Enquest delivers first oil from Kraken

That’s one massive project with massive risk delivered on time and under budget. It’s been a while since the North Sea has seen a development of this size brought online by a smaller mid tier player. Well done to all the Enquest team for not only delivering on this project but by also ensuring the company had a footing to surivive through the tough periods of lower PoO.

At 32p, this is a decent 20p off where most would have expected the share to be based on derisking a project of this size. Granted, PoO has wobbled and the glut has taken longer than expected and finally sentiment has dipped. But it’s events like these today that makes you marvel at the commitment of some of these companies. The unwavering confidence and determination to make tough projects work.

At full pelt, Kraken should be knocking out around 50kbopd. For the moment, I suspect it is more likely to be doing around 10kbopd. Enquest will bring all wells online in an orderly fashion and no doubt there will be some minor operational issues to iron out as the development builds into 2018.

This development is a lifesaver for Enquest and also for UK Oil &Gas. Later this year, Premier Oil is due to bring Catcher field online and hopefully Hurricance Energy will sign a deal soon to bring the EPS on the Lancaster Field into action in H2 2019. This is all against a very poor PoO backdrop and one would hope that as the Saudi’s head towards their own big event in the Aramco IPO, that PoO is nearer $60pb. If or when PoO does get back to $60pb or more, Enquest should be creaming it in.

Today is without a doubt ‘one in the eye’ for the doubters. And at 32p, Enquest is priced for the doubters and not for the believers.

Enquest is part of thesharehub top ten for 2017

Tullow – Cheap Cheap!

Tullow has certainly seen its fair share of shorting interest. The Stock is currently heavily shorted with over 11% of float being short. That’s a rather large number and all those involved are adding to shorts at a time when PoO is at yearly lows. However, it was larger some weeks ago at 15%+ and many have closed out.  Smart move if as many suggest PoO does strengthen in H2, as Tullow will surely rise with PoO leaving many shorters exposed to any spikes in the upside.  The company is set to issue a trading update on June 28th (next week) and this will hopefully provide investors with a better idea of the business rather than the shorters manufactured share price as an indicator.

As with many stocks that are heavily shorted, a sharp spike to the upside often occurs when stocks get oversold and shorters close out.

The share price has been shorted more heavily with more weight added over the last few days which suggests those involved are trying their best to lower price. Based on these weights you would normally expect the price to lower at a quicker pace but buyers are entering the market and making the shorters lives a little more tricky.

Assuming good news via Trading Update arrives next week and PoO has the oversold bounce that most expect, it could present a decent recovery bounce for the stock.

Currently broker recommendations are all in or around the 200p to 300p level. You’ll be hard pushed to find a broker target that is at 150p or below which begs the question… why is Tullow at 145p so cheap cheap?

Some Broker recs below, RBC have issued a note this morning with a 200p target.

Tullows current sp at time of writing… 145p.

It would not surprise me on bit if this did a u-turn back to 160p to 170p levels ahead of Trading Update on June 28th… based on short closing alone!

Short positions & Broker recs below:

Fund manager % short Change Date changed/created
AHL Partners LLP 1.20% ↑ 0.10% 2017-06-20
Capital Fund Management SA 0.71% ↑ 0.10% 2017-06-19
Citadel Advisors II LLC 0.75% ↓ -0.05% 2017-06-16
Key Group Holdings (Cayman), Ltd 2.03% ↑ 0.08% 2017-06-07
Marshall Wace LLP 1.87% ↓ -0.04% 2017-06-16
Millennium International Management LP 1.05% ↓ -0.11% 2017-06-16
ODEY ASSET MANAGEMENT LLP 1.71% ↑ 0.05% 2017-06-15
Oxford Asset Management 0.60% 2017-05-31
Systematica Investments Limited 0.69% ↓ -0.01% 2017-06-20
WorldQuant, LLC 0.71% ↑ 0.04% 2017-06-09
Total 11.32%
Broker Recommendations for Tullow Oil (TLW)
Date Broker Rating Old Target New Target Change
13-Jun-17 Barclays Overweight 220.00 Reiteration
07-Jun-17 Barclays Overweight 220.00 Restart Coverage
18-May-17 Canaccord Genuity Hold 210.00 200.00 Reiteration
18-May-17 Deutsche Buy 270.00 260.00 Reiteration
17-May-17 Jefferies Buy 270.00 250.00 Reiteration
17-May-17 JP Morgan Cazenove Overweight 270.00 245.00 Reiteration
07-Apr-17 UBS Neutral 222.00 205.00 Reiteration
27-Mar-17 Goldman Sachs Neutral 207.40 200.60 Upgrade
23-Mar-17 RBC Capital Markets sector perform 400.00 275.00 Downgrade
22-Mar-17 Canaccord Genuity Hold 275.00 210.00 Reiteration
22-Mar-17 Numis Securities Add 225.00 Reiteration
21-Mar-17 Deutsche Buy 330.00 270.00 Upgrade
10-Mar-17 Numis Securities Add 285.00 Upgrade
21-Feb-17 Canaccord Genuity Hold 265.00 275.00 Upgrade
20-Feb-17 Jefferies Buy 260.00 340.00 Upgrade

Faroe ops update

That’s a terrific ops update. Not many E&P’s out there in the small to mid caps that are making money let alone are debt free. Faroe is without a doubt one of the highest quality outfits out there today. The irony is… it’s loved by II’s but not by the Pi herds. Volume is often low and tends to come in higher when ii’s add. Delek recently bought an extra 5m share block bringing their total up to 15.1% of float. If they continue to add to their holding and make a bid for Faroe, it will be a crying shame in my opinion. Faroe are a company that are heading for 40kbopd within 5 years. They currently have roughly over a 3rd of that coming in at present (15kbopd). The portfolio is littered with resources both 2p and 2c. It woud not surprise me one bit to see Delek take Faroe out – possibly down the aggressive route which would be a change from their approach on Ithaca Deal. Some might point to the fact that Delek already have a decent staff base in tact with Ithaca and if FPM directors do not want to play ball, then they can be dispatched? Blending Ithaca’s business with Faroe’s business would certainly reduce staff costs and provide greater savings. One hopes that when an offer comes – II’s stand firm over any low ball offers. A benchmark of note would be the share placing done with II’s in July last year which was achieved at 70p. Delek will know that offers near 144p or 150p will look attractive particularly to those II’s. Delek’s 15% holding has been acquired to date at a price of 88p (approx). When they acquired Ithaca stock – it was at a price of 53p. Delek’s final purchase price of Ithaca was 120p or circa 110p taking exchange rates into account post Brexit.

There is clearly a trend/pattern there to be watched. Faroe management can’t do much more than they have already. The business performance is incredible and production numbers maintained at the highest levels. Exploration has gone well and the DST results due in next few days. The exploration does not stop there. They have announced today a couple of new wells planned towards end of 2017/start of 2018. The question is… will Faroe still be in shareholders hands then?

I suspect, by the time the PI herd arrives, the price will be passed 120p+.

Faroe is part of thesharehub top ten for 2017. Current share price 89.5p.

Today’s update below:

2017 Annual General Meeting Operational Update

Faroe Petroleum, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in Norway, the UK and Atlantic Margin, is pleased to provide an operational update ahead of its Annual General Meeting later today.

HIGHLIGHTS

Production

  • Strong Production: averaged 15,100 boepd for the period from 1 January to 31 May 2017

Finances and balance sheet

  • Cash increased:  to £113.8 million (unaudited) at 19 June 2017 from £96.8 million 31 December 2016
  • Undrawn RBL facility:  Faroe has an undrawn reserves based lending  credit facility (“RBL”) of $250 million (plus $100 million accordion)

Development and projects

  • Oda PDO approved: Plan for the Development and Operation (“PDO”)  for Oda approved by the Norwegian Ministry of Petroleum triggering cash compensation payments to Faroe estimated to be £14 million net in 2017 and 2018
  • Njord Future and Bauge PDOs: PDO approval from the Norwegian Ministry of Petroleum expected shortly; projects progressing to plan
  • Tambar infill and gas lift project on track: in-fill drilling and gas lift installation project was approved in March; main contracts awarded and the project is underway to boost production from 2018 onwards
  • Brage infill drilling underway: the drilling of the first of two production wells has commenced

Exploration and appraisal

  • Brasse appraisal progressing well: drill stem production test underway and results expected shortly
  • Two additional E&A wells committed: drilling programme progressing / developing with two new E&A wells, both benefit from 78% Norwegian tax rebate
    • Goanna exploration well committed with full carry to Faroe at 30% WI (“Working Interest”): committed to drill the Goanna exploration well; spud expected Q4 2017
    • Fogelberg appraisal well committed: appraisal well to be drilled on Fogelberg with 33% WI; spud expected late 2017 or early 2018
  • East Corrib farm out for full carry at 20% WI:  Irish Ministerial approval granted for a farmout to Nexen of licence 16/23, West of Ireland

Production

Group production averaged approximately 15,100 boepd in the period from 1 January to 31 May 2017, with better than forecast performance from the main producing fields in the portfolio.  The average operating cost per barrel of oil equivalent for producing fields for the same period was approximately US$25.
Average production guidance for the year remains at 13,000 to 15,000 boepd reflecting various forecast shutdowns to enable production enhancing work to be undertaken.   A review of this guidance will be undertaken following the summer maintenance period.

Finances and balance sheet

Cash:  cash increased to £113.8 million (unaudited) at 19 June 2017 from £96.8 million at 31 December 2016.

Credit facilities: other than the revolving Norwegian credit facility, funded by the tax rebate, Faroe remains debt-free:  Faroe has an undrawn RBL credit facility of $250 million plus a $100 million accordion.

Committed projects financed: prudent financial management combined with strong production and improved commodity prices ensures that the Company remains fully financed for its committed projects.

Development and projects

Oda: in May 2017, the Partners in the Oda development received PDO approval of the Oda field (licence PL 405) from the Norwegian Ministry of Petroleum and Energy.  The Oda field (Faroe 15%) in the Norwegian North Sea, will be developed via a four-slot seabed template with two production wells, and one water injection well, which will tie back to the Ula platform (Faroe 20%), located approximately 13 kilometres to the east.

The Oda subsea tie-in will connect to the existing pipeline between Oselvar (Faroe 55% and operator) and Ula and reuse the existing Oselvar facilities at the Ula platform.  Production from Oselvar is scheduled to cease in 2018 to allow the Oda tie in works to be undertaken and the Oselvar owners will be financially compensated accordingly.  The net compensation payment to Faroe as an Oselvar and Ula joint venture partner, is estimated to be approximately £14 million due to Faroe in 2017 & 2018 (this takes into account the payment it makes as an Oda joint venture partner and the final tariff compensation payable to Ula).  An initial payment to Faroe of £7.4 million is due later this month.

Njord and Bauge: approval of the PDO for the Njord Future Project and Bauge field (Faroe 7.5%) is expected shortly from the Norwegian Ministry of Petroleum and Energy.  In the meantime the works on the Njord A Facility in the Stord dry dock are continuing on time and on budget, with the pre-fabrication of new pontoons progressing on schedule.  In parallel, the project to refurbish the Njord B storage tanker is also progressing to plan.  The planning for the Bauge subsea tie-back continues with the finalisation of the contract strategy for project execution.

Tambar infill and gas lift project: in-fill drilling and gas lift installation project, to boost production from 2018 onwards, is now underway and on track.  The main scope for this project is the installation of gas lift for up to five wells, and the drilling of two infill wells.  The installation of gas lift is expected to allow for long term robust flow rates as water cut starts to increase.  The Mærsk Interceptor rig will arrive on location between October and December 2017 to be used to drill the infill wells and provide accommodation.

Brage infill drilling: the Brage drilling rig has been remobilised as planned for the drilling of three wells, with one producer-injector pair in the Statfjord horizon and one producer in the Fensfjord. The first Statfjord producer is scheduled to come on stream in September.  Continued further infill drilling beyond the current three wells will be subject to the results from the ongoing drilling campaign.

Exploration and appraisal

Brasse: Licence PL740/B (Faroe 50% and operator) – following the successful appraisal well results announced last week,  the Drill Stem Test (“DST”) is now underway to provide further confirmation of well productivity, investigation of reservoir distribution and important additional information for development project planning.  The results are expected shortly together with a decision on the commitment of a side-track.

Goanna: Licence PL881 (Faroe 30%) was awarded in February 2017 as part of the APA16 licence round and is operated by Wellesley Petroleum (70%). The Goanna licence is located in the Northern North Sea, near the border with the UK and east of the very large producing Statfjord and Snorre fields, which offer the potential for alternative export routes upon success.  The Goanna prospect straddles the border between PL881 and PL037, the Statfjord group. The PL881 joint venture expects to drill a well on this licence in Q4 2017 targeting a structural and stratigraphic prospect of Upper Jurassic age sandstones, using the Deepsea Bergen rig on favourable market rates.  Faroe’s associated costs of drilling this well will be fully carried at 30% WI by its joint venture partner up to the budgeted dry hole cost.

Fogelberg: In February 2017, the PL422 joint venture was awarded a licence extension with a deadline to submit a PDO by July 2019.  To make sure a robust development plan can be proposed with a well justified 2P reserves base and production profile, and before committing to the Front End Engineering and Design (FEED) project, the licence group has committed to drill an appraisal well.  The well will be drilled in a down-dip location with the objective of adding additional 2P reserves, and dependent on the results, drill a side-track on the crest of the structure to conduct a production test on this 2010 discovery.  Faroe is increasing its working interest to 33.3% in this Centrica-operated (66.7%) licence.  The drilling operations, again utilising the Deep Sea Bergen rig, are expected to commence in late 2017 or early 2018, back-to-back after the Goanna well.  The objectives of the appraisal well are to increase reserves and reduce volume uncertainty by establishing the Free Water Level (FWL) or the Gas Down To (GDT) and verify reservoir quality and productivity by conducting a DST, which will allow optimisation of well count and design (and potential cost savings).

East Corrib:  Faroe recently executed a farm out of its Irish licence option 16/23 (Faroe 100%) to Nexen Petroleum UK. Under the terms of the farm-out agreement, which has received Ministerial approval, Nexen has taken over operatorship of this licence and an 80% working interest (Faroe 20%) and in return will meet the full costs of the associated work programme, including any acquisition of seismic data and the possible drilling of an exploration well, if a positive drilling decision is made after the seismic work phase has been completed.

Graham Stewart, Chief Executive of Faroe Petroleum commented:

“I am pleased to report that Faroe Petroleum is performing very well across its range of activities, with strong production performance in the first five months averaging 15,100 boepd, appraisal success on the Brasse discovery, a growing low cost exploration and appraisal programme and significant progress on our development projects.

“The Company has also delivered good financial performance with strong cash flow, improved cash reserves and an undrawn Reserve Based Lending facility of $250 million – this ensures we have significant financial flexibility going forward.

“I am particularly encouraged, that as we enter the second half of 2017, alongside the excellent progress made across our production and development portfolio, we have been able to increase further the level of low cost and high impact activity in our exploration and appraisal portfolio, with the addition of the Goanna and Fogelberg wells later this year, as well as the farm-out to Nexen, for a full cost carry, on the East Corrib licence west of Ireland.

“With our focused strategy, centered principally around realising value from both our considerable exploration success and M&A success, Faroe is now in position for a major growth phase as we take advantage of low industry costs and invest across our core assets in 2017 and beyond.  We believe that we now have the asset base to reach our stated goal of increasing production to over 40,000 boepd organically within the next five years, with robust economics even at low commodity prices.

“Looking ahead, while we actively pursue our organic programme, we will also continue to seek to capitalise on our strong strategic and financial position to pursue further consolidation opportunities on the Norwegian and UK continental shelves.”

DELEK increase stake in Faroe Petroleum

RNS just out on Delek moving from 13.8% to 15.01%.

As mentioned in earlier posts, Delek built a stake up in Ithaca before making a bid. They might not wait too long before making a bid on Faroe. Any bid would need to be double today’s price of 87p to be successful based on my estimates of fair value.

Watch this one very closely.

Faroe hit more oil zones with Brasse appraisal

Well done to Faroe team! The Brasse appraisal was drilled in super quick time based on my expectations. I had mid June pen’d in, so today’s news is a welcome surprise.

The company said, “The appraisal well successfully penetrated the oil-water contact on the flank of the Brasse field and encountered approximately 8.5 metres of gross oil-bearing Jurassic reservoir above the oil water contact. Preliminary results based on extensive coring, wireline logs and pressure data show that the well has encountered oil in a sand rich reservoir of very good quality.” END.

Full rns is below. The company will now perform a DST. This will hopefully provide the company and in due course, ‘the market’ with flow rates which will help define the commercial story for Brasse which is already…. very commercial! Assuming they gain decent flow rates, today’s data should move the resource figurs up a decent notch.

Faroe’s share price has fallen from 109p levels which was achieved this year with oil prices near $57pb. The fall to mid 80p levels looks a little overdone considering today’s news but more imprtantly the hedges at $54pb and the near 50:50 mix in the production of Gas/oil.

Faroe is not your typical ‘oil’ focused company and is very much an oil and gas business. The exploration tax credits that come via the Norwegian gov make wells like these very cheap indeed. Faroe is a bit of a freak E&P in today’s climate. They have cash in the bank, no debt and a massive folio of resource targets many of which are bordering on reserve status. And if that’s not compelling, throw in the circa 15kboepd production and the picture is complete.

On a side note; Delek (israel based business) bought Ithaca Energy out for 120p a share in 2017 after initially taking a 21%+ interest in the shares at a price of approx 54p. In Dec 2016, Delek bought Dana’s 13.8% stake in Faroe at a price of around 89p a share. Today, it is possible to buy in cheaper than Delek and that’s with Brasse news added in. That said, DST news still pending and data is only preliminary at the moment.

Faroe is part of thesharehub top ten for 2017.

………………………………………………………………………………………….

13th June 2017
Faroe Petroleum plc

Brasse appraisal well preliminary results and commitment to Drill Stem Test

Faroe Petroleum, the independent oil and gas company focusing principally on exploration, appraisal and production opportunities in Norway, the UK and Atlantic Margin, is pleased to announce the results of the Brasse appraisal well in the Norwegian North Sea (Faroe 50% and operator, Point Resources 50%).

The Faroe-operated Brasse appraisal well (31/7-2S) has been drilled to a total depth of 2,450 metres, targeting a seismic anomaly approximately two kilometres to the southeast of the main discovery well (31/7-1 announced July 2016). The appraisal well successfully penetrated the oil-water contact on the flank of the Brasse field and encountered approximately 8.5 metres of gross oil-bearing Jurassic reservoir above the oil water contact. Preliminary results based on extensive coring, wireline logs and pressure data show that the well has encountered oil in a sand rich reservoir of very good quality. Preliminary analysis confirms the same oil-water contact as in the 31/7-1 discovery well and side-track and indicates good pressure communication within the reservoir.

The joint venture has now committed to perform a Drill Stem Test (“DST”) for further confirmation of well productivity, investigation of reservoir distribution and to provide important additional information for development project planning. Advanced pressure gauges, which communicate with surface after the well has been plugged and abandoned, will be installed in the 31/7-2S appraisal well to provide long term pressure monitoring of the reservoir.

The joint venture will shortly decide on whether to drill a potential side-track to the current well (31/7-2S). The joint venture will also decide on whether to drill a potential second appraisal on the Brasse discovery later this year, dependent upon further analysis of the 31/7-2S well and DST results. Evaluation work on the recently awarded prospective Brasse Extension area (Faroe 50% and operator) also continues, ahead of a potential decision to drill in 2018. An update of the Brasse oil and gas resources estimates will be announced following completion of the ongoing Brasse appraisal drilling and testing operations.

The Brasse discovery is located within tie-back distance to existing infrastructure: 13 kilometres to the south of the Brage field platform, in which the Company holds a 14.3% working interest and 13 kilometres to the south east of the Oseberg Field Centre.

Graham Stewart, Chief Executive of Faroe Petroleum commented:

“We are very pleased to announce the results of this important appraisal well which firms up the southern extent of the Faroe-operated Brasse field. This well proves the presence of excellent hydrocarbon bearing reservoir to the south of the original discovery and data gathered and yet to be gathered from the forthcoming DST will provide key information as we continue to progress towards development sanction. Importantly, preliminary analysis of the well results confirms Brasse as a commercial discovery.

“Brasse is a significant project for Faroe and the region and it also highlights Faroe’s ability to continue to add significant value through low-cost drilling in our core areas.

“While continuing with an exciting ongoing exploration programme in Norway, Faroe is also actively investing in pre-development and development of several of our own discoveries, each of which has the potential to transform the value of the Company in the coming years.”

Goodbye Ithaca, Hello Providence Resources!

Ithaca Energy officially ended trading on AIM and has now been fully absorbed into the Delek empire. Well done to Delek for grabbing a very good quality company. Ithaca Energy are one of a very few stocks out there of late to be taken over. M&A has been missing in action for a few years now since Shell’s big move on BG. I would expect more M&A to kick in as we head into 2018. In the meantime, Ithaca’s sale leaves the sharehub top ten with only 9 entries which is not ideal. As mentioned in previous posts, rather than leave Ithaca in with a 20% gain (in at 99.5p and out at 119p) the decision is to reinvest the cash into a new stock thus giving some interest and growth opportunities for the second half of 2017.  It was not easy finding a worthy replacement for IAE, but thesarehub top ten is suffering from weaker PoO prices as a whole and needs some firepower to get it back into the race. If PoO advances back to mid $50’s in second half of 2017 or higher, then the top picks should perform well. One area that has done well over the last year or so is ‘high impact exploration’. It’s a very risky business but it tends to deliver high growth rates if successful regardless of PoO’s movements. Hurricane, Sound Energy, Pantheon are all examples of exploration stocks that have outperformed producers. So based on this, Providence Resources has been picked as IAE’s replacement. PVR has a portfolio of high impact prospects as well as proven discoveries in Barryroe/Spanish point. In a few weeks time, the company is about to drill what I believe to be a ‘monster sized’ resource opportunity. The Stena IceMax drill ship has been contracted to drill the Druid well and is currently undergoing final tests west of Morocco. When it sets sail, the expectation and excitement should begin to build towards what should be this summers big story. PVR is debt free but has no production and prefers to seek farm out deals to gain carry’s on costs. As per news yesterday, PVR has managed to bring on board partners such as Cairn and more recently the prospect of TOTAL. Farm outs are rare in this current market and yet PVR has delivered 3 (pending partner decisions etc). They have plenty more licences in the folio to progress so any dusters will not be the end of PVR by any means. However, disappointment will be met with the usual market sell off. So risks are large but the rewards are high. Not for the faint hearted – that’s for sure.

Providence Resources will be included in thesharehub folio as of today, and entered with a 20% discount to price replacing Ithaca’s previous 20% gain. This is to align the top picks on a 10k initial investment comparison.

More coverage to follow on PVR as and when news arrives.