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Commentary: Oil price, Sound Energy, Serica Energy, Gulf Keystone

23/04/2020

WTI $13.78 +2.21, Brent $20.37 +$1.04, Diff -$6.59 -$1.18, NG $1.94 +12c

Oil price

Another bounce yesterday, who’d have known eh? Inventory stats, like other guides really aren’t of any interest at the moment, i’d rather wait for the rig count tomorrow. In the meantime as I write WTI is up 3 bucks and Brent 2…My story from yesterday about a possible announcement from the KSA about production cuts was also being bandied around…

After my previous interview and my rant in Tuesday’s blog the delightful Markus Koch interviewed me again on his Wall Street Opening Bell programme trying to put a perspective on the ETF’s and other oily matters. You dont have to speak German to understand it though….Link here.

Interview with Markus Koch, The Opening Bell on Wall Street 2

Sound Energy

Under new Chairman Graham Lyon and contrary to most market expectations there is still plenty going on at Sound in Morocco. The company has continued its structural reduction in administrative expenses from 2019 with further material reductions post period end ongoing. Sound has cash of £4.6m and debt of £21.m to be addressed next year.

Sound has received EIA approvals in Morocco for the 120-kilometre 20-inch pipeline and gas treatment plant/compression station in January 2020 and March 2020 respectively. It is also good to see that EIA also applies to the micro LNG project high on Sound’s agenda. It continues the marketing campaign with regards to its Eastern Morocco acreage and work on gas modules continue.

Serica Energy

Serica went into the bucket list for just this sort of outstanding performance, it ticks all the right boxes, has delivered and then some in an increasingly challenging environment. Production is now over 30/- boe/d (24,450) after a first full year of Bruce, Keith and Rhum operatorship with volumes increased and costs reduced.

This is seen in the combined field opex reduced by 30% to $12.60 per boe (18) with gross profit, operating profit and cash flow all increased by ‘substantial margins’. With cash flow increasing and opex falling along with a creditable gas hedging programme in place the board has unsurprisingly felt able to declare a 3p dividend.

With the Rhum 3 intervention under review in terms of operational issues it must be a 50/50 call as to whether it goes in 4Q 2020 or early 2021, either would be acceptable one suspects and Columbus is likely to be next year as predicted.

Serica combines ‘robust financial health, increased production levels and no borrowings or unfunded liabilities with a strong operating capability’, this puts the Company in an exceptional position to weather the current market uncertainties and seek new investment opportunities again proving itself very much in the Premier League in the sector.

CEO Mitch Flegg comments ‘2019 was a year of exceptionally strong performance in an increasingly challenging environment, we entered 2020 in an extremely robust financial position with no borrowings, a decreasing cost profile, an increasing cash position and limited decommissioning obligations. This provides the flexibility to meet the challenges the industry faces in the short term and pursue growth opportunities’. Serica are indeed in a very strong position at this difficult time in the industry and fully justify a position in the Bucket List.

Gulf Keystone Petroleum

Given all the statements recently there was not much new in today’s announcement from GKP. Production was 32,883 b/d and in ytd is c.38,000 although with a lack of current investment due to the virus it will now be around 36,000 b/d. With recent announcements by the KRG regarding payments GKP has put on hold the move to increase production to 55,000 b/d which is fair as the $73m owed is around 1/3 of market cap.

It seems that the Government is keen for an amicable solution which all sides would like but that is unlikely until the oil price picks up and therefore the GKP policy of holding off on dividends and buy-backs in order to retain flexibility to preserve cash is sensible for them.

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