Today’s Oil & Gas Update – Energean Oil & Gas, IGas Energy, Zenith Energy and more…

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

Market Update: Monday 14 October 2019

Energean Oil & Gas (LON:ENOG) – Disposal of Edison E&P North Sea Assets for up to US$280m

IGas Energy (LON:IGas): IGas enters the execution phase at the Welton waterflood

Zenith Energy (LON:ZEN): Production led growth strategy continues

Energy prices

Brent Oil US$59.8/bbl vs US$60.3/bbl on Friday

WTI Oil US$54.2/bbl vs US$54.6bbl on Friday

Natural Gas US$2.2/mmbtu vs US$2.2/mmbtu on Friday

Oil Prices

  • Another drift in oil prices follows the International Energy Agencys (IEA) cut in its oil demand forecast, citing the weakening global economy
  • In its latest report the agency predicts that demand will grow by 1MMbbls/d in 2019 and 1.2MMbbls/d in 2020, both of which are downward revisions by 100,000bopd from previous estimates
  • The report also estimates that global trade volumes will only grow by 1.2% this year, down from around 3%, whilst industrial production is also stagnating
  • U.S. crude futures were down 0.5% at $54.2/bbl on the New York Mercantile Exchange, underlining uncertainties in the global economy
  • Longer term, US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

Gas Prices

  • The natural gas markets saw signs of support during the trading session on Friday, as the US$2.20/mmbtu level continues to cause a reaction
  • Prices are likely to hover at the current levels as demand will likely remain subdued during the shoulder season
  • Tropical storm Melissa is currently in the Atlantic in close proximity to New York but is predicted to move back out to sea
  • The weather is expected to remain normal for the next 8-14 days, keeping natural gas heating demand subdued
  • The EIA reported that demand declined last week driven by the power generation sector. Total US consumption of natural gas fell by 3% compared with the previous week

Sector Backdrop

  • Despite a tough capital market environment, UK equities in the Oil & Gas sector remained flat YTD (2018: -16%) wiping out Septembers 8% gains
  • AIM Oil & Gas indices were also flat YTD despite some volatility, yet stabilising 2018s 13% decline
  • These indices have largely tracked the oil price, and with the futures market also remaining steady
  • The small/mid cap constituents of the sector are due to engage in an active year of operational activity in 2020, with a number of high impact drilling catalysts

Company News

Energean Oil & Gas (LON:ENOG) – Disposal of Edison E&P North Sea Assets for up to US$280m

Share price: 920p, Market Cap: £1,639m

  • Ahead of Energean's proposed acquisition of Edison E&P, the company has confirmed that it has entered into a conditional Sale and Purchase Agreement to sell Edison E&P's UK and Norwegian subsidiaries to Neptune Energy for an initial all cash consideration of US$250m.
  • This will be subsequently adjusted for working capital (effective date 1 January 2019), with additional cash contingent consideration of up to US$30m.
  • The sale is contingent on Energean completing its proposal to acquire Edison E&P and is expected to close as soon as is reasonably practicable thereafter.
  • The Norwegian subsidiaries include the Nova (15% Working Interest) and Dvalin (10% Working Interest) gas developments.
  • Its UK assets include the producing Scott (10.5% Working Interest), Telford (15.7% Working Interest), Tors (68% Working Interest) and Wenlock (80% Working Interest) fields, the Markham asset (3.1% Working Interest), the Glengorm discovery (25% Working Interest) and the Isabella licence (10% Working Interest), upon which an exploration well is expected to spud in the coming weeks.
  • Combined, the subsidiaries represent US$408m of 2018 Gross Assets and US$33m of 2018 Losses before Tax.

Conclusion: A good piece of business for Energean in our view. The onward sale is in line with the companys stated strategy of becoming the largest independent gas-focused E&P company in the Mediterranean, and its previously stated intention to dispose of non-core assets. The net proceeds further strengthen Energean's balance sheet and provide additional financial flexibility across the expanded portfolio.

IGas Energy (LON:IGas): IGas enters the execution phase at the Welton waterflood

Share price: 51p, Market Cap: £65m

  • IGas has confirmed that the company will move to the execution phase for a further waterflood project, at its existing producing field at Welton in the East Midlands.
  • Following the success of previous Welton waterflood projects the technical team identified an additional opportunity in the south of the Welton Field in the Tupton & Deep Hard Rock Reservoirs.
  • The project involves converting a suspended production well (WC01) to a water injector to increase reservoir sweep and increase field recovery by c.340Mbbls (2C resource) with a peak incremental production rate of up to 120bopd.
  • The company's estimated mid-case project economics have an IRR of over 100% and a NPV10 of c.£7m.

Conclusion: Whilst todays announcement will only represent a modest production uplift from the companys current c.2,300boepd production base, we are encouraged by the ramp up of operations in the East Midnlands. The waterflood should aim for 340Mbbls incremental 2P barrels and with a new site in PEDL 235 in the Weald Basin where c300m barrels are estimated to be in place. With cash of £14.4m and net debt of £5.9m there are plenty of opportunities for IGas to develop its onshore UK portfolio, and we would expect the company to provide further details of the recent SR-01 well in North Lincolnshire which encountered 429m of hydrocarbon-bearing Bowland Shale, throughout which significant gas indications were recorded and where analysis is still ongoing.

Zenith EnergyRead More – Source

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