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finnCap: "IOG is expecting to provide an initial view on flow rates on Blythe and Elgood once stable production has been established from both fields. No guidance has been provided, but a view should normally be sufficient. This is clearly a key datapoint for our forecasts and the market. We assume 2022 gross annual average gas production for Blythe and Elgood of 30 mmcfd and 20 mmcfd, respectively. As a reminder, the Blythe well tested at a maximum rate of 45.5 mmcfd and Elgood at 57.8 mmcfd, although the later was surface constrained."
House broker finnCap modelled the annual average rates for Blythe and Elwood as 30,000 and 20,00o respectively. Comparing the current performances of 40,000 and 50,000 respectively, these rates will blow the models out the water. Note Elwood in particular has a sustained rate in excess of 50,000.
New research note written by Director of research, Jonathan Wright at finnCap using yesterday's figures:
"Our 2022 revenue and EBITDA forecasts are unchanged, but the lower 2023 production forecast reduces revenue by 4% and EBITDA by 5%. We still expect IOG to be net cash by the end of this year and end 2023 with ~£90m of net cash, providing significant funds not only for Phase 2 of Saturn Banks but also IOG’s future hub ambitions. Despite the reduction in reserve estimates, our risked NAV and price target remain unchanged at 66p/sh, with lower net debt levels and a higher tax loss shield offsetting the impact. "
That's just alleviated any worries from yesterday.
Certainly sellers around this week but for what reason? As a start it may be worth looking at Nigeria as the cause.
The reliability of the Nigerian power supply is getting worse rather than better. Article with a mention of Calabar as requiring maintenance.
https://www.vanguardngr.com/2022/03/why-national-grid-collapsed-apgc/
At least Accugas gets paid regardless and it need not affect the re-financing.
Boris is hinting at tax incentives for NS gas development. IMO
Boris is hinting at tax incentives for NS gas development IMO
Boris Johnson
14 March 2022 at 9:53pm
"The West must end its dependence on Vladimir Putin. The Russian leader has exploited our need for his country’s oil and gas for too long. We need to take back control.
Later this month, I will set out a British Energy Security Strategy - how the UK will become more self-sufficient and no longer at the mercy of bullies like Putin.
It is crazy that we are importing oil and gas from Putin’s Russia when we have our own resources in the North Sea. It is time to give investors more confidence in British hydrocarbons. That way, we will have more domestic energy resilience as we make the transition to a zero carbon future.
And we will need hydrocarbons to make hydrogen – the low carbon fuel that has perhaps the greatest potential of all."
https://www.telegraph.co.uk/politics/2022/03/14/cannot-go-like-west-must-end-dependence-vladimir-putin/
Boris Johnson
14 March 2022 at 9:53pm
"The West must end its dependence on Vladimir Putin. The Russian leader has exploited our need for his country’s oil and gas for too long. We need to take back control.
Later this month, I will set out a British Energy Security Strategy - how the UK will become more self-sufficient and no longer at the mercy of bullies like Putin.
It is crazy that we are importing oil and gas from Putin’s Russia when we have our own resources in the North Sea. It is time to give investors more confidence in British hydrocarbons. That way, we will have more domestic energy resilience as we make the transition to a zero carbon future.
And we will need hydrocarbons to make hydrogen – the low carbon fuel that has perhaps the greatest potential of all."
https://www.telegraph.co.uk/politics/2022/03/14/cannot-go-like-west-must-end-dependence-vladimir-putin/
The production increase in the Telegraph article has already happened.
Looks supplemental information was requested last year for including in the Environmental Statement or increasing R3 production. Now the Secretary of State has intervened, because it was taking so long, and finally approved the Environmental Statement for the R3 production increase on 10th March.
https://www.gov.uk/government/publications/rhum-production-increase
Old news .. nothing new
Despite the announcement about the purported agreement with Seplat Energy, the Group Managing Director of NNPC, Mele Kyari, has written to ExxonMobil to fault the deal and to register his displeasure that NNPC, as the principal partner in the joint venture was not given the opportunity to buy over the asset.
https://www.thisdaylive.com/index.php/2022/03/09/why-nnpcs-acquisition-of-exxonmobil-assets-is-strategic-to-nigerias-growth/
Amongst the figures in the 20th Jan RNS Corporate update was the large £115.4m call on cash by counter-parties to the gas hedging.
The last Serica corporate presentation shows UK NBP gas prices averaged 200p/therm in Oct and Nov and 270p/therm in Dec. Prices last winter now appear low compares to the current spike.
This week saw both UK NBP April futures spiking on Friday to 500p/therm, as well as the futures contracts for the summer and next winter rising dramatically in the expectation that it will be necessary to rapidly fill gas storage sites before next winter.
Serica has hedged 900,000 therm/d for the remainder of this year at prices between 41p and 47p and this week futures contracts have risen to 430p for summer 22 and 350p for the autumn.
The security that Serica is lodging with hedging counter-parties for its contracts for the remainder of the year will now be extending to several hundreds of £ millions. At the same time the loss of Rhum production for at least two weeks is cutting production to 10,000boe/d whilst reducing revenues by two thirds.
Serica has hedges for 25% of gas sales, and the step up in 22 hedging reflects the retention of 100% of BKR revenues. With the loss of Rhum production, it looks likely that all of the currently reduced free cashflow is being lodged on a daily basis with counter-parties.
If not now, then at some point in the near future, unless full production is resumed, Serica might have a liquidity problem. It would benefit the market if Serica could clarify whether the combination of higher margin calls and lower production is not going to cause a liquidity problem.
Why does the EU think that taxing energy companies can solve this energy crisis?
https://twitter.com/livesquawk/status/1498352182705504258?s=10
Serica's cash at year end was £218.4m but no mention in the RNS of receivables.
As December was the peak month for gas prices with an average 275p / therm and gas production about 24,000boe /d the invoices for December would have been at least £130m. These invoices don't contribute to year end cash as the payment terms were 30 days.
Make that cash plus gas receivables of £348m. An even larger figure if the liquids receivables are also included. Enterprise value = Market cap £620m minus cash plus receivables £348m
EV = £272m
The Investor's Chronicle article quoted forecasts of Free cash flow of £141m for 2021 and £224m for 2022. Using these forecasts:
EV / FCF = 1.9 for 2021
EV / FCF = 1.2 for 2022
These EV / FCF estimates make Serica look very cheap.
Admitting to final costs being £70m over budget. Is that down to poor project management?
Great to see that not all politicians are in favour of a "Robin Hood" tax.
In today's Sunday Telegraph there's an article written by Robert Jenrick MP former cabinet minister titled 'Utilising the UK’s oil and gas reserves is not inconsistent with net zero'.
"We must go hell for leather at both the renewable technology that will allow us to reach net zero in the long term and maximising recovery of gas right now. It comes at no cost to the net zero project to seize opportunities like the Jackdaw development in the North Sea. And we should be encouraging investment to accelerate production, not scaring it off with talk of windfall taxes. The prospect of cheaper and more reliable sources of energy that can ease pressure on energy bills makes the case for it overwhelming."
https://www.telegraph.co.uk/news/2022/01/22/utilising-uks-oil-gas-reserves-not-inconsistent-net-zero/
Year end update RNS was intended for a wider group of readers this year .. looks like one for the journalists and politicians. In that sense it reads really well, don't think it provides as much information for investors as in earlier years. But journos and politicos can understand Serica better before rushing to conclusions.
Spotted the new 21pp report by Jonathan Wright this morning on the finnCap research portal. Registration required before download.
In the Telegraph and in the Guardian too ...
Look how both the pro Labour and pro Conservative media have picked up on the potential for North Sea gas firms to pay windfall taxes. It looks like this government is being backed into a corner by the media as well as the gas and electricity suppliers and will be seen to be ineffective if it doesn't act to curb private profits and reduce gas bills.
“What the government needs to do is step in,” Dale Vince, the chief executive of the energy supplier Ecotricity, told the BBC. “If they really believe the energy prices are too high and truly want to control them then they should subsidise the cost of energy right now.”
“The North Sea operators, for example, supply 40% of Britain’s gas [and] they have made a killing in this crisis because they’re getting paid at nine times more than they were last year – and nine times more than they need because the cost of getting gas out the ground has not gone up,” he said.
https://www.theguardian.com/business/2021/dec/28/north-sea-gas-firms-could-pay-windfall-tax-to-help-avoid-energy-crisis
It's the medium outlook for gas prices through the rest of 2022 and into next winter that matters for IOG revenues. But regarding current gas shortages, there's finally some relief for gas consumers as LNG cargoes head to Europe from the US.
https://www.bloomberg.com/news/articles/2021-12-22/a-flotilla-of-u-s-lng-cargoes-is-headed-to-fuel-starved-europe
There were sharp falls in UK NBP gas futures and Dutch TTF futures yesterday and again today with the impact felt by gas producers such as Kistos and Serica.
Wait to see where the gas price has settled when IOG start production before revisiting future revenues.