Blencowe Resources: Aspiring to become one of the largest graphite producers in the world. Watch the video here.
IRVING, Texas--(BUSINESS WIRE)--September 09, 2021--
ExxonMobil today said it made a discovery at Pinktail in the Stabroek Block offshore Guyana. The Pinktail well encountered 220 feet (67 meters) of net pay in high quality hydrocarbon bearing sandstone reservoirs. In addition to successful appraisal of the Turbot discovery, the Turbot-2 well encountered 43 feet (13 meters) of net pay in a newly identified, high quality hydrocarbon bearing sandstone reservoir separate from the 75 feet (23 meters) of high quality, oil bearing sandstone reservoir pay encountered in the original Turbot-1 discovery well. This follows the additional pay in deeper reservoirs encountered at the previously announced Whiptail discovery. These results will be incorporated into future developments.
"These discoveries are part of an extensive well program in the Stabroek Block utilizing six drillships to test play extensions and new concepts, evaluate existing discoveries and complete development wells for the Liza Phase 2 and Payara projects," said Mike Cousins, senior vice president of exploration and new ventures at ExxonMobil. "Our exploration successes continue to increase the discovered resource and will generate value for both the Guyanese people and our shareholders."
Separately, the Liza Unity floating production storage and offloading (FPSO) vessel set sail from Singapore to Guyana in early September. The FPSO will be utilized for the Liza Phase 2 development and is expected to begin production in early 2022, with a capacity to produce approximately 220,000 barrels of oil per day. ExxonMobil anticipates at least six projects online by 2027 and sees potential for up to 10 projects to develop its current discovered recoverable resource base. The Liza Destiny FPSO vessel is currently producing approximately 120,000 barrels of oil per day.
The Pinktail discovery is located approximately 21.7 miles (35 kilometers) southeast of the Liza Phase 1 project, which began production in December 2019, and 3.7 miles (6 kilometers) southeast of Yellowtail-1. Pinktail was drilled in 5,938 feet (1,810 meters) of water by the Noble Sam Croft. The Turbot-2 discovery is located approximately 37 miles (60 kilometers) to the southeast of the Liza phase one project, and 2.5 miles (4 kilometers) from the Turbot-1 discovery announced in October 2017. Turbot-2 was drilled in 5,790 feet (1,765 meters) of water by the Noble Sam Croft.
The Stabroek Block is 6.6 million acres (26,800 square kilometers). ExxonMobil affiliate Esso Exploration and Production Guyana Limited is operator and holds 45 percent interest in the Stabroek Block. Hess Guyana Exploration Ltd. holds 30 percent interest and CNOOC Petroleum Guyana Limited holds 25 percent interest.
https://www.vanguardngr.com/2021/02/power-ndphc-to-export-70mw-of-electricity-to-republic-of-togo/
The (power) hungry Caterpillar
Savannah announced the signing of a new GSA with Mulak Energy Ltd. The initial term of the contract is for seven years, with the initial two years on an interruptible basis, and the following five years on a firm contract basis. During the Interruptible Gas Delivery Period, Mulak is able to nominate a maximum DCQ of up to 2.5mmcfd, with volumes in the later firm contract stage yet to be agreed. Savannah’s midstream company Accugas will supply the gas to Mulak’s Compressed Natural Gas (CNG) facility, with Mulak distributing the CNG to its industrial customers to be substituted for diesel in generators. The customer
base has 400MW of diesel-powered generators, thereby representing a huge opportunity for switching to CNG fuelled generators. Savannah have not divulged details on pricing but did indicate that this new GSA would increase the weighted average realised gas price, with no need for additional capex beyond that previously indicated. We estimate that the GSA could be worth at least 2p/sh (risked) even on modest volumes, and consequently we raise our TP to 49p (from 47p) and reiterate our BUY recommendation.
? Accugas will supply the gas from the Uquo field, and we see the initial delivery filling some of the spare capacity generated by the recently amended Lafarge contract, meaning that no incremental capex is required to deliver new volumes.
? Mulak Energy is part of the Mansour Group, an Egyptian conglomerate with operations in more than 100 countries and annual revenues exceeding $7.5bn. Mulak will distribute CNG to be substituted for diesel in generators supplied by the Mantrac Group (another Mansour company) which is one of the world’s largest dealers in Caterpillar machinery, power systems and equipment. Mantrac’s customer base has 400MW of diesel-powered generation capacity.
? T he new GSA marks Savannah’s first foray into the CNG market, and with Mulak’s customer base of 400MW of diesel generating capacity presents a significant opportunity for Savannah. Savannah said that customers switching from diesel to CNG could realise up to a 40% saving in energy costs and a 30% reduction in their carbon footprint. This also is indicative of the Nigerian Government’s enthusiasm to switch to the use of gas for power generation, and a key part of the wider energy transition.
New gas sales agreement signed
Savannah quick out of the blocks in 2021, announcing a new 7-year gas sales agreement in Nigeria with Mulak Energy, its first in the compressed natural gas market. This is set to be a material, high growth market throughout Nigeria as CNG displaces diesel for power generation, delivering significant cost savings and environmental benefits. The tie-up with Mulak provides Savannah Energy with a foothold in the CNG market. It is a perfect example of the type of high margin incremental gas sales opportunities that Savannah can access, driving unit cost efficiencies and helping optimise its significantly underutilised gas infrastructure. It also provides a platform for Savannah to access significant long-term gas demand growth beyond its current infrastructure reach without the need for additional investment, while raising its average gas sales price.
?New gas sales agreement. Savannah Energy has signed a new GSA with Mulak Energy, part of the Egyptian multinational Mansour Group, to supply its Nigerian Compressed Natural Gas (CNG) project. This is Savannah’s first contract in the CNG
market, an area that offers significant growth potential in Nigeria beyond its current pipeline infrastructure reach without the need for additional investment.
?Seven-year term. The GSA has an initial term of seven years, with the first two on an interruptible basis and the next five on a firm contract basis. Mulak can nominate up to 2.5 mmcfd during the interruptible period, with the firm contract volumes still to be agreed. Sales under the GSA are expected to commence in 2022.
?Major growth opportunity. Mulak’s CNG will initially supply industrial customers in Rivers State, allowing substitution of diesel in generators and offering a 40% saving in energy costs and a 30% reduction in their carbon footprint. Mulak will look to expand its CNG sales Nigeria wide after the initial two-year period and has access, via group company Mantrac, one of the world’s largest Caterpillar dealers, to a customer base of ~400 MW of diesel-powered generators suitable for switching to
CNG. If all this capacity were to switch, it would represent a 100 mmcfd growth opportunity for Savannah.
?Higher priced industrial contract. Savannah expects Accugas’s weighted average gas sales price realisation to increase as a result of this industrial contract, without the need for incremental capex. Moreover, the GSA is backed by an investment grade credit rated international bank. Savannah is also said to making good progress on additional potential new gas sales agreements.
finnCap Initiation note
Savannah Energy - Cash machine
Savannah’s acquisition of a key strategic Nigerian gas asset with strong growth potential has been ignored by the market. Its significant exploration success in Niger has also gone unrewarded. Delivery of the strong free cash flow potential these
assets offer will re-rate the shares, which are materially undervalued. Management’s tenacity in getting the Seven Energy acquisition across the line alongside the impressive early progress with the acquired assets should give investors confidence. We initiate with a Buy rating and risked-NAV based price target of 49p/sh.
Major Nigerian gas business. The completion of the Seven Energy transaction a year ago marked the end of a complex and protracted acquisition that took two years. Savannah ultimately paid US$330m and assumed US$550m of debt to acquire an upstream and midstream gas business in southeast Nigeria with US$1.45bn of invested capital and strong growth potential. Despite management’s tenacity in completing the deal and the major potential of the assets, the stock has de-rated.
Encouraging early signs. Key to the success of this acquisition will be the delivery of financial and operational improvements in a number of critical areas. Management has worked closely with the former Seven Energy management team for three years, allowing rapid operational improvements to be delivered. Costs have already been reduced by US$40m since 2017, production has increased by 40% and cash collections by 37%. Savannah has signed one new gas contract and more are expected. It has repaid US$44m of debt and strong free cash flow from the assets will allow debt to be cut rapidly. Continued improvements are key to Savannah’s re-rating.
High visibility cash flow. As part of the acquisition, management secured a World Bank partial risk guarantee for its main gas sales contract, completely transforming the credit risk profile of the business. Its three gas sales contracts guarantee a
minimum take-or-pay gas volume of >125 mmcfd for more than a decade. They are priced in US$, have no oil price linkage and inflate by an average 6% annually for the next few years. They underpin and give strong visibility to contractual revenues of US$200-250m+ p.a., which we forecast will drive cash flow of US$120m+ p.a.
Strong FCF generation. H1 2020 results gave a glimpse of the potential. Cash collections jumped 48% to US$82m helped by a 22% increase in gas production and an 8% higher gas price. We estimate Savannah can generate free cash flow of US$60+m p.a. from 2022 after debt servicing and Nigeria capex. Even accelerating debt repayments, it can still generate a 30% free cash flow yield. Delivery of the underlying promise in Nigeria will drive the re-rating and open the door for shareholder distributions.
Savannah Energy
A top E&P pick
Given the company’s blue chip institutional register and a management team that has very much put its money where its mouth is, Savannah’s share price will be a frustration for more than just us sell-side analysts. We do, however, suspect that a scarcity of broker forecasts won’t be helping as CEO Andrew Knott and team continue to articulate a great story. We have therefore decided to break cover and issue fully updated estimates for FY2020F and FY2021F, following the recent publication of interim results for the six months to June. The interims (issued at the end of September) were notable in that they provided the first clean-and-complete set of numbers for Savannah following completion of the Seven Energy acquisition, taking in a full six months of Nigerian revenues whilst avoiding last year’s transaction-related costs. Our forecasts have admittedly been reduced, partly as a result of slower progress towards first oil in Niger, but nevertheless paint a picture of solid earnings growth and cash flow, accompanied by rapid deleveraging. Savannah lacks (temporarily at least) high impact drilling excitement but –to quote the views of one value-biased fund manager –the best catalyst can sometimes be no catalyst at all. In our opinion, the numbers must eventually speak for themselves, with a prodigious free cash flow yield forecast and the potential for a maiden dividend next year. Our rebased Risked NAV estimate stands at 35p/share. Reiterated BUY.
Plenty of flexibility then to manage the balance sheet and consider distributions.
Outside of nonspecific ‘Nigeria’ anxiety (the population and industry still need gas and power!), investors biggest concerns have revolved around the lack of communication and debt levels. In reality, Savannah’s extended close period was not of its own doing and since FY19 results it has put out a bumper Annual Report and delivered H1 results and a trading update, all within the last two months. With the Seven Energy transaction behind it, expect this recent trend to continue.
Current debt stands at around US$511m (net debt US$427m) – remember the debt was negotiated down from over US$1bn during the Seven Energy transaction. This debt is linked to the Accugas midstream gas assets, so is non-recourse to Savannah. More importantly, Savannah now has World Bank guarantees covering its gas sales, so getting paid shouldn’t be an issue. The debt is also falling (down US$18m in H1) and Savannah can comfortably manage the interest payments. Ultimately the ambition is to refinance the debt, the majority of which is paying 10.5% over US Libor. In the meantime, Savannah gets to enjoy the benefits of a US$1bn gas business in a high growth market.
These results are not in keeping with the stock’s performance in recent months. Prior to yesterday’s 12% bounce the shares were down over 50% on the year and the worst performer amongst its Nigerian peers. As the market wakes up to the cash emanating from the Seven Energy assets, that will change.
Management are certainly backing themselves, with the Directors buying 11m shares (>1% outstanding) as soon as the company came out of its close period in August. Not to leave any stone unturned, it has also published its first sustainability report and intends developing and implementing a new ESG performance reporting framework.
Oh, and I haven’t even mentioned Niger, where they have a 100% exploration success rate and 146 additional leads and prospects. Yeah but, no but…
Savannah Energy – Back on the front foot (SAVE, 10.7p , mkt cap £94m, EV £425m)
- H1 results demonstrate Savannah’s transformation into a highly cash generative business
- 8M revenue hits US$133m and is on track for FY20 guidance of over US$200m
- Gas sales volumes and prices are rising, with US$ gas contracts underpinned by World Bank guarantees
- H1 pro-forma EBITDA more than doubled to US$67m
- Strong free cash flow generation allows debt reduction and, over time, distributions.
Savannah’s latest update should go some way to assuaging investors that have been frustrated by the lack of communication over the last several months. Yesterday’s interim results and trading update clearly demonstrate the promised transformation following the Seven Energy transaction. Savannah is now a highly cash generative business with US$133m (+28% y/y) of cash collections in the 12m to end-August from its Nigerian gas business, on track for its reiterated its FY20 revenue guidance of US$200m+.
This is not a passing fad either. Over 94% of this revenue is derived from US$-based gas sales agreements that are underpinned by World Bank guarantees and have an average contract life of 15 years. Moreover, gas sales to new customers are expected to start before year-end and additional contracts hopefully signed, so there’s growth to come too at minimal cost – there’s plenty of spare capacity in the gas infrastructure.
H1 cash collections in Nigeria jumped 48% to US$82m helped by a 22% y/y increase in gas production alongside higher average gas price realisations (+8% to US$3.9/mcf). Accugas’ market share increased too as other gas suppliers struggled to meet nominations after OPEC oil quota restrictions impacted associated gas production. This helped H1 EBITDA more than double to US$67m relative to last year’s pro-forma result.
Savannah also re-iterated its FY20 guidance for G&A and opex (US$68-72m) and capex (up to US$45m). DD&A guidance has been cut to US$35-37m from US$43-45m due to an increase in the estimated useful life of the infrastructure. This points to a business that will throw off material free cash flow, which can be used not only to lower debt, but also pay distributions in time.
This was certainly supported by the H1 results. Operating cash flow of US$59m was reduced to US$46m after working capital moves. But, there was minimal H1 capex (
It would be wrong to annualise this as capex during the period was minimal and will ramp up materially in H2 (FY20 guidance up to US$45m), while interest was artificially low due to payment timings. Still, back of the envelope calculations suggest Savannah can generate over a 10% free cash flow yield. Moreover, this should improve going forward as infrastructure utilisation rates rise and unit costs reduce.
Seems like this article is simply recycling an old interview of Gil from last year. Its not very current.
Berenberg note on Eco. BUY recommendation. Target price GBp145
Still in the right postcode
? Guyana acreage retains huge potential: Eco Atlantic’s updated CPR indicated gross best estimate prospective resources in excess of 5bnboe (c771mmboe net). It is hard to ignore or overstate the success that Exxon has had on the neighbouring Stabroek Block – with recoverable resource estimates now in excess of 8bnboe (before the Uara discovery in January). More work needs to be done to establish the commerciality of the Jethro and Joe discoveries, but it is clear that Eco’s acreage is in a prolific hydrocarbon province with potentially transformational prospectivity. Next drilling likely in 2021: Our expectation is at least two wells will look to test the Cretaceous potential, with several leads indicating individual target volumes in excess of 700mmboe.
? Attractive economics in success case: The fiscal terms on the Orinduik Block reflect the emerging nature of the basin. The royalty of 2%, cost recovery of 75% and profit split from 40-50% are among the most attractive oil and gas terms in the world. On our modelling, and a $65/bbl long-term oil price, this contributes to a pre-drill NPV10 of c$6.5/bbl.
? Funded for a multi-well campaign: Eco reported 31 March cash of $19m (no debt) with no remaining exploration commitments in 2020. In addition, management and board have proactively decided to take a pay cut of up to 40% to preserve the balance sheet. We are therefore confident that Eco will be funded for its share of a potential multi-well campaign in 2021.
? Catalysts and risks: The key catalyst is to high-grade leads in the latest CPR into drillable prospects, and firm up an exploration drilling programme for 2021 – likely to be confirmed later in 2020. The key risk to this timing is the impact of an extended oil price downturn on the JV’s appetite to commit exploration capital, although we view this as unlikely given the prospectivity of acreage. Clearly, once drilling is confirmed, the key catalysts and risks will be the individual well results. We think there is limited scope for disruption to activities as a result of the ongoing electoral uncertainty in Guyana.
? Valuation: We transfer coverage Eco Atlantic to James Carmichael, retain our Buy rating and adjust our price target to 145p. Our core NAV reflects our forecast of the company’s net financials at YE 2020, adjusted for 2021 G&A and E&A. Risked NAV comprises a risked valuation of Tullow’s Jethro and Joe resource estimates and the CPR assessment of on-block Hammerhead volumes. To highlight the transformational potential of exploration success, we include illustrative valuations of three leads from the updated CPR. In our view, the potential upside inherent in Eco’s stake in the Orinduik Block makes the risk/reward attractive.
Spoken to the company. They have pointed out that the Riverfort facility is not material in the context of the group (ie around 1 percent of group debt) and therefore is not something they are required/should be commenting on individually via RNS. However, they have also reminded me of the USD74m cash inflow on close of the transaction, the significant cashflow generation and debt paydown indicated via RNS in December and that were the company to issue equity it would be required to RNS this.
In other words the company is saying the loan is immaterial now post deal and Riverfort are not shorting stock.
https://www.youtube.com/watch?v=Ne9QBtDmVG0&feature=youtu.be
https://www.globenewswire.com/news-release/2020/01/07/1967124/0/en/Apache-Corporation-and-Total-S-A-Announce-Significant-Oil-Discovery-Offshore-Suriname.html
HOUSTON, Jan. 07, 2020 (GLOBE NEWSWIRE) -- Apache Corporation (NYSE, Nasdaq: APA) and Total S.A. (NYSE: TOT) today announced a significant oil discovery at the Maka Central-1 well drilled offshore Suriname on Block 58. The well was drilled using the drillship Noble Sam Croft with Apache as operator holding a 50% working interest and Total holding a 50% working interest.
Maka Central-1 successfully tested for the presence of hydrocarbons in multiple stacked targets in the upper Cretaceous-aged Campanian and Santonian intervals and encountered both oil and gas condensate. The formation evaluation program included logging-while-drilling and wireline logs, formation pressures, and preliminary core and fluid analysis. Together with future appraisal wells, this data will be used to quantify the resource in the Campanian and Santonian formations.
The shallower Campanian interval contains 50 meters (164 feet) of net hydrocarbon-bearing reservoir. Preliminary fluid samples and test results indicate light oil and gas condensate with API gravities between 40 and 60 degrees.
The deeper Santonian interval contains 73 meters (240 feet) of net oil-bearing reservoir. Preliminary fluid samples and tests results indicate API oil gravities between 35 and 45 degrees.
The Maka Central-1 also targeted a third interval, the Turonian, a geologic analogue to oil discoveries offshore West Africa. Prior to reaching this interval, the well encountered significantly over-pressured, oil-bearing reservoirs in the lower Santonian, and the decision was made to conclude drilling at approximately 6,300 meters (20,670 feet). The pressures encountered in the lower Santonian are a positive sign for the Turonian and future drilling will test this interval.
“We are very pleased with results from Maka Central-1. The well proves a working hydrocarbon system in the first two play types within Block 58 and confirms our geologic model with oil and condensate in shallower zones and oil in deeper zones. Preliminary formation evaluation data indicates the potential for prolific oil wells. Additionally, the size of the stratigraphic feature, as defined by 3-D seismic imaging, suggests a substantial resource,” said John J. Christmann, Apache CEO and President.
“Block 58 comprises 1.4 million acres and offers significant potential beyond the discovery at Maka Central. We have identified at least seven distinct play types and more than 50 prospects within the thermally mature play fairway. In partnership with Total, we look forward to advancing both exploration and development of discoveries on the block,” Christmann said.
Eco (Atlantic) read across from the Carapa well Guyana
Tullow announced a minor oil discovery with the Carapa-1 well on the Kanuku licence offshore Guyana, which is adjacent to and on trend with Eco’s Orinduik block. Although the discovery appears non-commercial, having discovered just 4m of net pay, it is encouraging that oil has been found, which derisks the Cretaceous play on the Kanaku and Orinduik blocks. Also the quality of the oil is significantly better than what was found in the Tertiary on Orinduik – the API of the crude from Carapa was 27 degrees versus low teens from the Orinduik Tertiary discoveries and the sulphur content was also lower at <1% versus 3.5-4% on Jethro. This aligns with the thesis that oil quality in the Cretaceous on the Orinduik should be higher API than the Tertiary (see our note from 20th November (link below), Guyana: demystifying the heavy sour implications). We believe that this result will likely increase the likelihood of exploration of the Cretaceous plays on the Orinduik block with the key elements of the Cretaceous play derisked (>3bnboe of unrisked prospective resource in the Cretaceous). Eco is expected to release an updated CPR and reveal 2020 drilling plans shortly.
Today's result proves our thesis that we do not believe that the Tertiary results (shallower targets) have any significant bearing on the Cretaceous plays (deeper targets with 3bnboe of unrisked prospective resource) on the Orinduik block for a variety of reasons including: the likelihood of a different source rock, the deeper burial (the oil should be lighter) and the fact that the multitude of Cretaceous discoveries made by Exxon/Hess on the adjacent block are much lighter and sweeter than Joe. The discovery of higher-API and lower-sulphur crude from Carapa, a Cretaceous play on the adjacent Kanuku block (Repsol, Tullow, Total), provides a more relevant read-across to the large Cretaceous prospects on Orinduik, in our view, and should further de-risk these targets.
Our risked NAV for Eco remains 216p/sh, which includes the 30% haircut to the NPV/bbl of the Tertiary discoveries and prospects, and lower chance of commerciality, that we published in November following the announcement that the Jethro discovery was heavy and sour. Our NAV is based on a flat long-term oil price of US$70/bbl and a 12% discount rate. Eco remains well funded with a current cash position of US$21mm. The unrisked value of all the Guyana prospects and discoveries is >£15/sh. Eco also continues to advance exploration and value creation on its four Namibian offshore blocks, where it is seeing increased inbound interest and drilling activity in the region. A further update for drilling plans for next year on the Orinduik block will be made in January 2020.
Looks like a material cross gone through in Savannah shares this morning – 58m shares, that’s 6% of the company. Presumably this explains the weakness of the last few days and gets out whoever has been trying to sell. I guess we will see who the buyers were through any TR-1s or the company website in due course but imagine this is one of the receivers of consideration shares post-deal completion selling out. Momentum should be a lot more positive from now on
Our view: The updated Nigerian reserve/resource estimates and broader update contains no material surprises and gives us greater confidence (at first glance) in our current 37p/shr Tangible NAV. With the transaction now complete, Savannah can begin delivering on its plans to expand its customer base for gas in Nigeria, which should provide upside to the already attractive cash flow profile management are presenting for the assets. We rate the stock Overweight.
Key data points from the CPR and operating update :
Reserve and resource estimates consistent with prior guidance: Updated gross 2P reserves of 99.6mmboe (84% gas) and 2C resources of 98mmboe (100% gas) are consistent with the previous end-December 2017 CPR aside from adjustments for production and applying an economic cut-off to gas reserves.
• ?Nigeria assets to be FCF positive: Savannah has published CPR expected net free cash flow estimates for the Nigerian assets averaging ~$129m/yr during 2020-23. Cash collections are estimated to total $190m in 2019, funding operations and debt service.
• ?Inherited debt slightly lower than we assumed: Estimated end-19 gross debt held by the Accugas subsidiary of $402m is lower than the $455m we had assumed. The $109m gross debt held by SUGL is in line with our estimate. Savannah expects total leverage within the Nigerian assets to have declined by ~$40m during 2019.
• ?New gas customers targeted: Contractual take-or-pay gas volumes of 129mmcf/d in 2019 should increase during H1/20 with the addition of the Alaoji power station (subject to technical and commercial workstreams), while Accugas expects to announce the addition of further new customers in the coming months.
A week on the road in the USA & Canada with Tullow's Exploration Director Angus McCoss provided a confident articulation of both development potential in Guyana "Jethro fast-track potential in 3yrs" and future exploration "10 years of prospect
inventory". Countering that was production reality in Ghana where the 180,000bpd gross production target has been stepped away from & Uganda development effectively in impasse until tax treatment can be agreed
Inside this note we provide insights on the three key topics from meetings last week:
1) Guyana Exploration Results, Upcoming Carapa Well & The Next Steps - Jethro is "highly commercial" on a standalone basis, and TLW are considering development options, including a fast-track development option which would aim to achieve first oil in 3 years. Tullow are unlikely to enter a development with their current 60% WI & see a farm-down to ~40% as the right level moving forward. The upcoming Carapa-1 well is targeting a channel prospect which is part of the Liza feeder system. When asked on why the choice of the Carapa prospect, Mr McCoss said “we couldn’t not drill the feeder to Liza". However, Carapa is riskier than the Jethro & Joe wells, with Tullow guiding to a 15% CoS. The Carapa-1 well should spud this week & a result can be expected around end-November. Given the size of the prize in the Cretaceous, Tullow described Carapa as the "most important" well of its three 2019 wells.
2) Ghana Production & TEN Well Completion Complications - TLW have revised down TEN production three times in 2019, most recently due to completion issues at the EN-14 well at the TEN field. The well was one of several more complex "helix" wells where the well-bore loops around in a downward spiral allowing the well to enter the reservoir in a manner which provides increased reservoir contact and higher rates. Tullow planned to revisit the well for recompletion in early-2020. Following the complication with EN-14, Tullow are reviewing their well completion strategy. Moving forwards Tullow expects gross Ghana production to be ~170kboed with TEN producing at a gross rate of ~70-80kboed & Jubilee producing at a gross rate of ~90-100kboed. JEFe already carry 169kboed peak production for Ghana in 2020.
3) Uganda Farm-down Termination & Kenya Progress Update - Following the breakdown in negotiation with the Uganda government, the Uganda partnership has taken a step back to give Uganda Government time to review the situation.
The JV has taken measures to reduce in-country workforce, and plan to see how things progress over next few months. Meanwhile Mr McCoss was much more upbeat on progress in Kenya, which is progressing well towards FID by end-2020, highlighting the countries long export-trading history alongside Government commercial enterprise being key aspects that have helped progress to date.
Eco Atlantic / Africa Oil – Dramatic share price reaction after Guyana update, a buying opportunity?
• AOI share price punished too hard on Eco update: Yesterday, Eco Atlantic (Africa Oil 18.8% owner share) announced that the Joe and Jethro discoveries in Guyana are heavy oil with high sulphur content. The company said high temperature “helps to eliminate a great part of the conventional heavy oil challenge”. In any case, it looked like the market dramatically reduced the valuation of these two discoveries as the share price declined almost 48% after the announcement. Such a decline corresponds to SEK 0.6/share lower AOI SOTP valuation if we include the Eco shares at market price. If we adjust for AOI EV/GAV of 0.56x, which indicate that all assets trade at a 44% discount, the AOI share price decline should have been 0.3-0.4/share. The actual share price decline was SEK 0.7/share, implying that the AOI share price decline was more than what one should expect based on what was discounted in the AOI share price before the Eco announcement. At GBP 0.64/share Eco share price, we include AOI’s 18.8% stake in the company at SEK 0.5/share (see below).
• Dramatic change to implied valuation of Guyana: Our Eco Atlantic SOTP valuation suggest a NAV of around GBP 1.50/share. However, as a material portion of the NAV includes prospective resources, there is a wide range of outcomes for the NAV. Joe and Jethro discoveries are included at GBP 0.61/share. I.e., yesterdays’ share price decline corresponds to roughly the entire value of these two discoveries. It looks like the market has either assigned 1) zero value to these discoveries or 2) has lost all confidence in the exploration story and by that assigns zero value to the remaining exploration acreage in Guyana and Namibia. Although the Eco investment case is a high risk and high reward case, we believe yesterday’s share price reaction was too negative. We would buy Eco today.
• Why we like Africa Oil: Africa Oil is cheap at EV/GAV 0.56x, the company is about to close the very attractive POGBV deal, we derive single digit P/E for 2020 after POGVD deal close, the company has world class shareholder and management with a proven track record of creating shareholder value within the natural resources space.