Market Update: 18 April 2023

Rex International Holding* (SGX: 5WH) – Tap to existing bond

IOG PLC (AIM:IOG) – Blythe well suspended

Echo Energy PLC (AIM:ECHO) – Liquidity concerns

Angus Energy PLC (AIM:ANGS) – Production update

VALEURA ENERGY INC (TSX:VLE, AIM:VLU) – Strong 1Q performance

Afentra plc (AIM:AET) – Progress on transactions

IGas Energy PLC (AIM:IGAS, OTC:IGESF) – Glentworth planning consent

 

Energy News

Brent Oil US$84.4/bbl vs US86.4/bbl yesterday

WTI Oil US$80.7/bbl vs US$82.3/bbl yesterday

Henry Hub Gas US$2.27/mmBtu vs US$2.15/mmBtu yesterday

UK NBP Futures 100p/therm vs 100p/therm yesterday

TTF Dutch Futures €41/MWh vs €41/MWh yesterday

• Crude oil prices moved lower as signs of demand weakness in the global diesel market and a stronger US dollar weighed on sentiment.
• US natural gas prices moved higher on expectations of colder upcoming weather in the Lower 48 and as gas flows to LNG export terminals surged 6.5% w/w to ~14.7bcf/d.

 

Company News

Rex International Holding* (SGX: 5WH) S$0.184 Market Cap S$240m: Tap to existing bond

• Rex announced that its 91.65% owned subsidiary Lime Petroleum plans to expand the three-year bond by NOK50 to NOK1.25bn (~$120m), which has a coupon rate of 3 months NIBOR plus 9.25%.

Today’s announcement is further evidence of good credit investor appetite for the Company’s debt instruments and management’s commitment to invest in the asset base to boost volumes across the wider portfolio, which we expect to grow net production to the c.10kboe/d level by mid-2023. The next phase of Rex’s evolution will be deciding how to recycle the positive cash flow generated by the asset base into new opportunities as it targets a 20kboe/d production level and also paying a regular quarterly cash dividend to investors.

*SP Angel acts as Corporate Broker to Rex International Holding

IOG PLC (AIM:IOG) 4.8p, Market Cap £25m: Blythe well suspended

• IOG announced the Blythe H2 development well has been suspended above the target interval after drilling through an overpressured zone containing non-commercial quantities of oil and gas.
• The well has been displaced to a mud weight above the formation pressure and the Company is considering options to progress, including isolation of the influx zone with cement and, if needed, side tracking of the well.
• The risk of such a well control incident was identified during planning and is being safely managed by the drilling team, but looks likely to impact the expected well duration, by up to four weeks, and the associated cost.
• The Blythe H2 well is expected to significantly enhance production and double current gross volumes to the 30-40mmcf/d range, reduce water production into the pipeline and minimise associated opex.

It can’t be fun being an IOG shareholder, who have endured a torrid 12M of highs and lows from its flagship Saturn Banks development (50% WI) in the UK Southern North Sea. Underperformance from the existing production base and on the Southwark field development wells will reduce the revenues that were expected to underpin further investment in the portfolio, such that management considered different options to optimise the Company’s cash flow, which led to the advancement of the Blythe H2 well. Yet even this seemingly low risk option has thrown a curve ball to investors. IOG still has some way to go to rebuild shareholder confidence in both its operational capabilities and the asset base.

 

Echo Energy PLC (AIM:ECHO) 0.04p, Market Cap £2.2m: Liquidity concerns

• Echo announced 1Q23 average net production down 17% q/q to 1.26kboe/d (83% gas) as a result of facilities maintenance across several assets before the onset of winter in the southern hemisphere.
• Production and sale of oil volumes was also impacted by an overstock of fuel oil within the Argentinian domestic market during 1Q23, which has since improved with a number of sales made from Santa Cruz Sur during April.
• The Company said its UK cash balance has fallen to £0.1m and, notwithstanding an expected £0.5m cash receipt in Argentina later this month, is exploring financing options to provide near-term working capital.
• Echo also commented that it was considering a proposal from a significant Argentine investor that has the potential to inject cash and an asset into the business.

The stock is down by over 40% in early trading as Echo’s liquidity is stretched by a reduction in sales volumes and high local inflation as it looks for options to increase working capital availability that can be used to accelerate production increases from the onshore Argentina Santa Cruz Sur assets (70% WI). The Company’s upgrade work over the last 12M had been showing positive signs of benefitting from higher energy prices and increasing liquid volumes to deliver strengthening cash flows through a low-risk $2.1m production and infrastructure enhancement plan that aimed to increase net production by 40% to c.2kboe/d this year. However, local events have seemingly overwhelmed Echo’s limited resources and management is now considering several strategic options to recapitalise the Company.

 

Angus Energy PLC (AIM:ANGS) 1.69p, Market Cap £61m: Production update

• Angus announced current production rates of 4-5mmcf/d from the SF7v sidetrack development well at the Saltfleetby gas field (100% WI), onshore UK.
• The Company expects the well to clean up further, which is likely to raise that flow rate in the future, and will move to construct a new well flowline to enable full plateau production this summer.

The shares are down by 7% in early trading, reflecting test results from the SF7V sidetrack well that are in line with expectations and no more. The CPR had estimated a P90 target of ~10mmcf/d for the plateau rate of flow from all three wells, with the new well expected to nearly double volumes from the Saltfleetby field after clean-up. Following a transformational 2022 for the Company, additional development operations have been funded by a junior debt facility to limit dilution and management remains on-track to deliver sales gas volume growth in 2023.

 

VALEURA ENERGY INC (TSX:VLE, AIM:VLU) C$3.26, Market Cap C$330m: Strong 1Q performance

• Valeura announced 1Q23 average net production of 20.5kb/d and guided FY23 production of 20-22.3kb/d, assuming the start-up in May of the Wassana oil field on Licence G10/48 (89% WI), offshore Thailand.
• The Company anticipates opex of $30/bbl and total FY23 capex of $180-200m, with the bulk of its spending directed toward drilling new wells and working over existing wellbores to access additional reservoir sands.
• Valeura plans to invest $75m over the next two years in the development of the Nong Yao C accumulation that targets first oil in 1Q24 at a rate of 11kb/d. There was no update on the Rossukon oil field project.
• The Company commented that focus remains on growth, which includes the potential to grow further through the mergers and acquisitions market within the Southeast Asia region.

A positive update on the two deals that have transformed the business following the sale of the shallow gas producing business in Turkey last year, as Valeura implements a new growth strategy based on M&A. The Company closed the acquisition of the Thailand upstream oil producing and cash generative portfolio of Mubadala Energy in 1Q23, which boosted Valeura’s adjusted net working capital position to c.$105m from entitled operating cash flow accruing since the effective date of 1st September 2022. Delivery of the key development projects at Wassana, Rossukon and Nong Yao C remains key to the Company’s outlook, providing growth potential to the steady value creation of boosting production and reserves to extend the life span on the mature fields in Mubadala’s portfolio.

 

Afentra plc (AIM:AET) 26.5p, Market Cap £58m: Progress on transactions

• Afentra announced that following the necessary approvals from the regulator (ANPG) and contractor group members, the acquisition from INA is proceeding towards completion and final settlement is expected in May.
• The Company continues to benefit from accrued asset cash flow from the 31/9/21 effective date of the transaction on the acquired 4% interest in Block 3/05 and 4% interest in Block 3/05A, offshore Angola.
• Afentra also announced that an updated ANPG proposal on extending the Block 3/05 licence to 2040 with improved fiscal terms, a condition precedent to the Sonangol acquisition, is under review by the JV partners.
• Upon formal acceptance of this proposal by the licence partners, ANPG will then proceed to obtain ministerial approval to formally authorise the extension enabling completion of the deal to acquire a further 20% interest.

After drifting for much of 1Q23, the share price bounced back 20% yesterday as Afentra moved closer to completing its entry into Angola. The business environment in Angola has improved measurably in recent years and we believe that both Sonangol and ANPG (the Angolan oil & gas regulator) are eager to see this transaction complete, believing that the entry of independent E&Ps will herald a new wave of investment in the Angolan oil and gas sector to boost production and extend the life of its fields. While Afentra continues to benefit financially on the production from the effective dates of the transactions, management will still be keen to complete both acquisitions in 2Q23 and move on with a business plan of new investment to boost production and reserves.

 

IGas Energy PLC (AIM:IGAS, OTC:IGESF) 19.5p, Market Cap £25m: Glentworth planning consent

• IGas announced yesterday that Lincolnshire County Council has granted planning consent for the onshore Glentworth development, following the recommendation by the Planning Officer.
• The Glentworth West phase I development is for an initial appraisal well located up-dip of the existing Glentworth production wells, which has the potential to add 200b/d and develop 1mb of 2P reserves.
• The Company has now submitted the permit applications associated with the project to the Environment Agency that are required before operations can commence.
• If phase I is successful, this may de-risk further expansion through development drilling that has the potential to add an additional 500b/d and convert 2mb of 2C resources to 2P reserves.

IGas stock closed up 7% yesterday as investors welcomed local council support in developing indigenous resources, which is also a positive sign for other onshore UK players looking to develop their onshore UK oil and gas developments.  IGas remains focused on deploying excess cash flows into maximising recovery from the existing asset base and developing near term incremental production opportunities to utilise the £263m tax loss. The upcoming funding decision on the nascent geothermal business could also potentially be a key growth vector for the Company going forwards.

 

Research

David Mirzai – David.Mirzai@spangel.co.uk – 0203 470 0473

 

Sales

Richard Parlons – Richard.Parlons@spangel.co.uk – 0203 470 0472

Grant Barker – Grant.Barker@spangel.co.uk – 0203 470 0471

Rob Rees – Rob.Rees@spangel.co.uk – 0203 470 0535

Abigail Wayne – Abigail.Wayne@spangel.co.uk – 0203 470 0534

 

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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 – ICE

Natural Gas – NYMEX

 

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