Commentary: Oil price, SDX, Faroe, Frontera

26/11/2018

WTI $50.42 -$4.21, Brent $58.80 -$4.68, Diff -$8.38 -36c, NG $4.31 -14c

Oil price

Another bad day on the oil market as investors worried about a number of things. In addition to a growing supply imbalance which is (correctly) perceived to be running into 2019 the concerns about Chinese demand and growing inventories, built up pre-Iran are a worry. Finally, ahead of the Opec+ meeting next week the thought that the KSA may have been turned by the USA and won’t cut back by the necessary volumes is a legitimate concern to the market.

SDX Energy

3Q results from SDX this morning are as expected very good indeed. Revenue at $39.8m is up 50% and net income of $4.1m and $31.3m of netback/gross profit (20.4m) is excellent, it’s been a very good year so far for the company. As expected there have been write downs on the two Moroccan and one Egyptian sub-commercial wells.

With a cash position of $18.7m and an undrawn facility the finances are very strong, $35.7m was invested into the business in the period and production is growing and in line with guidance. South Disouq may slip into 1H 2019 but only due to extended volumes being catered for and thus a slight delay on the paperwork front as it will become a bigger development than originally anticipated and 50-60 MMcfd will be onstream in Q1 there is no problem there. SDX looks extremely well placed at the moment and expect the next few months to show a significant increase in production along with a new exploration programme as well as new customers roll-outs in Morocco in line with the long term plans.

Faroe Petroleum

As expected DNO has come in with a bid for Faroe, the recent fall in the oil price and oil sector shares has fallen into their hands. As such it can be described as an opportunistic and derisory offer which shareholders should have little difficulty dispatching. Having said that, with 28.2% of the company they do have a head start and FPM are going to have to polish up that defence document and get on the road, they have an impressive list of shareholders to whom they must get the message across.

That message is one of being pretty much the best explorer in the sector over the longer term and with a really exceptional asset portfolio in all areas of exploration, appraisal, development and production should not be sold out into the ‘bosom’ of any Johnny come lately that pitches up in Aberdeen. More later…

Frontera Resources

FRR has announced the mobilisation of a workover rig to the T-16 well in the Taribani field in Block 12 in Georgia. The plan is to go on to the T-24 and 31 wells after this as the company target the CPR numbers of 51 MMbbls in the Eldari formation. There is plenty of good news around for Frontera at the moment and this should be viewed as a highly positive step in the right direction.

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