Oil & Gas Daily Flow

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

Market Update: Wednesday 9 October 2019

Gulf Keystone Petroleum (LON:GKP): Share buyback – an appropriate use of capital?

Reabold Resources (LON:RBD): Reabold completes £24m placing

JKX Oil & Gas (LON:JKX) – Production up 13%, highest oil output in Ukraine since 2013

Zenith Energy (LON:ZEN): C-37 Production Increases to 285bopd


Energy prices         

Brent Oil US$58.1/bbl vs US$58.4/bbl yesterday

WTI Oil US$52.5/bbl vs US$52.8bbl yesterday

Natural Gas US$2.3/mmbtu vs US$2.4/mmbtu yesterday


Oil Prices

  • Oil prices nudged lower for the second successive session following the EIA’s downward revision of its oil price forecast in Octobers Short Term Energy Outlook, shaving another US$5/bbl off its forecast compared to last month’s report
  • The reason for the downward adjustment to oil predictions, which it now expects will be fall to US$57/bbl by the second quarter of 2020, is due to the rise of global oil inventories during the first half of 2020.
  • U.S. crude futures were off 0.1% at $52.75/bbl on the New York Mercantile Exchange, on the back of the strengthening dollar
  • US-China trade tensions and the outlook for Fed policy remain the single largest drivers of oil prices in our view

Gas Prices

  • US natural gas prices made a lower high and a lower low closing yesterday’s session down 0.6%.
  • Prices are likely to hover at the current levels as demand will likely remain subdued during the shoulder season
  • This will last until either there is a supply disruption, from a storm, or the weather becomes colder than normal
  • There are three storms that NOAA (National Oceanic Atmospheric Administration) is watching. All three storms are in the Atlantic and none are expected to hit any areas that could cause a natural gas supply disruption

Sector Backdrop

  • Despite a tough capital market environment, UK equities in the Oil & Gas sector remained flat YTD (2018: -16%) wiping out September’s 8% gains
  • AIM Oil & Gas indices were also flat YTD despite some volatility, yet stabilising 2018’s 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

Gulf Keystone Petroleum (LON:GKP): Share buyback – an appropriate use of capital?

Share price: 214p, Market Cap: £473m 

  • GKP has announced that following the purchase of its ordinary shares on 8 October 2019, the company’s US$25m share buyback programme as announced on 8 July, 2 September and 10 September 2019 has now completed.
  • In aggregate, between 8 July 2019 and 8 October 2019, the company repurchased 8.7m shares at a VWAP of 233p/shr.
  • Following the above transaction, the Company’s issued share capital comprises 229m ordinary shares, of which 8.7m ordinary shares are held in treasury.
  • The company now has a total of 221m ordinary shares in issue with voting rights.

Conclusion: The company maintains that the buyback programme is aligned with the company’s focus on capital allocation and would not impact the company’s ability to continue the execution of its existing investment programme. That being said, full-year gross production guidance from the Shaikan field has been cut from 32,000-38,000bopd to 30,000-33,000bopd. Earlier this year, GKP completed workovers at two wells and drilled its first new well in four years, SH-12. Growth in activity required to bring production to 55,000bopd has led to an increase in cash operating costs and in line with previous guidance to US$18.4m, up from $14.1m last year, and therefore we are of the view that the company’s coffers would be better spent on the drill-bit to achieve its production goals, rather than in the capital markets.


Reabold Resources (LON:RBD): Reabold completes £24m placing

Share price: 0.9p, Market Cap: £42m 

  • Following Monday afternoon’s announcement, Reabold has confirmed that the company has raised £24m, placing 2.7bn shares at 0.9p/share – a 12% discount to Friday’s close.
  • The funds will be used to increase the company’s interest in Rathlin Energy to up to 74.99%, through a £16m cash investment and, potentially, a £7 million equity swap with existing Rathlin shareholders.
  • The company also has an agreement to increase its interest in Danube Petroleum to between 49% and 52% through the exercise of an existing option to invest an additional £1.95m in the company.

Conclusion: A material placing from Reabold, underlining promising support for low risk appraisal plays in the UK. The majority of the investment will be directed to Rathlin Energy (£16-£20m), and more specifically, the West Newton discovery. The original CPR prepared 2017 for Connaught Oil & Gas, estimated gross best estimate gas resources of 189Bcf (31MMboe), with an associated NPV10 of US$247m. Two wells have been drilled on the West Newton prospect to-date (A-1 and A-2), with a major oil and gas discovery confirmed in the Kirkham Abbey Formation that is potentially one the largest hydrocarbon discoveries onshore UK since 1973. Clearly, this is good news for Union Jack Oil* (UJO), with the company having a 16.7% direct working interest in the field, therefore benefitting from success at the two further wells planned at the West Newton B site in Q1 2020, approximately 2.5km from the A site. These wells are optimally located to define the deeper formation Cadeby oil play.

*SP Angel acts as Nominated Advisor and Broker to Union Jack Oil

JKX Oil & Gas (LON:JKX) – Production up 13%, highest oil output in Ukraine since 2013

Share price: 29p, Market Cap: £50m

  • A strong operational update issued by JKX today, underlining the company’s impressive operational performance, most notably in Ukraine.
  • The company reported Q3 overall average production of 11,719boepd, 13% higher than the previous quarter.
  • JKX’s average Ukraine production in Ukraine was 5,535boepd for first 9 months of 2019, more than 50% higher than during first 9 months of 2018.
  • Capital investment in the fields continues as planned, entirely financed by operating cash flow despite lower gas price in Ukraine. 
  • The company remains well capitalised with US$9.5m in cash on the balance sheet, and oil and gas inventory of c.US$11.5m in value, held at 30 September 2019.
  • In Ukraine, the recent IG142 well completed in Q3, is currently producing at 857boepd with a stable wellhead pressure of 1,867psi.
  • The company’s 26% y-o-y is the result of two recently drilled new wells: NN81 and IG142, demonstrating JKX’s operational competence in swiftly commercialising new wells.
  • Two rigs are currently in operation in Ukraine. One is drilling WM4 in West Mashivska and a second larger rig has also been procured and is currently drilling R101 sidetrack – the first sidetrack drilled by PPC to target the Visean sands in the North of Rudenkivske.
  • At the company’s Russian assets, production is up q-o-q due to a well being brought into production at the end of Q2 2019.
  • Well 5 production has been adversely affected by solids blockages which resulted in the well being acidised three times in the reporting period. The last acid job was conducted at the end of August and a recent flaring and choke reduction has led to the well cleaning up. The current production rate is 370boepd.

Conclusion: We are encouraged by JKX’s continued operational performance particularly in Ukraine where its focus on diversifying its hydrocarbon mix away from a core reliance on gas production is leading to a material boost to the company’s cash flow generation. Following the recent board re-shuffle, JKX will now focus on continuing its success with the drill-bit, which underpins its production led growth strategy in our view.

Zenith Energy (LON:ZEN): C-37 Production Increases to 285bopd

Share price: 3p, Market Cap: £9m 

  • Following the market’s perceived disappointment at the company’s C-37 well, Zenith has provided a further update with regards to its Jafarli oilfield, Azerbaijan.
  • The company has confirmed that continued flow testing of the well recorded a production rate of approximately 285bopd, a material boost (114% increase) to Zenith’s total in country production.
  • Further stimulation of the well, which may include swabbing operations as well as the performance of nitrogen stimulation, will likely further increase the rate of production.
  • Mobilisation of Zenith’s 1,200hp drilling rig to the C-30 well location is expected to take place before the end of October 2019. 

Conclusion: A very encouraging update from Zenith today, following the initial drilling results announced last week. Investors will now focus on what the company’s stabalised flow rate will be from this well, however today’s news suggests that it will be in excess of the 100bopd (with 50% water cut) announced last week. Next up for the company will be the C-30 well, where all geological and technical data suggests the company could achieve further success.

121 Oil & Gas Investment Conference, London, 28-29th October 2019

  • SP Angel is sponsoring the annual 121 Oil & Gas Investment Conference in London again this year
  • The event hosts some 25 exploration and production companies along with >160 investment funds and analysts over two days of 1-2-1 meetings. Click here to register to attend


Research – Oil & Gas

Sam Wahab – 0203 470 0473



Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535  


SP Angel                                                            

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35-39 Maddox Street London


+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.


Sources of commodity prices

Oil Brent, WTI


Natural Gas