relation to the reimbursement of additional committed costs. The timing of these negotiations is not wholly within the Company’s control and therefore, there is a risk to the 2023 EBIT numbers stated above. A project and commercial update will be provided with the publication of the Group’s full year results in 2024.

Year-to-date, following the second contract award under the TenneT framework agreement, E&C has secured new orders of approximately US$5.3 billion, split broadly evenly between our core markets and energy transition projects under the TenneT framework. Backlog is expected to be approximately US$5.9 billion at 31 December 2023, of which almost 90% relates to contracts secured in 2023.

Asset Solutions
Asset Solutions has had another successful year, with order intake for the year-to-date of US$1.5 billion comprising renewals and extensions in core markets and new contract awards in both core markets and new geographies.

Full year revenues are expected to be US$1.4 billion with EBIT of between US$20 million and US$25 million, following a bad debt provision approximately US$12 million relating to a customer entering administration. Excluding this one-off event, expected underlying EBIT of between US$32 million and US$37 million reflects the completion of historic high margin contracts in 2022 and a higher contribution of pass-through revenues.

Integrated Energy Services (IES)
IES has continued to deliver ahead of expectations. Net production is expected to be broadly in line with the prior year (2022: 1,261kboe). The average realised oil price (net of royalties)(5) for the year to date is expected to be approximately US$90/bbl, including the impact of hedging (2022: US$110/bbl), with the full year EBITDA expected to marginally exceed the guided range of US$65 million to US$75 million.

ORDER BACKLOG

The Group’s backlog(3) is expected to be approximately US$8.0 billion at 31 December 2023 (30 June 2023: US$6.6 billion), reflecting the exceptional order intake in both E&C and Asset Solutions.

Petrofac, a leading provider of services to the global energy industry, and Hitachi Energy, a global technology leader that is advancing a sustainable future for all, announce today the award of the second project under the US$14 billion, multi-year Framework Agreement with TenneT – the Dutch-German Transmission System Operator – to expand offshore wind capacity in the North Sea.

The project is to be executed under a standalone contract, with Petrofac’s portion valued at around US$1.4 billion.

The companies will work together to deliver Nederwiek 1, a Dutch transmission station which forms part of TenneT’s landmark 2 Gigawatt (2GW) Programme, comprising several high-voltage direct current (HVDC) offshore grid connection systems, each with a transmission capacity of 2 gigawatts.

In an initial announcement earlier this year, Petrofac and Hitachi Energy reported the award of the six-project Framework Agreement. Under this landmark agreement, Petrofac will undertake the engineering, procurement, construction, and installation (EPCI) of offshore platforms and elements of the onshore converter stations while Hitachi Energy will supply its HVDC converter stations, which convert AC to DC power offshore and DC to AC onshore.

Since the initial announcement, Petrofac’s and Hitachi Energy’s teams have collaborated closely on the preparatory works, reserving production capacity for multiple platforms and HVDC technology, and initiating the detailed design process for the first platform, the Ijmuiden Ver Alpha.

Further to the Group’s market update on 4 December, today’s announcement coincides with confirmation that Petrofac has secured the performance guarantee required for the Ijmuiden Ver Alpha contract. The Group remains in active discussion with credit providers and its clients to secure the guarantees required for other new contracts in its portfolio.

Additional projects within the TenneT’s 2GW Programme are expected to be awarded at approximately six-month intervals. These are the grid connections landing at Geertruidenberg or Moerdijk (Nederwiek 3) and Eemshaven (Doordewind 1 and Doordewind 2). The sixth project, the German connection LanWin5, will be connected near Rastede, Germany.

Commenting on the award, John Pearson, Chief Operating Officer, Energy Transition Projects, Petrofac, said:

“We have been collaborating with our partner Hitachi Energy, and client TenneT, on the first project, Ijmuiden Ver Alpha. The award of Nederwiek 1 continues our focus on the standardisation and harmonisation of design and execution that will be central to the ‘design one, build many’ philosophy of the 2GW Programme. By aligning ourselves with TenneT’s objectives, we are creating a blueprint for the rapid deployment of large-scale infrastructure projects crucial to Europe’s energy transition”.

Niklas Persson, Managing Director of Hitachi Energy’s Grid Integration business, said:
“As a pioneering technology and market leader, we are delighted to collaborate to deliver our HVDC solution for Nederwiek 1, combining world-class energy and digital systems. Our strong collaboration with Petrofac, based on an agile business model, scalable solutions and synergies among projects, allows us to join forces and support TenneT in its ambition to accelerate offshore wind deployment in the North Sea, granting European citizens more sustainable and reliable power.”

TenneT’s 2GW Programme is a crucial step in Europe’s transition to a lower-carbon future. Germany, The Netherlands, Denmark, and Belgium have agreed to install at least 65 gigawatts (GW) of offshore wind energy together by 2030. Two-thirds of this (40GW) will be accounted for by TenneT, with 20GW each in the German and Dutch North Seas. TenneT’s innovative 2GW Programme will be vital to reaching these targets and will provide a blueprint for the delivery of future offshore grid connection systems. TenneT’s strategy focuses on standardisation and fostering new contracting models within the supply chain to enable the creation of innovative and scalable solutions that can be quickly and cost-effectively deployed.

KeyFacts Energy Industry Directory: Malcy's Blog