Today’s Oil & Gas Update – United Oil & Gas; SDX Energy and more…

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Oil & Gas Daily Flow


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






Market Update: Tuesday 5 January 2021


United Oil & Gas (AIM:UOG): UOG spuds the high impact ASH-3 well, Egypt


SDX Energy (AIM:SDX): 2020 production beats guidance, nine wells to be drilled in 2021


Petro Matad (AIM:MATD): Exploitation Licence application advancing, Mongolia




Energy Prices


Brent Oil US$51.4/bbl vs US$53.2/bbl yesterday


WTI Oil US$48.7/bbl vs US$49.7/bbl yesterday


Natural Gas US$2.70/mmbtu vs US$2.61/mmbtu yesterday




Oil Price News


Despite optimism and rising prices, fears on demand are lingering following losses in early 2020 as oil demand dipped due to shutdowns and flight groundings related to COVID-19


OPEC’s secretary general Mohammad Barkindo had said on Sunday that while crude demand is tipped to rise by 5.9MMbopd, to almost 100MMbopd, there is still high potential for risk in the first half of the year


He noted 2020’s deep investment cuts, job losses and destruction of crude oil demand, in a year where prices had ended a fifth below 2019’s average


Markets appear to be pricing that oil production targets will be held unchanged this month


However, if discord emerges, and the meeting drags on over more than one day, oil prices could correct lower from here until the situation becomes more evident


There is plenty of event risk in the week ahead even without OPEC+


Pullbacks from these levels could be rapid and quite deep, although it would take a huge move, probably caused by OPEC+, to upset the underlying bullish uptrend


Since April, OPEC+ has progressively reduced the production cuts and is expected to release an extra 500,000bopd this month


Nvertheless, broader macro momentum trends including a weaker dollar and investors positioning for a recovery in the oil sector this year are likely to be the key support to oil prices


The International Energy Agency expects oil demand to remain weaker into 2021, with the Agency revising down its estimates by 170,000bopd in 2021 during December 2020


Global energy consumption is expected to be 96.9MMbbls in 2021 (2020: 91.2MMbopd)


OPEC’s postponed it Joint Technical Committee and Ministerial Monitoring Committee meetings will take place today


The group has also revealed its expectations of a slower demand recovery than originally expected, lowering its forecasts by 350,000bopd for 2021




Gas Price News


Natgas February Nymex contracts jumped 3.5% Monday morning due to colder weather trends and increased heating demand forecasted for the next ten days


Weather models have shifted “materially colder” for parts of the US and Europe through mid-January


Thursday’s EIA weekly storage report surprised to the downside for the second week in a row


The US government report showed a much smaller-than-expected 114Bcf withdrawal from stocks for the week-ending 25 December


A Bloomberg survey of nine analysts showed an unusually wide range of withdrawal estimates from as low as 88Bcf to as large as 150Bcf, with a median of 126Bcf


A Wall Street Journal poll showed estimates within that same range, with an average of 129Bcf


A Reuters poll of 16 market participants showed withdrawals as low as 85Bcf, but the median was near those of other surveys, at 125Bcf. NGI pegged the pull at 124Bcf.


Last year, the EIA recorded an 87Bcf draw for the similar week, while the five-year average is a 102Bcf draw







Company News


United Oil & Gas (AIM:UOG): UOG spuds the high impact ASH-3 well, Egypt


Share Price: 3p, Market Cap: GBP19m


UOG has confirmed the spudding of the ASH-3 well in the Abu Sennan Licence, Egypt.


The Company holds a 22% working interest in the Licence, which is operated by Kuwait Energy.


ASH-3 is a vertical well targeting the producing Alam El Bueib reservoirs at a depth of 3,600 to 3,950m in an area of the ASH field, up-dip of the ASH-2 production well.


The ASH-2 well came onstream at the beginning of 2020 and has produced in excess of 1MMbbls to date (gross) with current rates of c.4,500bopd on a 48/64″ choke (gross).


The ASH-3 well will be drilled by the EDC-50 rig, which has a history of drilling in the Western Desert.


The Company anticipates that the ASH-3 well will take up to 60 days to drill and test.


The ASH-3 development well is the first to be drilled in the 2021 campaign and is to be funded from operational cashflow.


The second well in the drilling schedule will be the ASD-1X exploration well, targeting the Abu Roash reservoirs in the 4-way dip-closed Prospect D structure in the north of the Licence, close to the producing Al Jahraa field and if successful is capable of being brought into production quickly.


The historic drilling success rate on the Licence is c.80%.


Our take: Shareholders will be encouraged that the Company is once again drilling in Egypt, after the deferral of the majority of the 2020 drilling programme due to the low oil price environment. This year will be a strong year of operational activity in the country with the drilling of further wells as part of UOG’s 2021 campaign, including the ASD-1X exploration well, that will follow after completion of ASH-3.




SDX Energy (AIM:SDX): 2020 production beats guidance, nine wells to be drilled in 2021


Share Price: 19p, Market Cap: GBP39m


SDX has provided an update on the South Disouq SD-12X well achieving first gas, its unaudited operating results, cash and liquidity position for the twelve months ended 31 December 2020 and its planned drilling campaigns for 2021.


Following the success of the SD-12X exploration well (100% WI) in Q2 20, being a commercial discovery in the Kafr el Sheikh formation, the Company achieved first gas from the well on 21 December 2020, approximately six weeks ahead of schedule.


Management estimates that SD-12X has approximately 24Bcf of recoverable resources and can produce at a rate of up to 10-12MMscf/d.


At present, the well is producing at approximately 5-7MMscf/d and will continue to be monitored to determine its optimum production rate.


SDX has a 100% working interest in the production from this well.


In terms of the overall business, average entitlement production for the year of c.6,400boepd, an increase of 58% from FY 2019 and exceeding 2020 guidance of 6,000-6,250boepd.


In addition, Moroccan customers are back to their March 2020 pre-Covid close down consumption levels.


Production from all core assets were either exceeded or was at the top end of guidance.


Cash and liquidity remain strong with cash of c.US$9.6m (unaudited) as at 31 December 2020 and the EBRD credit facility remaining undrawn with US$2.5m of availability.


The Company has agreed a new five-year, US$10m facility, with EBRD which is expected to be available for drawing before the end of Q1 21 upon satisfaction of standard conditions precedent.


Therefore, together with cash generated from operations, the Company is fully funded for all of its planned activities in 2021.


In terms of operational outlook, following the success of SD-12X at South Disouq and upon further review of the 3D seismic, management has high-graded c.233bcf of mean unrisked recoverable volumes, which are close to the Company’s existing infrastructure, located in horizons that are either productive in South Disouq or in adjacent blocks, and which are now viewed as ready-to-drill prospects.


During Q2 and Q3 21 the Hanut prospect, which Company estimates has an unrisked mean recoverable volumes of 139Bcf with a 33% chance of success, will be drilled, together with Ibn Yunus-2, a development well, into the existing 46Bcf producing discovery at Ibn Yunus which will further accelerate production and ensure that the CPF throughput continues to be optimised.


The net drilling costs to the Company of these two wells, reflecting the dry hole cost of Hanut only, is estimated at US$3.6m and the net tie in cost of Ibn Yunus-2 is US$0.3m.


The Company’s partner in the concession has now confirmed that it will participate in both of these wells.


At West Gharib, the Company plans to drill a minimum of three development wells in the concession during 2021 with the campaign expected to commence in Q2/Q3’21.


The three wells are targeting approximately gross 1MMboe of recoverable resources and each of these wells is expected to produce gross 300-400bbl/d.


The net cost of the campaign to the Company, including tie in, is expected to be c.US$1.5m.


In Morocco, during the year, the Company will drill four ‘close to infrastructure’ appraisal/development wells, two of which will be deepened to target the newly discovered Top Nappe play.


The LMS-2 discovery will also be tested in 2021.


The campaign which will commence in early Q2 21 and complete late Q3/early Q4’21 will target approximately gross 2Bcf of recoverable resources, excluding the volumes in any potential Top Nappe prospects, which are still being assessed.


Including tie in costs, the campaign is expected to cost the Company c.US$12m.


Our take: A comprehensive update from SDX outlines a strong end to 2020 and a promising start to 2021 with the SD-12X (Sobhi) well, where the Company has a 100% entitlement interest, coming on stream six weeks ahead of schedule. Production from two of SDX’s three core assets beat 2020 guidance (being South Disouq and Morocco, where production is now back to pre-Covid close down levels) while its third core asset (West Gharib) came in at the top end of guidance. The Company now enters 2021 with a fully funded work programme of nine wells to be drilled in the year which given historical success, should deliver further resources, and importantly additional high margin cash flows.




Petro Matad (AIM:MATD): Exploitation Licence application advancing, Mongolia


Share price: 4p, Market Cap: GBP27m


Petro Matad has provided an update on its application to secure an Exploitation Licence for the Heron oil discovery in Block XX, eastern Mongolia.


The Block XX Exploitation Licence application has progressed with the meeting of the Mineral Resource Professional Council (MRPC) taking place.


The meeting was held virtually due to a Covid-19 lockdown currently in place in Mongolia.


MRPC reviewed Petro Matad’s Heron Reserves Report and approved the submission without alteration.


Following the MRPC meeting, Petro Matad wrote to the Ministry of Mining and Heavy Industry requesting the appointment of auditors who must now review the Plan of Development before this document is submitted to the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) and to MRPC for review and final approval.


Preparation of the Plan of Development has already been completed by the Company and the documentation is ready for the audit and review process.


Petro Matad has also prepared its formal application to MRPAM for the Exploitation Area.


Under the law, the Exploitation Area is to be determined by mutual agreement between MRPAM and the Company.


Our take: It appears that the Company is coming to the end of the approval process, now requiring the Plan of Development to be reviewed and approved and the Exploitation Area to be agreed to complete the documentation required to make the formal application to the Minister to grant the Exploitation Licence.




Research – Oil & Gas


Sam Wahab – 0203 470 0473 / 0784 385 5037


[email protected]




Sales


Richard Parlons – 020 3470 0472


Abigail Wayne – 020 3470 0534


Rob Rees – 020 3470 0535


Grant Barker – 020 3470 0471




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Sources of commodity prices




Oil Brent, WTI


– ICE


Natural Gas


– NYMEX






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Buy – Expected return >15%


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Sell – Expected return < 15%



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