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Commentary: Oil price, Ascent, PetroTal, Genel, IOG, Premier, GMS

07/05/2020

WTI $23.99 -57c, Brent $29.72 -$1.25, Diff -$5.73 -68c, NG $1.94 -19c

Oil price

The oil price boiled over yesterday after the jobs number showed 20m layoffs in the private sector sent Wall Street negative.  EIA inventory stats showed a build, admittedly not as big as the whisper which should have helped and a gasoline draw showed that more people are driving but the distillate number at a build of 9.5m barrels hit the products figure. As I write though, oil is carrying the banner again and both crudes are up $2 or more, the week stops after today for VE Day celebrations over here but should end up vs last week.

Various big oil companies have given or even withdrawn guidance in the last week, I’m not so much  worried about the quarterly figures which are historic, more the cuts they are making. Total beat the whisper, cut 25% from capex to $14bn and maintained the divvi, Repsol cut capex by 1bn and maintained the divvi, Marathon’s loss wasnt as bad as forecast and they cut the capex by $1.4bn to $3bn. Today DNO have cut 2020 budgets by 35% and keep the cash of $543m whist Equinor suspended FY production guidance. As for Occidental it remains a nightmare, it needs to raise cash, swap debt for stock as well as refinancing existing debt. (Most of their debt is a 2021 problem barring the $992m due this October) The Anadarko valuation at even $51pb tells you all you need to know.

Ascent Resources

Ascent say that the recent fund-raise is complete, the issue of equity announced has settled with the relevant investor and they have issued 2.25m shares at 5p.

PetroTal Corp

PetroTal has reported that the Northern pipeline has been shut down by the Peruvian Government for public health reasons to do with the COVID-19 virus, accordingly the company has shut-in the Bretana field due to storage capacity reasons. PetroTal are still deferring capex and reducing compensation to management and Directors and obviously the operating costs at the field are substantially reduced.

Due to the nature of timing of cash oil deliveries into the pipeline, for which settlement is received as much as 12 months later the recent crash in prices has led to a substantial, $42m liability usually settled when the balance exceeds $10m. The value of this is clearly a moveable feast, not just because as with the oil price in contango the prices 8-12 months out create a paper profit on recent sales.

Where do PetroTal go from here? Firstly as I see it there is a discussion going on as to how long  the shut down is likely to last, there is no guidance in the statement other than it is a ‘temporary’ situation and that as an essential industry PTAL should be absolved and the pipeline re-opened soon. On this point I believe that given its importance to the country shareholders should have grounds for optimism.

The second point is to the guts of the deal that PTAL need to hammer out, I would expect that this is being done now and we can expect a deal soon rather than later. I come back to my earlier point about contango, this payment mechanism is a beneficiary of the current rack price for Brent and therefore the liability changes as to cash sales v final repayment price. Should the relationship between the company and PetroPeru remain good then I don’t see why a deal on two fronts can’t be hammered out, firstly obviously the effective derivative liability can be addressed and secondly opening the pipeline and possibly using the significant PetroPeru storage facilities to soften the bottlenecks. As I write the company shares are down 54%, which seems way too much of an overreaction and this opportunity may be one not to be missed.

Genel Energy

DNO report from the Tawke PSC that Tawke and Peshkabir averaged 61,493 and 53,714 bopd respectively in Q1 2020. After completing 5 development wells in Q1 3 rigs have been released but the company operated workover rig continues to service production wells. One rig has been stacked at each field ready to mobilise ‘when conditions warrant’. Finally ‘the Peshkabir-to-Tawke gas capture, transport and reinjection project to effectively end CO2 emissions at Peshkabir and boost oil recovery at Tawke is completed and undergoing commissioning’.

Independent Oil & Gas

iog as operator has awarded a ‘sizeable’ EPCI contract to Subsea 7 and will cover SURF work on Phase 1 of its Core Project in the Southern North Sea, it is almost entirely lump-sum in nature. Phase 1 comprises development and production of the Southwark, Blythe and Elgood fields through a total of five wells with gas transportation into the Thames pipeline.

The SURF contract involves subsea elements of Phase 1 including pipeline extensions, connections and subsea structures and tie-ins. Extensive progress has already been made with Subsea 7 prior to final contract award under a letter of limited commitment to ensure that all workstreams have commenced and continued on schedule since FID in October 2019 in anticipation of the FDP approval. ‘As recently announced, the 24-inch (Southwark) and 12-inch (Blythe) line pipe have been manufactured and transported to the UK ahead of planned installation scheduled in 2H 2020, and Subsea 7 is progressing detailed engineering work in support of this campaign’.

Premier

Premier announced yesterday that ARCM has appealed the Edinburgh Court ruling on the Scheme of Arrangement which lapses the potential equity raise, for the time being. Words fail me...

Gulf Marine Services

GMS has rejected the Seafox 10p offer which it says ‘fundamentally undervalues GMS’. In the same announcement it also sticks with previous guidance for 2020 EBITDA of $57-62m. Tim Summers, Executive Chairman states ‘ GMS is a transformed business from a year ago and our prospects are strong’.

Seafox seems to have worked itself into a corner with ‘incorrect statements’ regarding previously issued guidance giving GMS a chance to make political capital in this battle. From what I have seen the GMS management is realistic and in a difficult market being remarkably confident. Existing shareholders would be wise to stick with Tim Summers and team.

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