Today’s Oil & Gas Update – United Oil & Gas and more…

0 65

Oil & Gas Daily Flow

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


Market Update: Wednesday 24 February 2021

PetroTal (AIM:PTAL): Material uplift in YE20 reserves confirmed – Bretaña oil field, Peru

United Oil & Gas (AIM:UOG): Transformational test rate confirmed at ASH-3, Egypt

Lekoil* (AIM:LEK): Company remains in discussions with Optimum re OPL310, Nigeria


Energy Prices         

Brent Oil US$65.8/bbl vs US$65.7/bbl yesterday

WTI Oil US$62.0/bbl vs US$62.1/bbl yesterday

Natural Gas US$2.85/mmbtu vs US$2.93/mmbtu yesterday


Oil Price News 

  • The much-publicised oil price rally has had a moment on pause on a surprise US inventory build
  • The American Petroleum Institute (API) reported yesterday a build in crude oil inventories of 1.026MMbbls for the week ending 19 February
  • Analysts had predicted an inventory draw of 5.2MMbbls for the week
  • In the previous week, the API reported a draw in oil inventories of 5.8MMbbls after analysts had predicted a draw of 2.4MMbbls
  • Oil prices were trading up on Tuesday ahead of the data release as oil supplies tighten from oil and gas shutdowns in the US courtesy of the Texas Freeze.
  • US oil production fell 200,000bopd to 10.8MMbopd, according to the Energy Information Administration
  • The API reported a small build in gasoline inventories of 66,000bbls barrels for the week ending 19 February, after the previous week’s 3.9MMbbl build.
  • The last couple of weeks have seen gasoline stocks rise but so has production
  • While demand in the world’s top consumer of oil recovers, production is stalling
  • According to the EIA, US output will remain below 12MMbopd next year
  • This imbalance will turn the US into a net exporter this year and next, the EIA estimated in its latest Short-Term Energy Outlook
  • But more importantly for OPEC+, this would push oil prices higher still, tempting barely compliant members to become even less compliant
  • Elsewhere, according to an industry consensus, global crude demand will increase by 5.5-6MMbopd, implying that a full return to pre-COVID demand levels will require several years to take place
  • The underlying question whether crude output levels can actually follow this demand growth this year has been growing in importance, steep backwardation on the Brent curve might suggest has serious qualms about it
  • With divergent trends abounding, Middle Eastern national oil companies have opted for nuance after the January-February price increases
  • As usual, Saudi Arabia has led the way, rolling over all of its February 2021 OSPs into March completely unchanged
  • Overall, the reports pointed to a still-fragile energy market that is highly susceptible to the course of Covid-19
  • The robustness of Asian demand remains a key gauge for Middle Eastern NOCs
  • China and India have been leading the continent with fuel consumption almost returning to pre-COVID levels in both
  • On the other hand, insular economies such as the Philippines, Indonesia or Taiwan have been running their refineries below maximum capacity or temporarily halting several units amidst poor margins
  • At the same time, turnaround season is just around the corner and Japan’s month-on-month import drop in February is the first of many to come
  • Albeit smaller in terms of overall output, refinery maintenance in Thailand, Taiwan and Sri Lanka will also tighten the markets a bit
  • February turnaround will blaze the path for next month’s large-scale works, China alone will have at least 0.9MMbopd of refinery capacity going offline in March 2021

Gas Price News

  • Natural gas futures are edging lower as warmer weather in Texas is helping production to recover faster than previously expected from last week’s Arctic freeze that rattled the energy markets last week
  • Falling spot gas prices are also weighing on the futures markets as well as forecasts calling for improving weather conditions
  • Nonetheless, traders shouldn’t become complacent with volatility expected to return with the March contract roll-off on Wednesday


Company News

PetroTal (AIM:PTAL): Material uplift in YE20 reserves confirmed – Bretaña oil field, Peru

Share Price: 18.4p, Market Cap: £145m

  • PTAL has announced its 2020 year-end reserve evaluation undertaken by NSAI for the Bretaña oil field (PTAL 100% WI).
  • 1P reserves increased by 4% to 22.3MMbbl from 21.5MMbbl, 2P reserves increased by 7% to 51.0MMbbl from 47.7MMbbl and 3P reserves increased by 25% to 106.1MMbbl from 84.8MMbbl.
  • Relative to 2020 oil production of 2.1MMbbl, reserve replacement was 38% in 1P reserves and 157% in 2P reserves; Bretaña’s reserve life index for 1P and 2P reserves is now an impressive 6.4 years and 14.6 years respectively.
  • Original oil in place estimates for 1P, 2P, and 3P reserve categories were unchanged from 2019 at 235, 364, and 579MMbbls respectively.
  • NSAI attributes a corresponding 2P recovery factor of 15.0%, increased from 13.6% at year-end 2019 due to performance of the existing wells.
  • A 19% decrease in total 2P operating costs resulting in an undiscounted saving of US$232m was driven by further calibration and optimization to the Company’s actual cost structure.
  • Net Present Value (before tax, discounted at 10%) (NPV-10) is calculated at US$317m (US$14.21/bbl) for 1P reserves, US$830m (US$16.27/bbl) for 2P reserves.
  • The 2021 development program combined with all future development and abandonment costs, represent total finding and development costs of US$11.52/bbl for 1P reserves, US$4.96/bbl for 2P reserves and US$3.16/bbl for 3P reserves.
  • On a 2P basis, this represents a recycle ratio of 4.7x, based on the total US$4.96/bbl finding and development cost relative to a netback of US$23.40/bbl (assumed at US$50.00/bbl Brent oil price).

Our take: Another positive development for PTAL today, undewrlining the considerable value of the Bretana oil field ahead of an active drilling campaign this year. The recovery factor improvements in PTAL’s 2P and 3P categories support the Company’s approach to continued reservoir performance over time matching that of nearby analogous fields with higher recovery factors. In addition, the decrease in 2P operating costs by 19%, equating to US$232m in undiscounted savings over the remaining reserve life represents the compelling project economics of the field.  PTAL’s recently replenished balance sheet will immediately lead to a return to development activity at the Bretana oil field, with the next well expected to commence drilling by the end of Q1 2021. The recent reopening of the Bretana oil field operations will invariably lead to a step change in the Company’s cash flow position notwithstanding a much stronger oil price globally. Indeed, FY21 EBITDA of US$90m is likely to be the bearish case given the current spot and futures market for Brent crude, and we therefore see compelling value in the Company’s share price at current levels.


United Oil & Gas (AIM:UOG): Transformational test rate confirmed at ASH-3, Egypt

Share Price: 4.7p, Market Cap: £27.8m

  • Yesterday afternoon, UOG announced a much-anticipated update on the testing of the ASH-3 development well in the Abu Sennan concession, onshore Egypt.
  • The Company holds a 22% non-operating interest in Abu Sennan, which is operated by Kuwait Energy Egypt.
  • The ASH-3 development well, a step-out development well in the ASH Field, spudded on 4 January, and reached a total depth (TD) of 4,087m MD (3,918m TVDSS) on 8 February, ahead of schedule and under budget.
  • Logging indicates a gross hydrocarbon column of 59m in the primary AEB reservoir target, 27.5m of which is estimated to be net pay.
  • ASH-3 was successfully tested from the targeted AEB Formation, and preliminary results indicate maximum flow rates of 6,379bopd and 6.7MMscf/d (c. 7,720boepd gross; 1,700boepd net working interest) on a 64/64″ choke.
  • Rates of 3,561bopd and 2.9MMscf/d (c. 4,140boepd gross; 910boepd net working interest) were achieved on a reduced 30/64″ choke, and in line with prudent reservoir management, these rates are expected to be more representative of the sustainable flow levels that will be achieved when the well is brought onstream through the existing ASH facilities.
  • The ED-50 rig will now move to the north of the Licence, close to the producing Al Jahraa field to commence the drilling of the ASD-1X exploration well.
  • This well is targeting the Abu Roash reservoirs in the Prospect D structure and, if successful, can quickly be brought into production.

Our take: Another transformational result for UOG, and management deserve all the credit they are receiving from the market following a string of successful wells and continuing to exceed production targets. The first well of 2021, following the deferral of the majority of the 2020 drilling programme, has come in well ahead of expectations. This year will be a strong year of operational activity in the country in our view, with the drilling of further wells as part of UOG’s 2021 campaign, including the ASD-1X exploration well, that will follow after completion of ASH-3.


Lekoil* (AIM:LEK): Company remains in discussions with Optimum re OPL310

Share Price: 1.75p, Market Cap: £9.3m

  • Lekoil has confirmed that its subsidiary Mayfair in which the Company has a 90% economic interest, has received a letter from Optimum, the Operator of the OPL 310 Licence, Nigeria, proposing to terminate the Cost and Revenue Sharing Agreement (CRSA) executed for OPL 310.
  • As announced in December 2020, Optimum conveyed its enforcement of the default clause within the CRSA.
  • Pursuant to the CRSA, the default clause stipulates that, following a cure period, if a default has occurred, Optimum and Mayfair shall jointly seek and agree on a buyer to whom Mayfair’s 17.14% Participating Interest as well as the financial obligation within OPL 310 will be transferred.
  • Mayfair will also be entitled to a full reimbursement of all amounts due to it, as a result of past costs spent on the asset, from future production proceeds from OPL 310.
  • The Company believes that this further letter proposing to terminate the CRSA is not valid as the relevant provisions of the CRSA have not been adhered to by Optimum.
  • The Company will engage with Optimum to ensure that the appropriate steps outlined in the Agreement are followed and is also seeking legal advice on the matter.

Our take: Lekoil will understandably look to defend its position with regards to OPL310 which represents a significant potential hydrocarbon development. Elsewhere, despite the macro-challenges across the sector last year, Lekoil successfully navigated the period with steady production and cashflow generation from Otakikpo while implementing a range of significant cost reduction initiatives across its operations ensuring a timely repayment of its facility with Shell Trading.

*SP Angel acts as Nominated Advisor and Broker to Lekoil


Research – Oil & Gas

Sam Wahab – 0203 470 0473 / 0784 385 5037

[email protected]



Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  


SP Angel                                                            

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


Natural Gas




Disclaimer   Non-Independent Research

This note has been issued by SP Angel Corporate Finance LLP (“SP Angel”) in order to promote its investment services and is a marketing communication for the purposes of the European Markets in Financial Instruments Directive (MiFID) and FCA’s Rules. It has not been prepared in accordance with the legal requirements designed to promote the independence or objectivity of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

SP Angel considers this note to be an acceptable minor non-monetary benefit as defined by the FCA which may be received without charge.  In summary, this is because the content is either considered to be commissioned by SP Angel’s clients as part our advisory services to them or is short-term market commentary.  Commissioned research may from time to time include thematic and macro pieces.  For further information on this and other important disclosures please the Legal and Regulatory Notices section of our website Legal and Regulatory Notices 

While prepared in good faith and based upon sources believed to be reliable SP Angel does not make any guarantee, representation or warranty, (either express or implied), as to the factual accuracy, completeness, or sufficiency of information contained herein.

The value of investments referenced herein may go up or down and past performance is not necessarily a guide to future performance. Where investment is made in currencies other than the base currency of the investment, movements in exchange rates will have an effect on the value, either favourable or unfavourable. Securities issued in emerging markets are typically subject to greater volatility and risk of loss.

The investments discussed in this note may not be suitable for all investors and the note does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. Investors must make their own investment decisions based upon their own financial objectives, resources and appetite for risk. 

This note is confidential and is being supplied to you solely for your information. It may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose. If this note has been sent to you by a party other than SPA the original contents may have been altered or comments may have been added.  SP Angel is not responsible for any such amendments.

Neither the information nor the opinions expressed herein constitute, or are to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. Opinions and estimates included in this note are subject to change without notice. This information is for the sole use of Eligible Counterparties and Professional Customers and is not intended for Retail Clients, as defined by the rules of the Financial Conduct Authority (“FCA”).

Publication of this note does not imply future production of notes covering the same issuer(s) or subject matter.

SP Angel, its partners, officers and or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA has put in place a number of measures to avoid or manage conflicts of interest with regard to the preparation and distribution of research. These include (i) physical, virtual and procedural information barriers (ii) a prohibition on personal account dealing by analysts and (iii) measures to ensure that recipients and persons wishing to access the research receive/are able to access the research at the same time.

SP Angel Corporate Finance LLP is a company registered in England and Wales with company number OC317049 and whose registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SP Angel Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority whose address is 12 Endeavour Square, London E20 1JN.


Recommendations are based on a 12-month time horizon as follows:


Buy – Expected return >15%

Hold – Expected return range -15% to +15%

Sell – Expected return < 15%

Leave A Reply

Your email address will not be published.