Proactive Investors - Market Update: 15 May 2023
- Union Jack Oil PLC (LON:UJO)* - FY22 maiden profit
- IOG PLC (LON:IOG) - Blythe well drilling ahead
- Orcadian Energy PLC (LON:ORCAO) - Blakeney licence expires
- Arrow Exploration Corp (LON:AXLA) - Carrizales Norte discovery
- Angus Energy PLC (LON:ANGSA) - Production update
Energy News
- Brent Oil - US$74.3/bbl
- WTI Oil - US$70.2/bbl
- Henry Hub Gas - US$2.31/mmBtu ($13.4/boe)
- UK NBP Futures - 75p/therm ($53.5/boe)
- TTF Dutch Futures - €33/MWh ($52.1/boe)
- Crude oil prices remain towards the bottom of their 2023 range as negative economic growth sentiment, backed up by downbeat demand indicators for diesel and fuel oil stocks, continues to outweigh tight supply dynamics.
- OECD commercial inventories have almost returned to their seasonal averages, only made possible by a massive drawdown of ~35% of the US SPR, which indicated that it may begin to restock in 3Q23.
- The US Baker Hughes rig count was down 17 units to 731 rigs last week (+17 y/y), with oil rigs down 2 to 586 and gas rigs down 16 to 141 units, and the estimated frac spread count down 12 units w/w to 282 (+4 y/y).
- UK Prime Minister, Rishi Sunak, defended investment in the domestic oil and gas industry last week commenting that the UK would need fossil fuels for the next few decades even as it moves towards net zero.
Company News
Union Jack Oil PLC 23.0p, Market Cap £25m: FY22 maiden profit
- Union Jack announced FY22 results in line with SPA forecasts with £8.5m in revenues, £5.1m gross profit and a maiden net profit of £3.6m (3.2p/sh) for the 12M ended 31st December 2022.
- The Company has repurchased 3.05m ordinary shares that are now held in Treasury and declared an interim dividend of 0.3p/sh payable in July, following the payment of a maiden 0.8p/sh dividend in December 2022.
- Union Jack also announced it has received full payment for the sale of the Company’s 2.5% interest in the Claymore Area Royalty Agreement, in addition to net cash and equivalents of £10.5m reported as of 9th May.
- A new seismic interpretation and mapping exercise on the Wressle field has highlighted a potentially significant increase in resources from the producing Ashover Grit reservoir and the results of the analysis are now being incorporated into the field development plan and an updated independent reserve report expected in June.
- The Company said a drilling location in the east of the Keddington field (55% WI) is being identified to target 0.18mb of incremental resources, with planning in place and plans to drill an appraisal well in late 2023.
A positive set of FY22 results from Union Jack, though the comprehensive news flow activity means that shareholders already know that the Company has further strengthened its production and cash flows in 1H23. Wressle continues to drive the story, with upgrade works ongoing and a new CPR expected to highlight a material reserve upgrade on the producing Ashover Grit reservoir that may lead to a near-term development well that accesses the additional volumes. In addition, there is the upcoming appraisal well at West Newton anticipated in 2H23, planned drilling to access further resources in the Keddington field and several other exploration and appraisal opportunities currently moving forwards. We expect the Company’s cash generation over the medium term to continue to not only provide potential for further direct return of value to shareholders, via share buybacks or special dividends, but also allow for further investment in its portfolio. As such, the anticipated uptick in drilling and development activity across the portfolio should provide investors with the greatest potential for value creation over the next 12M.
*SP Angel acts as Nominated Advisor and Broker to Union Jack Oil
IOG PLC 6.2p, Market Cap £33m: Blythe well drilling ahead
- IOG announced the Blythe H2 development well has successfully isolated the kick/loss zone in the Hauptdolomit zone and is now drilling ahead in the target Rotliegendes reservoir section.
- First gas from the Blythe H2 well is still expected to commence next month and total volumes are expected to build-up to 30-40mmcf/d, at which point the Blythe H1 well will be shut-in to reduce water production.
The stock has performed strongly (+20%) in early trading as the Blythe H2 well is expected to significantly enhance aggregate gas production, reduce water production into the pipeline and minimise associated opex 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 has reduced 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. After a roller-coaster of ups and downs in the last 12M, IOG still has some way to go to rebuild shareholder confidence in both its operational capabilities and the asset base.
Orcadian Energy PLC 5.2p, Market Cap £3.8m: Blakeney licence expires
- Orcadian announced the North Sea Transition Authority (NSTA) has refused permission for a one-year extension to licence P2320 (100% WI), which contains the undeveloped 25mb Blakeney discovery.
- The P2320 licence period has now expired, which also negates the previously announced potential disposal of interests in sub-areas of the licence to Rapid Oil and Carrick Resources (private).
- The Company intends to make an out-of-round application for a new licence covering the extensions of the Pilot field into the P2320 area and the Blakeney discovery, as well as additional identified prospectivity.
The stock was marked down rather dramatically in early trading (-20%), surely reflecting growing concerns regarding the Company’s short-term liquidity issues rather than the minimal economic value of the Blakeney project. Orcadian’s management has used the last 24M since listing to work up the characteristics of the 79mb Pilot heavy oil undeveloped discovery through the interpretation of legacy seismic data and dynamic reservoir simulations to establish a new range of technically recoverable resources. In 4Q22, the Company also secured a one-year extension to licence P2244 (100% WI) that contains the Pilot discovery and is now working towards a finding a farm-in partner or a new owner for Pilot and intends to elicit offers during 2Q and 3Q of 2023 so that a new operator can take the project forward.
Arrow Exploration Corp 20p, Market Cap £46m: Carrizales Norte discovery
- Arrow announced the Carrizales Norte-1 (CN-1) exploration well, which was located on trend with the highly productive Carrizales oil field, has encountered 148ft of net oil pay across three potential reservoir intervals.
- The Company plans to commence testing on the CN-1 well, beginning with the deeper Ubaque formation, followed by the Gacheta formation and then the highly porous and permeable Carbonera C7 reservoirs.
- Production is forecast to commence early next month, at which point the rig will commence drilling on the Carrizales Norte-2 (CN-2) appraisal well with the potential for a further development well to be drilled thereafter.
- The Company commented that it expects the CN wells will behave in a similar manner to the RCE wells, quick to payout with triple digit IRRs providing positive cashflow in the current high commodity price environment.
A positive update from Arrow’s ten-well drilling programme on the Tapir block, which now appears to have confirmed the potential of the CN structure, with each of the wells in the 2023 capex programme anticipated to add c.3-400b/d net to the Company on success. Supported by net cash on its balance sheet and robust operations in Colombia and Canada driving positive cashflows, Arrow remains well positioned to deliver shareholder upside from the 2023 investment programme and achieve its 3kboe/d net production target in 1H23.
Angus Energy PLC (AIM:ANGS) 1.55p, Market Cap £56m: Production update
- Angus announced current production rates of 9.5mmcf/d from the three producing wells following the successful commissioning of the second compressor at the Saltfleetby gas field (100% WI), onshore UK.
- The new B7T well is producing between 4-5mmcf/d through the temporary flowline with stable flow as it continues to clean-up.
A positive update that is in line with the CPR forecasts, which had estimated a P90 target of ~10mmcf/d for the plateau rate of flow from all three wells on 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.
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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