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Today’s Oil & Gas Update – PetroTal; Helium One

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

 

 

Market Update: Tuesday 12 January 2021

PetroTal (AIM:PTAL): US$100m debt financing package sought, production at Bretana continues to ramp up

Helium One (AIM:HE1): Submission of key environmental studies ahead of high impact exploration campaign

 

Energy Prices         

Brent Oil US$56.2/bbl vs US$55.4/bbl yesterday

WTI Oil US$52.9/bbl vs US$52.0/bbl yesterday

Natural Gas US$2.82/mmbtu vs US$2.61/mmbtu yesterday

 

Oil Price News 

Brent continues to rally, now over US$55/bbl with WTI comfortably over US$50/bbl

Clearly, US shale drillers will be more optimistic on the outlook of 2021 after an unprecedented year in 2020

Over the past six months, excess US crude oil and product inventories have declined from their surplus at the start of the summer of 2020

Petroleum inventories have been slowly falling and are now at just single-digit-percent surpluses over five-year averages, compared to 20-30% excess over five-year seasonal averages last summer

Demand for gasoline and other petroleum products in the US has recovered from multi-year lows in April and May, but the last leg of the recovery to pre-pandemic levels proves to be the most difficult and seems to have stalled at the end of 2020.

Elsewhere, we are now in the third day of the annual five-day rebalancing of portfolios which could attract as much as US$9bn buying into crude oil contracts, putting upward pressure on oil prices

The rebalancing of indices to adjust the weighting of assets in portfolios is being done every year so that target allocations or risk levels are restored

However, the rebalancing this year could attract more than usual buyers into crude oil contracts because of the 20-percent decline of oil prices during 2020

The next five days could see a buying spree in oil futures that could be as high as US$9bn to adjust the weighting of the major commodity-linked indices

The market will likely see long positions into another 80 to 100MMbbls oil futures contracts, which could drive oil prices by US$2-US$3/bbl

It’s not a given that the market will see US$9bn of new buying into oil futures because some investors and traders may have already done it ahead of the rebalancing period

Even if the buying spree is not so high, the rebalancing will likely to continue to support oil prices

 

Gas Price News

News yesterday confirmed that Shell has restarted production of liquefied natural gas at its Prelude offshore project in Australia after almost a year’s suspension

The restart of the 3.6m ton comes at the best possible time – a cold spell in China has pushed LNG prices to the highest in years, erasing worry about an oversupplied market as Chinese buyers struggle to stock up on the fuel

Prelude was planned as a flagship floating LNG project for the supermajor

Like most other large-scale offshore LNG projects, however, it ran into delays and cost overruns

Shell and its peers have recently been forced to cancel other LNG projects as the competition is fierce

When Prelude stopped pumping gas last February, there was concern that the project, estimated to have cost anywhere between US$9.25bn and US$13.1bn to build, with a its breakeven price of US$20 per 1,000cu ft of natural gas, versus prices of US$2-3 per 1,000cu

Gas demand for the week 6-12 January is expected to be low, according to NatGasWeather, with demand seen rising over the weekend, but lighter again around the middle of next week as much of the US warms back above normal

The US benchmark prices, however, are much lower than the price of LNG in Asia, which has recently jumped to a six-year high

The high LNG prices are expected to incentivise increased US LNG exports in the coming weeks and months

Natural gas prices moved lower at the back end of last week, reversing a four-day rally

This came despite a larger than expected draw in natural gas inventories released yesterday by the Department of Energy

Natural gas in storage was 3,330Bcf as of 1 January according to EIA estimates

This represents a net decrease of 130Bcf from the previous week

Expectations were for a 110Bcf draw

Stocks were 138Bcf higher than last year at this time and 201Bcf above the five-year average of 3,129Bcf

At 3,330Bcf, total working gas is within the five-year historical range

The weather is expected to be cooler than normal in the south of the US and warmer than normal in the north

Company News 

PetroTal (AIM:PTAL): US$100m debt financing package sought, production at Bretana continues to ramp up

Share Price: 16.8p, Market Cap: £137m

PetroTal has confirmed that the Company has mandated Pareto Securities to arrange a series of fixed income investor meetings commencing this month to secure a new US$100m senior secured three-year bond issue.  

The proceeds of the potential Bond Issue will be used to settle in full the cumulative oil price difference liability owed to Petroperu (c.US$16.6m), to finance the ongoing development of PetroTal’s flagship Bretana oil field in Northern Peru; to provide funds to support the Company’s hedging program; and to finance potential synergistic acquisitions.

Last week the Company announced that, coincident with full commencement of Petroperu’s Northern Oil Pipeline (ONP) operations, PetroTal’s production was approximately 9,500bopd and was expected to increase as operations returned to a stabilised level. 

Since last thursday, oil production has increased to an average of 10,025bopd, with optimisation continuing.

Additionally, as PetroTal continues to ensure it has export optionality, the Company has now signed an agreement for a second pilot shipment through Brazil in February 2021, of up to 220,000bbls of oil. 

The increased volume of this shipment over the initial pilot export is expected to improve overall economics and lead towards the establishment of regular exports, complementing sales into the ONP and to the Iquitos refinery.

Proceeds from the contemplated Bond Issue will allow PetroTal to resume development drilling at Bretana in March 2021. 

In anticipation of expected higher oil production, the modular processing equipment for expansion of the second phase of Central Processing Facilities (CPF#2) is complete and is currently making its way to Bretana.

Our take: Following an extremely challenging 2020 for PetroTal, the Company has emerged with an exciting forward plan for 2021. The reopening of the Bretana oil field operations will transform the Company’s cash flow position notwithstanding a much stronger oil price globally. Shareholders will also be encouraged that the Company has chosen to finance the next phase of its development without equity dilution in our view, and with near term drilling activity slated for Bretana during March 2021, there are a number of significant valuation catalysts ahead this year.

 

Helium One (AIM:HE1): Submission of key environmental studies ahead of high impact exploration campaign

Share price: 8p, Market Cap: £40m

Helium One has confirmed the submission of key environmental studies as the Company advances towards its high impact exploration programme on the Rukwa Project, Southern Tanzania.

The Company has completed an Environmental and Social Impact Assessment (ESIA) and Compensation Survey, including consultation with communities in nine villages closest to the drill locations.

In addition, HE1 has submitted a key Environmental Impact Assessment for the Company’s proposed drilling programme at the Rukwa Project to the National Environment Management Council (NEMC) of the Tanzanian Government.

The study, which covers a project area of 310km2 in three prospecting licences (PL10712/2015, PL10713/2015 and PL10727/2015), is a key document in securing environmental permits for exploration drilling and an important milestone towards the Company’s maiden exploration drilling programme in Q2 2021.

Our take: It is unsurprising to see robust investor support for this unique play and subsequent after market strength in the share price. Helium One is the only company listed on AIM that provides investors exposure to helium, a scarce and irreplaceable commodity which is essential for many modern technologies. Focus will now centre on the all-important exploration programme commencing in Q1/Q2 2021, which if successful, will be transformational for the Company and indeed East Africa in our view.

 

Research – Oil & Gas

Sam Wahab – 0203 470 0473

[email protected]

 

Sales

Richard Parlons – 020 3470 0472

Abigail Wayne – 020 3470 0534

Rob Rees – 020 3470 0535 

Grant Barker – 020 3470 0471  

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

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+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

– ICE

Natural Gas

– NYMEX

 

 

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Buy – Expected return >15%

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