A close up of a magnifying glass rests on top of a bar graph that shows declining sales or performance over a quarterly basis. The image is photographed using a very shallow depth of field.

WTI $74.05 +75c, Brent $76.18 +62c, Diff -$2.13 -13c, NG $3.50 +8c, UKNG 79.32p +0.52p

Oil price

Another good week as both oil and natural gas traded up, WTI was 2.41% better, Brent 2.67% whilst Henry Hub was 9% higher with UK natural gas 7.2% to the good. The Baker Hughes rig count certainly didn’t reflect $74 oil with no change overall and 1 lower in oil to 372 units. As we have commented before if the oil price is to come down in 2H it won’t be due to the weight of US oil.

Hurricane Energy

Hurricane has announced the results of the sanction hearing  of the High Court of Justice of England and Wales  in relation to the restructuring plan proposed by the Company. The Sanction Hearing was convened on 21 June 2021 at 2:00 p.m. and concluded on 23 June 2021. Judgment was reserved and was handed down today, 28 June 2021. The verdict is that the Court has not sanctioned the Restructuring Plan proposed by the board and is an historic victory for the equity shareholders. 

The Judge has clearly seen through the board’s inept and incorrect attempt to present numbers that attempted to make a case for bankruptcy, they clearly don’t and later in their statement the board started their grotesque scare tactics starting with this.

‘The existing Hurricane board is considering all options, including an appeal. Unless the Company or the Ad Hoc Committee successfully appeals the judgment, the Restructuring Plan will not be implemented. The Company’s convertible bondholders have certain rights under the terms of the convertible bonds which, if enforced, could result in an acceleration of the convertible bonds and ultimately an insolvent liquidation of the Company. As a result there is a significant risk of no value being returned to shareholders’.

There are many holes in the case put forward to the Judge not least the mysterious case of the Bluewater offer to extend, on shorter terms, the contract for the FPSO the Aoka Mizu. With the long term nature  of the contract the scare stories emerged but I understand that Bluewater may well have re-tendered at a much lower price and shorter duration in order to be able to pass on cost savings of keeping the Aoka Mizu on site.

The piece above in italics is the  graceless and downright mean and somewhat shabby way of again trying to bully equity holders of the company. They, the shareholders should be grateful that they have someone like Crystal Amber to stand up to the board in a court of law, but other shareholders were part of the action as well.  The board statement in trying to lead the convertible holders to accelerate conversion is at best mischievous and at worst, well let’s just say not something a PLC board should be offering advice on. As the judge says, ‘this reinforces the conclusion that shareholders should not immediately be deprived of anything other than a de minimis interest in the equity’.

I cannot understand how the board have got into such a state that they are prepared to go to court with a decidedly dodgy set of facts that the company has to wipe out 95% of the equity base. A positive oil market, success at P-6 or even geological re-evaluation that disappeared in the mysterious CPR cannot be ignored and was not by the Judge.

The Judge said ‘ In other words, to retain 100% of the equity in Company that is continuing to trade, with a realistic prospect of being able to repay the Bonds in due course, is to my mind a better position than immediately giving up 95% of the equity with a prospect of a less than meaningful return as to the remaining 5%’. The 30 page judgement handed down today is worth analysing as all aspects and views are well assessed.

This is a long and considered verdict from the Judge which does no favours to the Hurricane Board or its General Counsel and they should, along with their wayward attempt to bully the bondholders be returned to the box from which they emerged.

There are plenty of high quality alternative options for the equity and bond holders that could offer vision and potentially substantial upside in the share price in due course, may this pitiful part of their history be erased. Crystal Amber believes that this board’s actions have beaten down the share price from 15p and like me, sees huge upside, perhaps with a restructured board combining the best of the technical achievements that started all this and the financial engineering which leaves it where we are, right now at least the investors have a choice.

Eco (Atlantic) Oil & Gas

Eco has announced that it has closed a transaction with JHI Associates Inc. (“JHI”), a private company incorporated in Ontario and headquartered in Toronto, Canada, for Eco to acquire up to a 10% interest in JHI  and to appoint Keith Hill, a non-executive Director of Eco, to the JHI Board. The Transaction provides Eco with immediate exposure to a current active drilling program in the Canje Block offshore Guyana. The Canje Block is operated by ExxonMobil and is held by Working Interests partners Esso Exploration & Production Guyana Limited (35%), with Total E&P Guyana B.V. (35%), JHI Associates (BVI) Inc. (17.5%) and Mid-Atlantic Oil & Gas Inc. (12.5%).

 JHI is a Guyana pure-play deepwater exploration company founded in 2011. In 2014, JHI teamed up with Guyana-based Mid-Atlantic Oil & Gas Inc. (“MOGI”) which was awarded the Canje Block in 2015.   In 2016, ExxonMobil joined the Canje Block as Operator, and in 2018 TotalEnergies farmed into the Block.  Five years of extensive technical and seismic data analysis led to the Canje partners identifying multiple drillable prospects and successfully applying for a multi-well drilling permit.  The 2021 multi-well exploration programme on the Canje Block seeks to test the extension of the prolific hydrocarbon system which has resulted in over 9 billion barrels of oil equivalent of recoverable resources being discovered in the adjacent Stabroek Block since 2015.

 This transaction will increase Eco Atlantic’s presence in the Guyana-Suriname basin to include a three well drilling programme, with the first two firm wells on the Canje Block drilling in 2021 and at least one on the Orinduik Block, subject to partner approval.  The Jabillo-1 well is currently being drilled on the Canje Block utilizing the Stena Carron drillship with results expected in July.  The Sapote-1 well is scheduled to be drilled later this year in Q3 by the Stena DrillMax in the eastern portion of the Canje Block, which Eco will also have exposure to through its now shareholding in JHI.

Eco has subscribed for 5,000,000 new common shares in JHI at a price of US$2.0 per share, representing 6.4% of JHI’s enlarged share capital, and has been issued a warrant to subscribe for a further 9,155,471 new common shares in JHI at an exercise price of US$2.0 per share for a period of eighteen months (the “JHI Warrant”). If the JHI Warrant is exercised in full, Eco will hold an interest, ceteris paribus, of 10% in JHI on a fully diluted basis.

Gil Holzman, Co-Founder and Chief Executive Officer of Eco Atlantic, commented:

“After a period of thorough technical analysis of the Canje block, by both our team at Eco and our strategic partners at Africa Oil Corp we are delighted to advise the market on this exciting transaction, and to be back drilling with results expected imminently.  

 “The carried Jabillo-1 well is underway and is expected to reach target in the coming few weeks, providing our shareholders with high impact near term catalysts. “I want to thank the teams at Eco, Africa Oil and JHI for their hard work and collaboration over the past months in bringing this deal to execution.  

 “While we eagerly anticipate resuming drilling activity on our Orinduik block next year, pending partner approvals, and we have made sure to preserve sufficient funding for that, we are very excited that we now have two imminent Guyana wells in our portfolio as well as additional multiple prospects inventory on the Canje Block.   Since 2014, Eco has strongly focused on the hydrocarbon potential offshore Guyana, and this strategic deal with JHI marks the beginning of a wider presence and potential increased future collaboration in the basin.” 

 Keith Hill, Non-Executive Director of Eco Atlantic and President and CEO of Africa Oil, further commented: 

“We are very pleased to have Eco team up with the two most knowledgeable operating partners in the basin and believe the Canje Block has the potential to hold resources comparable to the world class Stabroek Block which is undoubtedly the most successful exploration campaign in recent history.  Combining this with the holdings in the Orinduik Block, Eco is well positioned to be part of the historic oil development in Offshore Guyana.” 

Raise

Since that announcement Eco has announced that it has completed, subject to TSX Venture Exchange approval, a private placement with strategic partner Africa Oil Corp and Charlestown Energy Partners LLC, a Private Equity firm  based in New York, USA, to raise approximately 6.1m CAD.

Africa Oil has subscribed for 5,945,913 new common shares in Eco at a price of 0.41 CAD per new common share (the “Subscription Price”) and will be granted the same number of warrants to acquire common shares at the Subscription Price with a two-year duration. Charlestown Energy has also subscribed for 9,000,000 new common shares at the Subscription Price and will be issued the same number of warrants on equivalent terms. The Subscription by Africa Oil and Charlestown Energy will result in Africa Oil increasing its interest in Eco to 19.99%, and Charlestown Energy increasing its interest to 4.51%, of the issued share capital of Eco as enlarged by the Subscription, in each case before any exercise of warrants.

The 14,945,913 new common shares to be issued subject to TSX Venture Exchange approval (expected to be received in the coming days), receipt of funds pursuant to the Subscription and admission of the Subscription Shares to trading on the TSX and on AIM, will represent, in aggregate, approximately 7.5 per cent. of the Company’s enlarged issued share capital.  On receipt of TSX Venture Exchange approval, application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM.

Gil Holzman, Co-Founder and Chief Executive Officer of Eco Atlantic, commented:

“Our strategic partners at Africa Oil are further increasing their shareholding through the placement, and we welcome the investment from Charlestown Energy Partners which provides Eco with additional funds for the JHI transaction and enables the second well on Canje Block, Sapote-1, and preserves enough cash for the drilling in our Orinduik Block. Eco and Africa Oil are committed to jointly seek, analyse and fund exploration opportunities, and Eco greatly appreciates their technical contribution and capital support as we move forward.”

This comes as very exciting news for Eco shareholders and in my view potentially way more than the share price has moved today. It gives them multiple near term catalysts and back to a real drilling exploration programme that had been pushed down the road by the Tullow situation. Expect some of my price targets which had been rather pushed back to now look eminently achievable…

Petrofac

Petrofac has issued a pre-close update for the six months ending 30 June 2021, trading overall is in line with the company’s expectations with strong growth in the EPS division and new energies and the continuing impact of Covid-19 on E&C project schedules.

Net debt was approximately US$290 million as at 24 June 2020 (31 December 2020: US$116 million) reflecting the reversal of temporary favourable working capital movements at the end of 2020. Liquidity was approximately US$0.9 billion at 24 June 2020 (31 December 2020: US$1.1 billion), reflecting the extension and partial prepayment of the Group’s revolving credit facility and ADCB term loan in April.

Sami Iskander, Petrofac’s Group Chief Executive, commented:

“We have continued to deliver projects and operations safely for our clients worldwide despite challenging market conditions. While financial performance in our E&C business has been impacted by the ongoing Covid-19 pandemic, our EPS business has demonstrated its resilience by growing both revenue and margins.

“We are making good progress on our strategic objectives to rebalance, reshape and rebuild our business.  We are continuing to drive technical and functional excellence, efficiency and consistent delivery to a single global standard of execution quality for our clients. We also remain on track to deliver our targeted US$250 million cost savings, which is significantly improving our cost-competitiveness and productivity.

“This provides a strong platform from which we are pursuing growth. As expected, new orders are likely to remain depressed in E&C in the current year, but the Group has an active bidding pipeline of $48 billion of opportunities due for award in the next 18 months. We are making good progress in new energies, where we have secured early-stage positions in key target market projects and where we expect to deliver significant growth in the medium term. By continuing to deliver against our near-term strategic priorities, I am confident we will be successful in rebuilding our order backlog as the market recovers.”

Zephyr Energy

Zephyr has announced the signing of a drilling contract with Cyclone Drilling Inc. This follows a competitive selection process involving extensive technical and commercial evaluation of multiple potential drilling contractors.  Zephyr is delighted to be working with Cyclone again, following their efficient completion of the State 16-2 stratigraphic test well (the “16-2 well”) for Zephyr and its project partners earlier this year.

Colin Harrington, Zephyr’s Chief Executive, said 

“We welcome the opportunity to resume our partnership with Cyclone as we prepare to drill the State 16-2LN-CC well. In addition to our positive experience working alongside their team earlier this year, Cyclone has a long history of drilling safe and successful wells in the Rocky Mountain region. I am confident in their ability to help us deliver this well in a safe, efficient and responsible manner.

 “Cyclone Rig #34 has remained active in recent months, is well known to our drilling team, is available on Zephyr’s timeline and is currently located in Utah, providing savings on mobilisation and demobilisation costs. 

“With the well now fully permitted and the rig contract signed, we look forward to commencing operational activity on the ground in July as envisaged.”

 

And finally…

In the Euros at the weekend Wales went out to Denmark, Italy just beat Austria, the Czech Republic beat Holland and Belgium beat Portugal. Today Croatia play Spain and France play Switzerland.

England wrapped up the T20 series against Sri Lanka and ahead of the ODI series starting tomorrow have sent three players home for breaching Covid protocols apparently out on the town in Durham…

The F1 season is now looking like previous seasons in reverse with Lewis just not having the guns to catch the faster Red Bull and the silver cars need to get some new kit pdq.

And if you were lucky to watch not only the Rugby Union season finale you would have seen a great match which the Quins won 40-38 against The Chiefs. Indeed a tape of the Quins QF, SF and final would be some video…