Today’s Oil and Gas Update – Lekoil; Lansdowne Oil & Gas and more…

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Non-Independent Research; Marketing & Sales Commentary – MiFID II exempt information – see disclaimer below

 

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Market Update: Friday 30 October 2020 

Lekoil* (AIM:LEK): Interim results, operational progress despite a challenging backdrop

Lansdowne Oil & Gas* (AIM:LOGP: Period of exclusivity extended to next month

Impact Oil & Gas (Private) – Further South African exploration interests granted

 

Energy Prices         

Brent Oil US$37.8/bbl vs US$39.9/bbl yesterday

WTI Oil US$36.2/bbl vs US$38.7bbl yesterday

Natural Gas US$3.31/mmbtu vs US$3.01/mmbtu yesterday

 

Oil Price News

Russia’s crude oil exports dropped by 7.7% in the period January to August, according to Russian federal customs data

For most of the period through August, Russia was part of the OPEC+ agreement to curtail supply to the market, except in March and early April, when Russia and Saudi Arabia disagreed on how to manage oil supply to the market when demand was crashing due to the pandemic

The current production cuts began in May 2020 and are much deeper than in the previous deal

Russia’s crude oil exports also dropped in terms of value due to the slump in oil prices

Between January and August, the value of Russian crude oil exports plunged by 38.9% compared to the same period last year, to US$48.8bn, according to data from the Russian federal customs service

Currently, Russia’s economy is suffering the consequences of the oil price crash that it helped create with the temporary rift with its OPEC+ partner Saudi Arabia

Due to the restrictions under the OPEC+ deal, Russia plans to export 16.4% less crude oil this year compared to 2019

Crude oil production is expected to drop by 10% in 2020 from 2019, whist the ministry estimates that output could return to the levels before the pandemic by 2023, but this would depend on global oil demand and the OPEC+ agreements

OPEC+ is set to ease the current cuts by 2MMbopd as of January, but weak demand and rising supply from exempt OPEC member Libya could derail those plans

 

Gas Price News

Natural gas prices continue their upward trend, buoyed following a smaller than expected build in natural gas inventories

Natural gas in storage was 3,955Bcf as of Friday 23 October, according to the EIA

This represents a net increase of 29Bcf from the previous week

Expectations were for a 46Bcf build according to survey provider Estimize

Stocks were 285Bcf higher than last year at this time and 289Bcf above the five-year average of 3,666Bcf

At 3,955Bcf, total working gas is above the five-year historical range

Hurricane Zeta battered the New Orleans coast and has been downgraded to a post-tropical depression

There is another storm that is entering the Caribbean that has a 20% chance of becoming a tropical cyclone according to NOAA

The weather is expected to be warm and moderate over the next two weeks, reducing the need for heating demand

 

 

Company News 

Lekoil* (AIM:LEK): Interim results, operational progress despite a challenging backdrop

Share Price: 1.75p, Market Cap: £9.4m

In line with much of the sector, Lekoil’s interim result to the 30 June 2020 saw a decline in the Company’s revenues to US$13.9m (30 June 2019: loss of US$22.3m) despite an increase in crude liftings from 362kbbls to 409kbbls.

This resulted in an after-tax loss of US$7.9m (30 June 2019: loss of US$5.2m) which includes a US$3.5m non-cash impairment.

The Company ended the period with a robust cash positon of US$4.6m (30 June 2019: 2019: 2.7mm)

Total outstanding debt financing, net of cash, was US$15.6m, a decrease from US$16.5m at the end of 2019.

With the significant drop in oil prices in the first half of 2020, the Board approved the immediate annual reduction of US$8.0m or at least 40% in general and administrative expenses.

Lekoil has significantly reduced rent and facility management expenses, headcount, travel costs, as well as IT and telecommunication expenses, and subsequent to the reporting period end, has reduced the general and administrative monthly run rate to US$1m.

The offtake agreement with Shell which was due to expire in the second quarter of this year, was renewed for two years and included the provision of a US$3.5m prepayment facility to aid short term liquidity.

The facility, which is repayable from future crude oil liftings, has a tenor of five months and charges a market margin over LIBOR.

Following the end of the reporting period, on 17 August 2020, it was announced that the existing three interest-bearing term bank loans were restructured into one secured loan with FBNQuest Merchant Bank.

The restructuring provided an extension of loan tenor with new term loan maturity date of 31 March 2024 representing an increase on the average maturity of the three existing bank loans by 15 months.

A cash saving of over US$3m during the next 15 months was also delivered from the new sculpted loan principal repayment schedule compared to the previous loan structure.

The cash balance as at the end of September 2020 was US$2.9m, with US$1.3m recognised as restricted cash.

Operationally, Lekoil continued to make progress across its portfolio against the unprecedented challenges presented in the first half of this year.

The Company core producing asset, Otakikpo, produced an average of 5,676bopd gross with 2,271bopd net to Lekoil Nigeria.

As at 30 June 2020, the Company’s share of equity crude was 409kbbls whilst the latest lifting is currently ongoing with US$4m cash proceeds expected to be received.

Phase Two plans are underway, subject to securing funding, for the drilling of up to seven wells where the first two wells are expected to increase gross production to 10,000bopd.

The Company also successfully completed a site survey operation on OPL 310 which includes the significant Ogo discovery.

With most of the preparatory work concluded for the Ogo appraisal drilling programme and well locations selected, funding discussions are currently underway with industry partners.

Our take: Despite the challenges of the first six months of the year, Lekoil has successfully navigated the period with steady production and cashflow generation from Otakikpo while implementing a range of significant cost reduction initiatives across its operations. Earlier this year, Lekoil executed definitive agreements for the next phase of the Otakikpo marginal field development. These definitive agreements are made up of service agreements with Schlumberger which cover the comprehensive infrastructure upgrades and field management services in relation to the planned upstream drilling programme. Elsewhere, OPL 310 represents significant development upside potential in our view and one of the largest untapped discoveries offshore Nigeria.

*SP Angel acts as Broker to Lekoil

 

Lansdowne Oil & Gas* (AIM:LOGP): Period of exclusivity extended to next month

Share price: 1.6p, Market Cap: £13m

Lansdowne has confirmed that the period of exclusivity with SpotOn Energy will be extended to 30 November 2020 to facilitate finalisation of the Barryroe Farm-Out documentation.

As noted by Providence Resources (PVR LN) in their announcement, the farmout is structured to ensure that the development is fully funded and includes an Early Development Scheme work programme for the Barryroe oil and gas field located in Standard Exploration Licence 1/11.

The agreement with SpotOn Energy would likely see the Norwegian firm take a 50% stake in the Barryroe project marking a long-held ambition to bring 350MMbbo into production in addition to significant quantities of natural gas.

Formal agreement of the farm-in deal which will include a unique arrangement whereby service providers will be paid from revenues when the field comes into production is now slated to concluded next month.

Our take: Clearly the inflection point for Lansdowne will stem from the long-awaited farm-out of Barryroe, which remains a key field offshore Ireland given its significant resource potential. With SpotOn Energy now in the mix, all eyes will be on next month to conclude this much-anticipated agreement.

*SP Angel acts as Nominated Advisor and Broker to Lansdowne Oil & Gas

 

Impact Oil & Gas (Private) – Further South African exploration interests granted

Impact has received approval from the Government of South Africa to take forward the Transkei & Algoa Exploration Right and the Tugela South Exploration Right, offshore South Africa, on a 100% operated basis.

Exxon and Equinor elected to relinquish their 40% and 35% respective working interests in the Transkei & Algoa Exploration Right and the Tugela South Exploration Right.

Following receipt of government consent, Impact took assignment of Exxon and Equinor’s, 40% and 35% respective working interests in the Transkei & Algoa Exploration Right and the Tugela South Exploration Right on 20 October 2020.

The Transkei block benefits from 12,000km of 2D seismic data, acquired in 2013 and 2018.

During March this year, the Transkei & Algoa joint venture received all of the 2D seismic data, processed to depth.

Impact is encouraged by the results of its interpretation of this data and sees world class hydrocarbon potential.

Impact has applied to enter the Second Renewal Period and has high-graded areas for the acquisition of 3D seismic over the Transkei area.

Our take: Following the Company’s US$40m raise earlier this year, Impact is well financed to explore its broad offshore South African portfolio recent data acquired from Exxon and Equinor has presented a number of interesting leads of considerable scale in our view and the Company is likely to mature these prospects ahead of farming down a proportion of its interest to another major.

 

Research – Oil & Gas

Sam Wahab – 0203 470 0473

[email protected]

 

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  

 

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+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

ICE

Natural Gas

NYMEX

 

 

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