Todays’ Oil and Gas update – Diversified Gas & Oil, Jadestone Energy and President Energy
Diversified Gas & Oil (LON:DGOC) Expansion into Louisiana through accretive transaction
Jadestone Energy (LON:JSE) Acquisition and entry into Malaysia
President Energy (LON:PPC) Initial production levels 30% better than anticipated at LB-1002
Brent Oil US$67.8/bbl vs US$67.8/bbl yesterday
WTI Oil US$64.7/bbl vs US$64.3/bbl yesterday
Natural Gas US$2.90/mmbtu vs US$2.94/mmbtu yesterday
Oil Price News
SP Angel’s Oil Market outlook following March 2021 OPEC+ meeting: https://youtu.be/DFcon98RdqE
Please see SP Angel’s Oil Market outlook for 2021: https://youtu.be/T222JHGzokI
Further strong results from the supermajors sees Shell report strong growth in adjusted earnings for the first quarter and lifted its dividend by 4%
Shell reported adjusted earnings of US$3.23bn for 1Q21 and increase from the US$393m earnings for 4Q20, and a rise from the 1Q20 earnings of $2.86bn
The expected and previously announced dividend increase is the second small dividend hike at Shell, which this time last year had slashed its dividend for the first time since WWII to preserve cash and value in a highly uncertain macroeconomic environment in the pandemic.
A year after the coronavirus roiled global oil markets and prices and forced supermajors such as Shell and BP to cut their dividends, the major international oil firms are reporting solid profits for the first quarter of 2021, thanks to higher oil prices, slightly better refining margins, and profitable trading business
Shell also reported a 32% rise in cash flow from operating activities at US$8.29bn for the first quarter of 2021, up from US$6.29bn billion for 4Q20
The supermajor also managed to reduce is net debt to US$71.3bn at end-March 2021, down from US$75.4bn at the end of 4Q20 thanks to the free cash flow generation.
In further good news for shareholders, once the US$65bn debt milestone is achieved, Shell aims to increase shareholder distributions to 20-30% of its cash flow from operations
Gas Price News
Natural gas prices took a respite following three consecutive higher trading session that grossed the May contract 7.3%
Prices were down on the new June contract by 1.7%
According to the National Oceanic Atmospheric Administration, warmer than normal weather is expected to cover most of the United States for the next 8-14 days
This warmer than normal weather is likely to induce additional cooling demand
Injections of gas into US storage facilities in the week ending 16 April totalled 38Bcf, down from 47Bcf for the same week last year, according to the Energy Information Agency (EIA)
Estimates from analysts ranged between 37-59Bcf, with a median of 48Bcf Working natural gas stocks totalled 1,883Bcf in the week – 251 Bcf lower than for the same period last year
After posting a strong gain last week and changing the trend to up on the daily chart, natural gas bulls are hoping that the market continues to remain supported by solid LNG demand and forecasts calling for more heat
Strong demand from manufacturing also helped buoy natural gas prices
US Durable Goods orders are stoked by manufacturing demand that has been building since last fall
According to the Commerce Department, new orders for durable goods increased by 0.5% to US$256.3bn in March compared with February
According to the National Oceanic Atmospheric Administration, the rally in natural gas comes despite warmer than expected weather that will cover most of the United States for the next two weeks
Diversified Gas & Oil (LON:DGOC): Expansion into Louisiana through accretive transaction
Share Price: 123p, Market Cap: £869m
DGO has further expanded its portfolio through the US$135m (gross) conditional acquisition of certain Cotton Valley upstream assets and related facilities primarily in the state of Louisiana from Indigo Minerals.
The acquisition represents the first for the Company in its newly identified “Central” Regional Focus Area (RFA) where it expects to replicate its proven business model on an expanded opportunity set.
The headline purchase price is expected to be US$135m (gross; estimated US$115m net purchase price after customary purchase price adjustments).
The acquisition price is estimated at a 2.9x multiple on c.US$40m of Adjusted EBITDA (hedged) before anticipated synergies.
The transaction will be financed through borrowings on the Revolving Credit Facility, leaving DGO’s pro forma consolidated Net Debt/Adjusted EBITDA unchanged at 2.4x.
This represents a 13% addition to DGO’s 2020 adjusted EBITDA.
The transaction has been valued as having a PV10 of c.US$175m as of 1 March 2021 effective date and based on 16 April 2021 NYMEX strip price.
The assets benefit from Proved-Developed-Producing (PDP) reserves of c.50MMboe (c.305Bcfe) and currently produce 16,000boepd (c.95MMcfe/d) across 780 net operated wells.
The location of the assets also benefits from the Gulf Coast pricing driving higher realisations.
The transaction represents a strategic entry into prolific, gas-producing Cotton Valley/Haynesville area and provides a robust opportunity set for further acquisitions.
Our take: It continues to be a buyers’ market in the US, and it is no surprise to see further expansion from DGO. Today’s announced transaction appears to be typically attractive with a current 2.9x multiple on c.US$40m of adjusted EBITDA, with clear opportunities to grow this through operational synergies. With a strong balance sheet, efficient cost structure, improved commodity price outlook, strong hedge protection and a robust outlook of potential accretive growth, investors can look forward to a stable dividend policy. Indeed, two consecutive dividend increases representing more than a 14% increase per share since the global pandemic began, underlines the Company’s highly resilient strategy in the current commodity price
Jadestone Energy (LON:JSE): Acquisition and entry into Malaysia
Share Price: 64.2p, Market Cap: £297m
JSE has confirmed the Company has executed a sale and purchase agreement with SapuraOMV Upstream to acquire SapuraOMV’s interest in Peninsular Malaysia for a total initial headline cash consideration of US$9m, to be funded from the Company’s cash resources, and certain subsequent contingent payments.
On completion, the transaction served to add immediate cash flow from c.6,000boepd of low operating cost production, on a net working interest basis, of which over 90% is oil.
The acquisition will increase the Company’s 2P reserves by 34%, adding 12.5MMboe of net working interest 2P reserves, based on the Company’s best estimate 2P reserves production profile.
Further upside potential can also be yielded through reservoir optimisation opportunities, additional infill wells and cost efficiencies.
As per the PSCs, JSE will undertake the abandonment of facilities and wells at the end of the contract period or production, whichever is earlier.
The abandonment of facilities is funded through a cess fund arrangement, accumulated during the production phase, while the abandonment of the wells will be cost recovered via petroleum operations.
Our take: A very accretive acquisition in our view, adding material production initially but more importantly, significant bandwidth for development upside. Malaysia remains a highly prospective jurisdiction for upstream investment and JSE’s foray into the country comes at an important time for the Company with recovering demand and commodity pricing. Current production remains in line with guidance and given deferred investment is due to restart, notwithstanding commodity price improvements and inorganic growth slated for H1 2021, we also see rapid organic expansion this year for the Company. The Company’s balance sheet strength underpinned by its prudent approach to capital discipline has ensured it successfully navigated a difficult period for the sector. Preserving its healthy dividend this year also ensures a sticky shareholder base and differentiates JSE from many of its peers in our view.
President Energy (LON:PPC): Initial production levels 30% better than anticipated at LB-1002
Share Price: 2.5p, Market Cap: £51m
President has provided a comprehensive update with regards to its asset portfolio in the Rio Negro Province, Argentina.
Following the drilling of the gas well LB-1002 in the Las Bases field, the first of the current three well campaign, the well has now been completed with a total perforated interval of 5m (16 feet) in the lower Centenario 5 and 6 intervals without any form of stimulation.
These intervals were not in the primary target, nor expected to be productive at the time of well planning and is therefore somewhat of a bonus.
The well was produced on test with an 8mm choke.
Production was stable at some 55,000m3/d of gas (1.94MMsft/d or c.323boepd) versus pre-drill and post-drill estimates of 40,000m3/d, a 30% increase.
Management also confirm that pressure remained robust through the test with no formation water identified.
It is expected that the well will be producing on stream by the end of next week.
Remaining to be tested is the main target, a known productive and thicker pay interval higher up the hole, the Centenario 3 section.
President will first produce from the current intervals being the Centenario 5 and 6 sections and use the data for further consideration of the Las Bases field.
Elsewhere, New well EV-1002 has now spudded, with the estimated time to drill, log and case the well is 15 days from now.
This well is designed as a twin well of the formerly producing gas well EV-4 which was drilled in 1989 and which ceased production in 2019 due to a casing collapse.
Pre-drill estimates of initial production in the success case are similar to the just drilled well EV-1001 – 60,000 m3/d (2.1MMscft/d or 350boepd).
At the Company’s New well EV-1001, the coiled tubing unit and ancillary test and stimulation equipment to complete this well and place it on production is now mobilising to location from the LB-1002 site.
It is projected that subject to successful completion this well, the second in the current drilling campaign, will be placed on stream within 14 days.
Our take: President benefits from a strong reserve/resource base that will only increase as the Company extends the life of its concessions. Following a challenging FY20, shareholders will be encouraged by Presidents prudent approach to capital discipline, achieving material cost savings and entering into several agreements with local partners. Operationally, it is encouraging that the LB-1001 gas well has been placed into production which is currently ahead of expectations. As no reserves had previously been logged at this interval it is positive news for the Company, more importantly it could be a sign there may be greater untapped resource potential at the field. It is further incremental improvement following similar news at EVN-x1, in the Estancia Vieja North structure where hydrocarbons have also been produced for the first time.