WTI $38.05 +$1.29, Brent $40.79 +$1.01, Diff -$2.74 -28c, NG $2.41 +1c
A bounce of some sort was pretty inevitable after three dollar fall on Tuesday and traders saw the short coverers coming miles away. The negative was the EIA STEO which took a red pen to the demand figures although by the end of the year it still looks to be picking up again although still well short of pre-virus numbers. Opec+ needs to think carefully about their expected production increases…
The API stats came out after the close and they were a mixed bag too, not a surprise after Laura blew through so crude turned out to be a build whilst gasoline drew by a massive 6.9m barrels after the teenage scribblers forecast less than half that. In the end today the oil price is pretty much unchanged
Pre tax profit of £20.4m (51.9m) with cash flow of £19.3m (£89.8m). Production in H1 averaged 21,600 boe/d which was lower than expected due to the challenges of COVID-19 but mainly as there was a 45 day shut-in of BKR production to secure a damaged caisson on the Bruce platform.
Despite this the company remains in a very strong financial position, cash on the balance sheet at the period end was £101.1m, the same as at the 2019 year end of £101.8m. This was despite payment of £15m of BKR liabilities and £7.2m of capex on Columbus and the Rhum R3 project.
With 80% of SQZ production being gas the spot chart showed in the presentation pack was most interesting and and whilst gas prices did fall sharply in the spring and early summer they have since bounced significantly. At current prices of c.28p/th, nearly back to the year’s peak and more importantly well above the ytd average price of 18p the break-even of 16p has been left behind and it will get better as 2H costs ‘are expected to be lower’ without the BKR problems.
All this was aided by the gas price hedging policy with currently approximately 50% of retained gas sales meant that gains of £11.6m were made before fair value deductions of £3.3m.
The company paid a maiden dividend of 3p per share in July 2020 and with a healthy cash position, strong hedging policy through 2021 the company are still in a strong situation where meaningful acquisitions could be made if market conditions allow. Serica is well managed across the board is strongly financed and should be a cornerstone investment in the sector.
JSE interims today, 1H production was 12,116 b/d down 8% with 40% lower commodity prices and bad weather and maintenance issues but the company remains in an incredibly strong position. Guidance for the full year has been deliberately reduced to ‘protect further returns’ and is now 11,000-12,500 b/d.
This gave revenue of $115.7m, down 33% and costs of production were $44.5m down 28% and equates to unit operating costs of $23.27/bbl, down 4% from H1 2019 of $24.13/bbl, due to better cost efficiency achieved in the current period compared to H1 2019.
This has all been done by managing capital spending commitments and driving deeper efficiencies and cost savings. Capex down 37% to $19.5m mainly due to the deferral of Nam Du/U Minh development in Vietnam this year and the 49H infill well last year.
CEO Paul Blakeley remains confident and expects a market recovery ‘through next year’. In this respect a number of interesting projects are on the white board. These include closing the Maari deal later this year, Lemang in Indonesia expected to close in Q1 2021 and the delayed Nam Du/U Minh in Vietnam where first gas is now expected in late 2022 or early 2023.
Paul Blakeley, President and CEO commented:
“With an improved higher oil price, we are now executing a steady stream of workover and growth activities to re-build uptime performance and to grow production. All equipment required for drilling the delayed infill wells from this year has been ordered, and the necessary drill rig availability has been secured for mid-2021. Progress on both the Vietnam Nam Du/U Minh and Indonesia Lemang gas developments provide us optionality in pushing forwards with final investment decisions next year, with more detail on this to come as part of 2021 guidance. These decisions will always be balanced by market conditions, as will our approach to inorganic activity, where we see a number of very material opportunities emerging across the region for 2021. The key will be to remain disciplined, remembering our strict evaluation criteria to ensure ongoing value add for shareholders, but having weathered the storm I’m now excited by what lies ahead.”
Jadestone is without doubt a favourite in the sector as it has hunkered down and maintains capital strength, has still got projects on the go and I would bet anything on further acretive acquisitions in future.