Oil & Gas Daily Flow
Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below
Market Update: Friday 29 May 2020
United Oil & Gas (UOG LN): FY19 results, transformation to a full-cycle E&P
Predator Oil & Gas (PRD LN): LNG import licence application for Ireland
Brent Oil US$34.5/bbl vs US$33.8/bbl yesterday
WTI Oil US$32.5/bbl vs US$31.6bbl yesterday
Natural Gas US$1.85/mmbtu vs US$1.87/mmbtu yesterday
Oil Price News
Oil prices are back at levels last seen in mid-March given a significant improvement in fundamentals following easing of lockdown restrictions across Europe and the US
Rystad Energy estimates that the oil market was oversupplied by around 16MMbopd in April, a massive overhang that forced prices into negative territory
The rapid shut in of around 12MMbopd (largely shouldered by OPEC+) has erased a huge portion of the surplus.
The widely-publicised rebound in demand – of around 4MMbopd, according to Rystad – puts the market close to “balanced” in June
So far, total oil production has decreased by 14-15MMbopd, and non-OPEC countries, such as Norway, Canada, Mexico, and the US have contributed cuts equalling approximately 3.5-4Mbopd
Gas Price News
Natural gas prices dropped nearly 3% yesterday as inventories built more than expected
Natural gas in storage was 2,612Bcf as of last Friday according to the EIA. This represents a net increase of 109Bcf from the previous week
Expectations were for a 107Bcf build according to survey provider Estimize
Stocks were 778Bcf higher than last year at this time and 423Bcf above the five-year average of 2,189Bcf.
At 2,612 Bcf, total working gas is within the five-year historical range.
Strong production despite continued declines in rig count has also held back gas prices
The weather is expected to remain warmer than normal for most of the US which should increase cooling demand
United Oil & Gas (): FY19 results, transformation to a full-cycle E&P
Share price: 2p, Market Cap: £12m
UOG’s FY19 results underline a year of effective pre-production operational performance.
Since the Company’s listing in March last year, the core story for UOG has been the acquisition of Rockhopper Egypt and its 22% interest in the Abu Sennan concession onshore Egypt.
The acquisition completed in February this year (post year-end) and the Abu Sennan asset has performed strongly with the ASH-2 well outperforming expectations, with current gross production from the well remaining above 3,000bopd.
Plans are now in place for further development of the gas at the ASH field, with this project due for completion before the end of 2020.
Gas from Al Jahraa was brought onstream in March, adding an average 650boepd gross, and reducing flaring on the asset.
Management has also confirmed that results from the ES-5 development well, which spudded in February, are expected to be announced shortly.
All Egyptian production, including new gas supply, has positive operational cashflow even at current low market prices.
In particular, low operating costs at Abu Sennan of c.US$6.5/bbl provide solid operating margins even at low price levels.
The Company’s pre-payment facility with BP provides downside price protection by effectively hedging 6,600bbls of oil per month at US$60/bbl until September 2022.
In addition, c.20% of United’s net production is gas which is sold under fixed contract that is relatively insensitive to oil-price changes.
Elsewhere, UOG continued progress in securing the environmental and legal permitting for the Selva gas development project in Italy with the objective of first gas in early 2021
The Company was also awarded licences in highly prospective area in the North Sea in the UK 31st Licencing Round
On a financial level, the Company ended 2019 recording a US$2.1m loss and a cash position of US$1.3m. However, we note that UOG recapitalised through a placing in February 2020 raising £4.8m.
Our take: 2019 represented a year of groundwork that culminated in the transformation of UOG into a full-cycle E&P early this year. Shareholders will be encouraged that the Company is sufficiently hedged against medium term oil price volatility, whilst regional gas prices are holding up in Egypt. Low operating costs and a short-term deferral of some capex commitments will also preserve the Company’s cash position whilst still benefiting from a stable and growing production base.
Predator Oil & Gas (PRD LN): LNG import licence application for Ireland
Share price: 3p, Market Cap: £7m
Predator has announced its intention to proceed to apply for an LNG import licence for Ireland following the execution of confidentiality agreements with a global supplier of LNG and an owner of LNG regasification vessels.
A new subsidiary company, Predator LNG Ireland Limited, is being formed to progress the contracting of a Floating Storage and Regasification Unit (FSRU) for Ireland with a send out gas capacity suitable both for the peak demand gas market and for long term security and diversity of energy supply.
The FSRU solution will facilitate the import of LNG using gas feedstock from a transparent origin that is not dependent on fracking operations related to shale gas exploitation.
The offshore FSRU solution is being designed to utilise existing infrastructure, creating a very much reduced environmental footprint.
Our take: Predator continues to review new business opportunities very much with a sustainable ESG mindset in our view. Developing an LNG import and gas storage option is in line with the European Commission’s sustainable Energy Security Package (published 16 February 2016), which includes a non-legislative European Union strategy for LNG and gas storage aimed at improving the access of all Member States to LNG as an alternative gas source.
Research – Oil & Gas
Sam Wahab – 0203 470 0473
Richard Parlons – 020 3470 0472
Abigail Wayne – 020 3470 0534
Rob Rees – 020 3470 0535
Prince Frederick House
35-39 Maddox Street London
+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.
Sources of commodity prices
Oil Brent, WTI
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