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Oil price, Serica, Trinity. And finally…

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WTI $53.24 +26c, Brent $56.08 +18c, Diff -$2.84 -8c, NG $2.54 -1c, UKNG 55.51p -4.46p

Oil price

Joe Biden’s inauguration went according to plan and one of the expected 15 Executive Orders was to revoke the permit to build the Keystone XL pipeline. In addition the President has introduced a moratorium on oil & gas leasing in Alaska.

The amount of stimulus is clearly going to be huge, already being compared with FDR who had the depression and the second world war to contend with which gives an idea of how the pandemic is now being treated as if 400,000 deaths were not enough.

Serica Energy

Today sees a corporate update from SQZ which has linked with a detailed Capital Markets Day this morning. BKR and Erskine production in 2020 averaged 23,800 boe/d significantly impacted by the 45 day shut down at Bruce in Q1, ex that it would have been c. 27,000 boe/d.

Operating costs were ‘around’ $14/boe with the true trend remaining downwards despite the headline figure being the Bruce effect. Gas prices averaged 25p/Therm (in an amazing year of fluctuations) and oil was $43, combined $20/boe and pre-hedging income of GBP12.3m. It is worth noting that the gas price roofed it later last year and this year averages 60p/Therm having already nearly touched 80p. When 80% of your production is gas like Serica this is meaningful.

Serica has cash of GBP90m with no borrowings and ‘limited decommissioning liabilities’. The way the phasing from previous owners works, cash flow from BKR has risen from 40% in 2018 through to 100% by 1/1/2022. Serica has a very solid ESG agenda which ticks all the boxes and was a key part of todays presentations. Part of that is that gas has ‘significant environmental advantages’ and is a key element of Energy Transition.

Elsewhere flaring has been key and since becoming operator of Bruce two years ago the company has eliminated some 62% of all flaring from the platform. Also preliminary figures indicate a 10% reduction in carbon emissions from the Bruce platform in 2020.

R3 problems have delayed operations and it is now expected to complete in March 2021. With regard to Columbus, a rig has been booked and it will drill the development well in March. Production is expected early in Q4 with gross production forecast of around 7/- boe/d of which 75% is gas.

Serica describe the outlook as follows, we have entered 2021 with considerably improved gas prices though with notable volatility so will continue to carry downside protection at an appropriate level, and we will continue to prioritise the health and safety of our workers whilst the COVID-19 threat remains and to work on our carbon reduction programmes and other ESG objectives.

We believe 2021 will bring new opportunities to grow through acquisition against a more confident industry backdrop, however, we will continue to screen all opportunities vigorously and prioritise delivering shareholder value over simple additions to scale.

On M&A there were a number of attempts by analysts to get something out of the CEO as to what might be in the sights and whether prices have risen as hydrocarbon prices rise. Indeed one suggested that SQZ may not be the hunter, more the hunted as with Harbor and Premier…On the serious point it is clear that whilst they are looking at potential acquisitions they will not be overpaying for anything but they would say that wouldn’t they…?

Mitch Flegg, Chief Executive of Serica Energy, commented:

“The early renewal of the OFAC License for a period of two years is excellent news. We are grateful to the UK Government and regulatory authorities which have supported us in this process.

The License renewal comes on the back of a busy period during which Serica has continued to build on its firm foundations both operationally and financially whilst also working hard to position itself as a key contributor to the UK’s net zero goals. Our activities within our ESG framework are having a material positive impact on our emissions across the portfolio and we remain highly focused on this hugely important aspect of our work. We will seek to drive additional value from the portfolio through our work programme this year and deliver an attractive combination of growth and returns for our investors.

These firm foundations and strong balance sheet allow us to continue to seek opportunities to grow our portfolio through investment and M&A activity. Serica will not overpay in order to quickly grow our portfolio. We are focused on identifying value rather than volume and will continue to look for the right opportunities where Serica can utilise its skills to add value to assets that no longer fit the objectives of the current owners.”

Whilst they were on, the company announced that it has received a renewed License and secondary sanctions assurance from the US Office of Foreign Assets Control relating to the North Sea Rhum field, in which the company has a 50% interest. ‘The License and assurance will allow certain U.S. and U.S.-owned or controlled entities and also non-U.S. entities to continue providing goods, services and support to Rhum beyond 28 February 2021; when the current License was due to expire. This will enable operations and production from the Rhum field to continue unaffected’.

Overall this is another excellent set of results from Serica who’s management continue to deliver the goods even when technical problems sometimes occur. It was no surprise that the ESG presentation was extensive and of high quality and Mike Killeen on operations showed how costs are being cut and efficiencies substantial. It is worth watching the ICE gas price and I now put that price at the top of every blog now because it is so important. SQZ is at the top of the Bucket list for all the above reasons, gas is the future, it knows what direction to go and the management is top quality all the way down. It ticks all the boxes for me…

Trinity Exploration & Production

Trinity has provided the market with a Q4 2020 operations update this morning. Production levels remained strong during Q4 2020 with volumes averaging 3,206 bopd, yielding a full year 2020 average of 3,226 bopd (3,007) in line with market guidance.

This represents a 7% increase over the prior year ‘despite the challenges presented by COVID-19 and no new drilling activity taking place during the year’. This is the third consecutive year of delivering production growth and meeting stipulated production targets. Furthermore, the Group’s unaudited FY 2020 operating break-even was $20.5/bbl, meeting the challenging target set in response to the COVID-19 pandemic and being the fifth consecutive year of maintaining a sub-$30/bbl operating break-even.

This robust operational performance ensured cash generation remained strong during the period, with the Group’s unaudited cash balances at the year-end 2020 being $20.2 million ($13.8m).

Bruce Dingwall, CBE, Executive Chairman of Trinity, commented:

“2020 has been a year of significant progress for Trinity in not only continuing to grow production and generate cash during unprecedented times but also in maturing a strategic framework to meaningfully scale the business. Given the number of growth initiatives now underway, 2021 will be a year of investment as we seek to advance current developments, identify new opportunities via the strategic partnerships we have recently entered into and pursue further low cost appraisal and exploration targets.

“During Q4 the Company continued to build on the momentum that we have achieved, with growth in production despite not drilling any new wells during 2020. We have created a sustainable model that proved itself despite the wider COVID-19 related issues. We continue to work on ways of growing value from existing operations at the same time as maturing new projects to enhance our portfolio and create a differentiated company of scale for our shareholders. We are excited by the multitude of attractive growth opportunities available in Trinidad for companies of our scale, which have been further enhanced by the recent welcome changes to the SPT threshold.

“I must again thank all our staff for their unstinting dedication and to the supply chain and their employees for supporting our operations throughout this period. We are well positioned and see exciting opportunities in front of us.”

And finally…

Last night in the Prem the Cottagers hosted the Red Devils who won 1-2 and went to the top of the table. Over in Manchester the Noisy Neighbours were hosting the Villa who held on until the 80th minute when City were awarded what seemed like an offside goal. Fortunately for them the operator was painting his nails at the time and the goal was given.

Tonight it’s Liverpool v Burnley ahead of FA Cup weekend. If Liverpool win they stay 4th and if the other games in hand unwind City would go top with Utd next then the Foxes, Liverpool and Spurs in 5th.

The second of two tests against Sri Lanka for the Moose Cup starts tomorrow at 0430 hours…. Dormy one is ok but you rarely get a draw here so England really have to win this one. The only change is Anderson for Broad which is quite surprising…

Perseus Mining increases half-year gold production by 12% to 137,386 ounces as Yaoure kicks off

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