Interims25 Sep 2024 10:10
Just finished reading the interims whilst eating breakfast without choking on my bran flakes !!
H1 interims were never going to set the world alight and profitability affected by increased costs from preparation of CE, the additional refining/transportation costs from selling 86% of oil to the domestic market where there are additional costs as opposed to selling direct to the MRs. A question to be asked at the AGM, quite simply, why ? The increased costs have obviously put them under pressure and that has forced them into longer trading contracts which has reduced profitability. Net liabilities decreased 30% during the period but they have taken out loans to the value of $3.9m , they've managed cash and CAB position is $0.7m v $0.5m at year end. Q4 will see large inflows of cash from shallows sale, repayment of B8 loan and the proceeds from CE charter, the key question remains, what will they do with it ? They're continually looking for new acquisition opportunities a la WS and B8 and I'm sure they'll talk about the mining asset tomorrow.
The sale of the shallows looks like a good deal based on the production numbers. Total production at 1600 bopd includes the recent 155 success at c 700bopd but this new well has reduced volumes at other wells. This is what happens with horizontal drilling and AR obviously believe that they can deliver a good ROI from the field. Knowing what we know now, $88m looks like a fair deal.
Drilling news ? That's where the disappointment lies and that's why we've seen selling today and no break out of the share price as we all hoped. Initial testing at 803 was positive at 500 bopd but now all drilling operations have ceased on BNG deeps until 25 year production licence awarded. They have ageeed a 12 month extension to the appraisal licence, they're completing the reserves assessment on NY so the question is, how long is it going to take before they can resume activities on the most lucrative asset. The 803 rig is of to West Shalva so it looks as if continued testing is stalled for some time, the question is how long ?
Block 8 Sholkara licence renewed for 3 years but that's the existing licence where production is c100 bopd. The 2 new deeps drilled were on Akkaduk and Toresay but we find out today that they're still awaiting agreement on Akkaduk and Toresay was obviously a failure. The licence approval on B8 was communicated as imminent, months on and we're still awaiting approval. As we know, this is not uncommon for Kstan but as per commentary in today’s update, this is an important asset that will hopefully replace the current production from shallows. The fact that they've cancelled renewal on Toresay means that Akkaduk is promising and will produce commercial oil come testing. We’re only going to pay $5 per barrel for oil produced up to a max of $60m as per original deal. Now that one structure is not commercial, maybe that deal needs to be renegotiated, another question for Clive.
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