Oil price, JOG, IGas. And finally…

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WTI $58.68 +32c, Brent $61.47 +38c, Diff -$2.79 +6c, NG $2.91 +8c, UKNG 47p -2.7p

Oil price

Over the last three days company news has been a bit scarce but there has been a bit around on the oil price.

Today has seen the IEA monthly which has just come out, an initial glance shows that the organisation is still cautious on Q1 and to some extent Q2 mainly due to mobility creating a continued lack of demand for oil. However even the IEA has realised that the vaccine should boost the market later in the year and accordingly a rapid stock drawdown is expected in 2H 21 especially if Opec+ cuts continue.

The EIA inventory stats last night continued to show draws with crude down 6.7m barrels and another weekly draw at Cushing which is worth double points. The refinery rate was up 0.7% at 83% so it was not a surprise to see gasoline showing a build, albeit a high one of 4.3m b’s but the snow storms and bad weather in the NE US last week would have hit gasoline demand and conversely benefited distillate consumption.

The EIA STEO has revealed continuing positive forecasts for oil and gas in its current review just announced and in which it is using US GDP forecasts of 3.8% for this year and 4.2% in 2022. It is forecasting the Brent price to be $56 in 1Q 2021 and $52 for the rest of the year with $55 expected in 2022. This lower number for the rest of this year is due to what the EIA call ‘rising supply and continued high inventory levels’. I think that they are being somewhat cautious given Opec+ policy, KSA restriction and stock withdrawals.

US domestic production is expected to decline to 10.9m b/d by June 2021 after which increases in drilling @$50 and will average 11m b/d in 2021 and 11.5m in 2022. (12.2m in 2019 and 11.3m in 2020)

Finally gas, where the organisation are more bullish with a 2021 Henry Hub forecast of $2.95 (2020 $2.03) pushed by growth in LNG exports and higher non-power gas consumption as well as relatively flat production so for 2022 they are forecasting $3.27. This will make good reading to those companies with exposure to US such as DGOC.

Tuesday saw the US retail gasoline data, averaged across the nation a gallon will cost you $2.461 an increase of 5.2c w/w, up by 14.4c m/m and up 4.2c y/y. The last stat is most interesting, whilst in recent months it has been no surprise that 1 and 3m prices have been picking up we can now see a plus y/y which takes us back over the retail price last Spring.

Whilst the recent strong oil market rally is likely to boil over on at least a technical and temporary basis the market may just be working out that never mind the vaccine trade there is a capex trade to be borne in mind. The extent of the capex cuts that occurred last summer were much more than the normal oil company reaction to the oil price fall, in this case the panic from the C suite led to cuts that were harsh enough to take some 5 years of investment out of the oil & gas market.

This had the effect, albeit with an understandable delay, of tightening the market when it filtered through that however good the renewables market is, and will be, fossil fuels are here to stay at least in this cycle. So, if you work out that with say, BP cutting almost all its exploration department forever, and Shell today saying that it expects to have ‘significantly less exposure to oil & gas in the future’ those companies that are genuinely exposed to hydrocarbons in the short to medium term are going to benefit substantially.

Jersey Oil & Gas

JOG has announced that further to its announcement on 3rd September 2020 the OGA has confirmed that the Merged Licence P2498 awarded to JOG in the 32nd Offshore Licensing Round was executed on the 10th February 2021.

Part block 20/5e is located within JOG’s Greater Buchan Area development acreage and contains an extension of the J2 (well 20/05a-10Y) oil discovery. This part block has been incorporated within Licence P2498 (Blocks 20/5a & 21/1a) awarded to JOG in the OGA’s 31st Offshore Supplementary Licensing Round that contains the Buchan oil field and the J2 oil discovery and form the basis of JOG’s GBA Core development.

Andrew Benitz, CEO of Jersey Oil & Gas, commented:

“I am pleased that the award of part block 20/5e has now been formalised. This represents a further step in delivering on our strategy of acquiring a controlling interest in the acreage that forms the Greater Buchan Area.” 

This spring is gearing up to be very exciting time for JOG and its shareholders. Continued good news from the GBA on all fronts such as the execution of this interest can only increase the value for the company and the GBA development project presents a very compelling investment case that will have wide industry appeal. It will not be long before the formal farm-out process is announced by JOG, a process I expect to have significant interest.

IGas Energy

A trading and reserves update from IGas this morning, net production averaged 1,907 boepd for the year, within guidance, while operating costs for the year were c. $33/boe (at an average 2020 exchange rate of £1:$1.29). The company guide to net production of between 2,150-2,350 boepd and operating costs of c.$32/boe (assuming an exchange rate of £1:$1.35) in 2021, albeit subject to the ongoing challenges that COVID-19 presents.

Welton and Scampton waterflood projects are now on line and in the commissioning stage. Both projects were completed within budget with production uplift expected to be realised during 2021 with a maximum anticipated, incremental production rate of 100 bbls/d for Scampton and 120 bbls/d anticipated for Welton. The completion of these two projects has converted 840 Mboe of 2P reserves from undeveloped to developed as per D&M 20

 The Company also announces today key highlights from its reserves and resources of its conventional oil and gas interests, as at 31 December 2020, from a Competent Persons Report (CPR) carried out by DeGolyer & MacNaughton, a leading international reserves and resources auditor. 2P reserves at 17 mmboe show replacement of ∼257% (1P 275%) and 1P NPV10 of $150 million: 2P NPV10 of $204 million.

Stephen Bowler, Chief Executive, commented:

“Despite the significant challenges that 2020 presented, we have continued to make good progress in a number of key strategic areas. We delivered production within guidance, commissioned our waterflood projects, which will bring increased production in 2021 and beyond and completed a significant transaction with the acquisition of the geothermal energy developer, GT Energy.

The D&M CPR results are very encouraging and show that we have proven reserves of over 11 MMboe and a continuing high reserves replacement of over 250%, demonstrating the significant value and upside that remains in our conventional portfolio.

The safety of our people, contractors and the communities we work in remains at the forefront of our thinking against the backdrop of the ongoing impact of COVID-19.”

Overall IGas looks in good shape, a 20% increase in production this year with prices as they are at the moment, subject to hedges, will be  very positive for the bottom line. Cash is £2.4m with net debt of £12.2m. The shares have risen recently from the low of 12p to 29p but at the current 26.65p giving a market cap of £32m the shares look pretty cheap and there is nothing in the shares for Geothermal or for Hydrogen, the long term potential the company is exploring.

And finally…

England eventually beat India relatively comfortably with good performances across all disciplines although Joe Root’s purple patch has something to do with the success. We start again on Saturday and it will be a hard slog to keep a series lead.

Tuesday night saw the first of the 5th round FA Cup ties, Burnley lost 0-2 at home to the Cherries and a dreary game at the Theatre of Dreams ended 1-0 to the Red Devils after extra time.

Last night Swansea lost 1-3 to the Noisy Neighbours, the Foxes beat the Seagulls, the Robins worked hard against  the Blades but eventually .lost 1-0 and the Toffees got past Spurs 5-4 after extra time. Tonight it is Wolves v the Saints and Barnsley v Chelksi. The quarter final draw is tonight at 7.45.

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