Echo Energy (LON:ECHO): VAT refunds start to roll in, Argentina
IGAS Energy (LON:IGAS) Planning approval received for the deep geothermal project in the Etruria Valley
PetroTal (LON:PTAL) Strong Q1 2021 results, development operations to ramp up in H2 2021
Pharos Energy (LON:PHAR) Comprehensive operations update ahead of next weeks’ AGM
Sound Energy* (LON:SOU) Surprising tax assessment, Morocco
Brent Oil US$70.6/bbl vs US$69.2/bbl on Friday
WTI Oil US$68.0/bbl vs US$66.9/bbl on Friday
Natural Gas US$3.09/mmbtu vs US$2.98/mmbtu on Friday
Oil Price News
SP Angel’s Oil Market outlook following March 2021 OPEC+ meeting: https://youtu.be/DFcon98RdqE
Please see SP Angel’s Oil Market outlook for 2021: https://youtu.be/T222JHGzokI
Oil prices continue to rise, breaching the US$70/bbl Brent level following reports of strong US economic data that offset investors’ concerns about the potential for a rise in Iranian supplies
The number of Americans filing new claims for unemployment benefits dropped more than expected last week, according to data from the US Labour Department
The US economy, which in the first quarter notched its second-fastest growth pace since the third quarter of 2003, is gathering momentum, with other data yesterday showing business spending on equipment accelerated in April
The prospect of Iranian supplies re-entering the market has pressured prices
Iran and global powers have been negotiating since April about Washington lifting sanctions on Iran, including its energy sector, in return for Iranian compliance with restrictions on its nuclear work
Oil also advanced ahead of today’s OPEC+ policy meeting as traders expect rising demand to absorb a planned production increase from the group as well as any additional crude from Iran
Futures in New York climbed past US$67/bbl yesterday, putting crude on track for a second straight monthly gain
OPEC and its allies are expected to stick with a decision to boost output in July when the group gathers Tuesday, according to a Bloomberg survey last week
While rebounding demand is driving prices higher, the possibility of more barrels from Iran should a nuclear deal be revived is clouding the outlook
Any increase in supply from Iran would be gradual, potentially adding 500,000bopd by the end of this year and a further 500,000bopd by August 2022
Gas Price News
Natural gas prices have now reached a 7-year high and are expected to remain at current levels for the summer as ‘driving season’ in the US continues
Warmer than normal weather is expected to cover most of the US and Europe for the next 6-10 and 8-14 days according to the National Oceanic Atmospheric Administration
Currently, there are no tropical cyclones expected to form in the Atlantic for the next 48-hours, according to NOAA
Natural gas production was also flat week on week
Echo Energy (LON:ECHO) VAT refunds start to roll in, Argentina
Share Price: 1p, Market Cap: £12.4m
Echo has provided an update on its VAT reclaim process, and the successful monetisation of a further proportion of the Argentine VAT owed to the Company.
Disbursements totalling Ars$48.4m (c.US$0.5m), consisting of Ars$33.1m plus interest of Ars$15.3m of PP&E VAT owed to the Company’s subsidiary which holds a 25% interest in the Santa Cruz Sur assets (of Echo’s total 70% interest), have now been received.
Following these most recent disbursements, historical reclaims regarding VAT owed to the Echo group related to operations at Santa Cruz Sur totalling c.US$0.7m remain in progress.
The Company has also announced that the 2020 PP&E VAT claim of Ars$54.8m (c.US$0.6m) has been accepted by the Argentine VAT office.
The Company’s subsidiary, which holds Echo’s remaining 45% interest in Santa Cruz Sur, has also had its 2020 PP&E VAT claim of Ars$8.1m approved.
Further processing of these claims will now take place ahead of future expected reimbursement.
The Argentine VAT office has also separately now approved the Free VAT application of Ars$9.5m and the Company’s subsidiary has completed a sale of this VAT credit in exchange for cash.
Management has confirmed that the unlocking of the Argentine VAT refund process is, and is expected to continue, to provide material cash funds in the coming months and provides further evidence of the normalisation of in country activities following delays in 2020 caused by Covid restrictions.
Our take: This cash payment demonstrates the continuing processing of VAT refunds owed to the Company by the Argentine authority, AFIP, as it resumes normal activity following months of Covid related restrictive measures in the country. Echo continues to benefit from increasingly strong local energy demand and pricing in Argentina, which has led the Company to obtain a premium seasonal pricing to the current prevailing spot market prices, and more than double the price of the previous winter period. Against this improving domestic energy price backdrop, Echo has also executed a significant domestic oil cargo sale which marks an important milestone linked to the improved economic outlook.
IGAS Energy (LON:IGAS) Planning approval received for the deep geothermal project in the Etruria Valley
Share price: 19.6p, Market Cap: £24.6m
IGas has confirmed the Company has received planning approval from Stoke-on-Trent City Council for the deep geothermal project in the Etruria Valley that will supply zero carbon heat to the City for decades to come.
Management has confirmed that the Company continues to have positive discussions with the UK Government regarding future financial support for this and other geothermal projects.
A new industry report, on the economic and environmental importance of UK deep geothermal resource, by the ARUP Group and the Association for Renewable Energy and Clean Technology (REA) launched recently, estimates that, with immediate government support, the UK could deliver 360 geothermal projects by 2050.
This would include an estimated 12 projects being operational by 2025 with 1,300 jobs created and c.£100m of investment flowing into the UK economy.
The Committee on Climate Change stated that only decarbonisation of heat in the UK could deliver the major reduction in emissions needed to meet the 2050 net zero target.
By delivering on average 12 heat projects per year over the next three decades, the UK could expect to generate up to 15,000 GW hours (GWh) of heat from geothermal, annually by 2050.
Our take: Through a growing pipeline of geothermal development opportunities, IGas is well positioned to deliver a solution to the long-term decarbonisation for heat in the UK. Elsewhere, operations continue to ramp up with the recent commissioning of its waterflood projects, which will bring steady production this year and beyond and completed a significant transaction with the acquisition of the geothermal energy developer, GT Energy. The D&M CPR results are also very encouraging in our view ascribing proven reserves of over 11MMboe and a continuing high reserves replacement of over 250%, demonstrating the significant value and upside that remains in the Company’s conventional portfolio.
PetroTal (LON:PTAL)Strong Q1 2021 results, development operations to ramp up in H2 2021
Share Price: 15.3p, Market Cap: £124m
As expected, PTAL has issued very positive Q1 2021 financials today.
With recent elevated Brent prices, the Company estimates it is operating materially above the original US$90m EBITDA forecast for 2021 which assumed US$50/bbl Brent.
Excluding hedging and true-up revenue, and from June until December 2021, it is estimated that for every US$1/bbl above US$50/bbl Brent, EBITDA increases US$2.0 to US$2.5m, making PTAL potentially free cash flow positive for 2021.
Net income for the quarter was US$30.9m vs a net loss of US$31.4m in Q1 2020 driven largely by higher commodity prices.
Normalising out derivative changes results in Q1 2021 and Q1 2020 having similar net income figures of US$8.5m and US$9.0m, respectively.
The Company exited Q1 2021 with US$75.8m of total (restricted and unrestricted) cash compared to US$9.6m at the end of 2020.
The Company generated c.US$20m (US$25.87/bbl) of NOI in the quarter, an increase of 12% over Q1 2020 despite producing 2,378bopd less in Q1 2021 vs Q1 2020.
Operating costs for Q1 2021 were US$5.5m (US$7.17/bbl) vs US$6.0m (US$6.42/bbl) in Q1 2020 driven by lower production rates and offset slightly by higher than estimated one-time fuel use for the new crude oil power generation plant commissioning, which was more expensive in Q1 2021 due to a higher Brent price.
The Company invested US$7.1m on capital expenditures in the quarter vs US$23.8m in Q1 2020.
The bulk of PTAL’s 2021 development capex will occur in Q2 2021 and H2 2021 ensuring flush production from new drills is online during favourable Brent pricing months with hedging in place for downside protection.
Operationally it has been a successful quarter for the Company with the drill-bit.
PTAL drilled well 7D reaching a vertical depth of 2,696m, encountering excellent oil producing sands.
The well was drilled and completed at a revised final cost of US$7.6m, or 17% below budget.
After the typical cleanup period and slowly ramping up production during the following week, the 7D averaged over 4,500bopd over a four-day period, accumulating over 115,000bbls of oil during its first month of production, and maintaining average production rates of 4,000bopd during the past four weeks.
Elsewhere, the Company installed a new electro-submersible pump (ESP) on the 4H well under budget and on time.
Soon after the workover, the well was producing at 400bopd higher than before the operation and is expected to recapture the incremental cost of the pump over the next few months at current Brent levels.
Production for Q1 2021 averaged 7,331bopd which was on budget.
Current production is 10,225bopd, notwithstanding that two oil wells remain shut in waiting on water disposal pump enhancements which has reduced production by an estimated 1,200bopd.
Materials for phase two of its central processing facility (CPF-2) continue to be installed and the project is on track for a Q3-Q4 2021 commissioning.
The Company has also reaffirmed its 2021 average production target of 11,500bopd.
Our take: A very strong set of results announced by PTAL today underlining the robustness of the Company liquidity position, boosted by strong commodity pricing. The reopening of the Bretana oil field operations has led to a step change in the Company’s cash flow position notwithstanding a much stronger oil price globally. Indeed, the FY21 EBITDA of US$90m guidance is likely to be the bearish case given the current spot and futures market for Brent crude, and we therefore see the Company’s current share price as an attractive entry point for investors given the significant development activity slated for the second half of this year.
Pharos Energy (LON:PHAR) Comprehensive operations update ahead of next weeks’ AGM
Share Price: 25.7p, Market Cap: £111.0m
Ahead of the Company’s AGM on 8 June 2021, Pharos has issued trading and operations update.
In Egypt, production from El Fayum averaged 4,010bopd from 1 January to 30 April 2021.
The Company’s Egyptian production guidance for 2021 remains unchanged at 4,000-4,400bopd, prior to any investment from a farm in partner.
Phase 1B of the waterflood programme is underway.
The Company confirms that good progress is being made on farm out negotiations and an announcement of the details will be made a soon as possible.
The Batran commitment exploration well, which is targeting 15MMbbls in place in a prospect near to the Tersa field, is currently operating close to planned TD.
The well has encountered oil shows whilst drilling in the target Abu Roash A, D and E reservoirs and is expected to reach TD shortly when confirmatory wireline logs will be run. A separate statement on the well result will be released in due course.
In Vietnam, production from the TGT and CNV fields net to the Group’s working interest averaged 5,350boepd from 1 January to 30 April 2021.
The Company’s Vietnam production guidance for 2021 remains unchanged at 5,200-6,200boepd.
In the period, production from TGT averaged 13,000boepd gross and 3,877boepd net to Pharos.
CNV production averaged 5,894boepd gross and 1,473boepd net to Pharos.
On Block 16-1 – TGT Field, preparations are ongoing to start the first of four development wells in Q3 2021.
On Block 9-2 – CNV Field, routine well intervention work, comprising acidising of plugged perforations in two existing producing wells, is ongoing to improve well performance.
A 3D seismic survey, over certain high graded leads in the north-western part of Block 125, is planned to be acquired this summer. Processed results will be expected in H2 2022.
Blocks 125 & 126 are in the unexplored Phu Khanh Basin, which is considered to have high potential as it is geologically analogous to many of the existing hydrocarbon producing basins of southeast Asia.
The Company entered the year with cash of US$24.6m and net debt of US$32.6m.
Cash balances as at 30 April 2020 were c.US$31m with net debt of c.US$25m.
In the first four months of 2021, 69% percent of the Company’s production was hedged at US$43.4/bbl and, for the remainder of 2021, 49% of the its forecast production is hedged at US$52.7/bbl.
Overall revenues for the four months to 30 April were c.US$40m after a US$9m loss from hedging.
The average realised oil price per barrel achieved for the same period from Vietnam was c.US$64/bbl, representing a premium of nearly US$2/bbl to Brent, and from Egypt was c.US$57/bbl, representing a discount of just over US$4/bbl to Brent.
Our take: The Company’s robust financial position, strong production base, and recovering commodity price environment has given Pharos a stable platform to bring forward its deferred investment programme. The drilling campaign at TGT, Vietnam, will restart this year, which we expect to add material reserves and production to this important play for Pharos including enhanced oil recovery over time. Egyptian production remains in line with guidance and a 40% upgrade in 2P reserves underlines the long-term potential of these fields in our view.
Sound Energy* (SOU ) Surprising tax assessment, Morocco
Share price: 1.4p, Market Cap: £21.2m
BUY: 6.5p TP
Sound has today confirmed the Company has received a written notification by the Moroccan General Tax Administration of a re-assessment in respect of Moroccan taxes following a tax audit undertaken on its subsidiary (SEMEL) by the Moroccan Tax Administration during 2020 and related to the fiscal period 2016 to 2018.
The Company also announces the receipt of an additional, but related, notification from the Moroccan Tax Administration.
In the Notification, the Moroccan Tax Administration suggested (as announced by the Company on 3 September 2020) that it had assessed additional corporate and value-added tax SEMEL liabilities in sharing its intention to examine the relinquishment, in 2017, by Sound Energy Morocco SARL AU (SARL AU) of its operatorship and its 37.5% stake in the Tendrara-Lakhbir Petroleum Agreement.
SARL AU is a wholly owned and now dormant Moroccan subsidiary of SEMEL (originally set up to operate the exploration activities in Tendrara-Lakhbir exploration permits, on behalf of the joint venture consortium with the State of Morocco represented by ONHYM established by Tendrara-Lakhbir Petroleum Agreement).
In addition, it has examined the entry in 2017 of SEMEL into the Tendrara-Lakhbir Petroleum Agreement, with the prior approval from ONHYM and the governmental bodies.
The Moroccan Tax Administration is asserting that a sale and purchase transaction may have taken place between the Company’s two wholly owned subsidiaries SARL AU and SEMEL (asserted to be a buyer by the Moroccan Tax Authority).
In asserting this position, the Moroccan Tax Administration is suggesting that such a transaction would trigger the payment of Corporate Tax, VAT and Withholding Tax.
The Company entirely refutes the Moroccan Tax Authority’s position and is firmly of the view that no sale and no purchase took place.
The Company entirely refutes the Moroccan Tax Authority’s position and having taken detailed specialist taxation and legal advice, is also liaising with Moroccan governmental authorities to seek a satisfactory conclusion of the matter, whilst the formal process related to Notification continues, with the next stage being the first local tax committee (the LTC) hearing on 3 June 2021 in which SEMEL and the Moroccan Tax Administration will present their respective positions to the LTC.
The LTC process can take up to 12 months.
Thereafter, the matter may proceed to national committee stage, if not concluded, thereafter for arbitration.
Regarding the Additional Notification, the Company will formally write to the Moroccan Tax Administration to formally refute the assessment and its basis.
In addition, the Moroccan Tax Administration has indicated that it assessed the signing in late 2018 by Schlumberger and SEMEL of a new petroleum agreement with ONHYM in Eastern Morocco (the Greater Tendrara Petroleum Agreement), as a sale and a purchase transaction between SEMEL and Schlumberger in relation to a purported conversion of synthetic interest from the Tendrara Lakhbir exploration permits to the then newly issued Greater Tendrara exploration permits.
According to the Moroccan Tax Authority, its assessment estimates that the payment of Corporate Tax, VAT and Withholding Tax are triggered, claiming that for SARL AU alone, additional 2017 liabilities of approximately US$22.5m are due.
These amounts are claimed to be in addition to the c.US$14m claimed under the September 2020 Notification in relation to SEMEL.
The Company confirms that it has taken detailed specialist taxation and legal advice regarding the matter and remains firmly of the view that the assessment and the basis of the assessment will be satisfactorily resolved.
Our take: The Moroccan tax administration’s VAT assessments come as a surprise given the attractive fiscal terms firmly associated with the country’s energy sector in our view. This is especially given the lack of any field monetisation or capital gain in addition to the state energy company ONHYM supporting Sound’s position. The attempt to levy double taxation, first claiming taxes from Sound Energy Morocco East before later seeking to claim under the same structure from Sound Energy Morocco SARL AU, for the same exploration work also comes as a surprise. With this in mind, it seems the Moroccan tax authorities have misread the situation for Sound and brought negative implications to the investment climate in Morocco. One would expect they will try and find a face-saving way out of this situation, but some of the damage may linger for some time in our view.
*SP Angel acts as Corporate Broker to Sound Energy